Credit Unions Creation Of A Charitable Foundation - Q2 2000

A credit union proposes to establish a charitable foundation for the purpose of managing and governing its charitable activities. The charitable foundation would be established under the provisions of the Internal Revenue Code and may take a corporate form. The purpose of the foundation is to reduce the credit union's exposure to liability from unforeseen events and to create possible income tax deductions for those persons making donations to the foundation. It is anticipated that the foundation would receive contributions and donate funds in accordance with its charter.

Certain sections of the credit union statutes in the Commonwealth recognize a credit union's ability to make various types of contributions. Mass. Gen. Law chapter 171, section 67(t) provides that a credit union may make reasonable contributions to private nonprofit organizations organized for community improvement and educational purposes or to a disaster relief fund established in the Commonwealth. Mass. Gen. Laws chapter 171 section 67A provides in paragraph (1) that a "credit union may become a member of any association organized to protect and promote the interest of credit unions and may pay for such membership its proportionate share of expenses as is reasonable and necessary." Paragraph (2) of said section 67(A) states that a "credit union may become a member of or contribute to any other association or organization in the Commonwealth if, in the opinion of its board of directors, such membership or contribution is reasonable and of substantial benefit to such credit union and its members."

It is the Divisions understanding that the credit union is currently engaged in numerous charitable activities including making contributions and organizing charitable events, which receive contributions from third parties. The credit union is seeking a way in which to organize these activities through the establishment of the foundation pursuant to the provisions of the Internal Revenue Code.

The Division has concerns should the credit union seek to establish a charitable organization in the form of a corporation, such as a corporate subsidiary, given the absence of authority within said chapter 171. However, it would be permissible for the credit union to establish the foundation provided the purpose of the entity reflect permissible purposes set forth within chapter 171, section 67(t) and/ or section 67A.

No filing would be required with the Division to establish the foundation. The credit union would be responsible for ensuring the type of entity selected qualifies under the applicable provisions of the Internal Revenue Code. In addition, any individuals who act as directors and officers of the credit union and the foundation should be reminded of their separate fiduciary duties to the credit union and to the foundation and of their obligation to operate the foundation exclusively for charitable purposes.