Legal Definitions - federal instrumentality

A federal instrumentality refers to an organization, entity, or mechanism that is created by or operates on behalf of the United States federal government to carry out its functions. A key characteristic of a federal instrumentality is its immunity from certain state and local laws, regulations, and taxation, based on the principle that states cannot unduly interfere with the operations of the federal government.

Here are some examples to illustrate this concept:

• The Federal Deposit Insurance Corporation (FDIC)
  The FDIC is a U.S. government corporation established by federal law to maintain stability and public confidence in the nation's financial system by insuring deposits. Because the FDIC is a federal instrumentality, states cannot impose their own corporate income taxes or specific regulatory burdens on the FDIC's core operations in a way that would hinder its federal mission.
• The U.S. Postal Service (USPS)
  The USPS is an independent agency of the executive branch of the federal government, established by federal law to provide mail delivery services across the nation. As a federal instrumentality, its property and operations are generally exempt from state and local taxes, and states cannot pass laws that would interfere with its ability to deliver mail nationwide, such as requiring specific state permits for its delivery vehicles that are already federally regulated.
• Federal Credit Unions
  Federal credit unions are financial cooperatives chartered and regulated by the National Credit Union Administration (NCUA), a federal agency. They are created under federal law to serve specific communities or groups. Because they are federal instrumentalities, they are generally exempt from state and local income taxes and certain other state regulations that apply to state-chartered financial institutions, ensuring they can operate uniformly under federal oversight.