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Question: Do non-profit corporations have to be a 501(c)(3) business in order to have a NOW account, or can any non-profit corporation or non-profit organization have a NOW account? If they have to be a 501(c)(3) business, then we're assuming we need that documentation from them before we allow them to earn interest in a NOW account. What's the best way that we can determine if they are eligible to receive interest? We're concerned because we're paying interest to bowling leagues, etc.
Answer: Under the NOW account rules, a NOW account may be held by: "A not-for-profit organization operated primarily for religious, philanthropic, charitable, educational, political, or other similar purpose."
Typically such an organization will have sought 501(c) status from the IRS and can provide a certificate, although the rules don't expressly require one, and I suppose it would be possible for a non-profit organization to meet the purpose test without one. There are various "flavors" of 501(c) - different subnumbers for political, education, fraternal organizations, etc. - so they will not all be 501(c)(3). Nor do they have to have a certain designation for you to honor the fact that they are "non-profit" if they have the certificate.
As to deciding if you can pay interest - if they're eligible for a NOW account, they're eligible for interest. We can't sort them by eligibility other than that.
Thanks to Mary Beth Guard, Esq. - BankersOnline Exec. Editor
Copyright © 2005 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 15, No. 2, 4/05
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