(a) Summary. In response to many requests for rulings, the Board has
determined to clarify the types of entities that may maintain NOW accounts
at member banks.
(b) Individuals. (1) Any individual may maintain a NOW account regardless
of the purposes that the funds will serve. Thus, deposits of an individual
used in his or her business including a sole proprietor or an individual
doing business under a trade name is eligible to maintain a NOW account
in the individual's name or in the ``DBA'' name. However, other entities
organized or operated to make a profit such as corporations, partnerships,
associations, business trusts, or other organizations may not maintain
NOW accounts.
(2) Pension funds, escrow accounts, security deposits, and other funds
held under various agency agreements may also be classified as NOW accounts
if the entire beneficial interest is held by individuals or other entities
eligible to maintain NOW accounts directly. The Board believes that these
accounts are similar in nature to trust accounts and should be accorded
identical treatment. Therefore, such funds may be regarded as eligible
for classification as NOW accounts.
(c) Nonprofit organizations. (1) A nonprofit organization that is operated
primarily for religious, philanthropic, charitable, educational, political
or other similar purposes may maintain a NOW account. The Board regards
the following kinds of organizations as eligible for NOW accounts under
this standard if they are not operated for profit:
(i) Organizations described in section 501(c)(3) through (13), and
(19) of the Internal Revenue Code (26 U.S.C. (I.R.C. 1954) section 501(c)(3)
through (13) and (19));
(ii) Political organizations described in section 527 of the Internal
Revenue Code (26 U.S.C. (I.R.C. 1954) section 527); and
(iii) Homeowners and condominium owners associations described in section
528 of the Internal Revenue Code (26 U.S.C. (I.R.C. 1954) section 528),
including housing cooperative associations that perform similar functions.
(2) All organizations that are operated for profit are not eligible
to maintain NOW accounts at depository institutions.
(3) The following types of organizations described in the cited provisions
of the Internal Revenue Code are among those not eligible to maintain NOW
accounts:
(i) Credit unions and other mutual depository institutions described
in section 501(c)(14) of the Internal Revenue Code (26 U.S.C. (I.R.C. 1954)
section 501(c)(14));
(ii) Mutual insurance companies described in section 501(c)(15) of
the Internal Revenue Code (26 U.S.C. (I.R.C. 1954) section 501(c)(15));
(iii) Crop financing organizations described in section 501(c)(16)
of the Internal Revenue Code (26 U.S.C. (I.R.C. 1954) section 501(c)(16));
(iv) Organizations created to function as part of a qualified group
legal services plan described in section 501(c)(20) of the Internal Revenue
Code (26 U.S.C. (I.R.C. 1954) section 501(c)(20)); or
(v) Farmers' cooperatives described in section 521 of the Internal
Revenue Code (26 U.S.C. (I.R.C. 1954) section 521).
(d) Governmental units. Governmental units are generally eligible to
maintain NOW accounts at member banks. NOW accounts may consist of funds
in which the entire beneficial interest is held by the United States, any
State of the United States, county, municipality, or political subdivision
thereof, the District of Columbia, the Commonwealth of Puerto Rico, American
Samoa, Guam, any territory or possession of the United States, or any political
subdivision thereof.
(e) Funds held by a fiduciary. Under current provisions, funds held
in a fiduciary capacity (either by an individual fiduciary or by a corporate
fiduciary such as a bank trust department or a trustee in bankruptcy),
including those awaiting distribution or investment, may be held in the
form of NOW accounts if all of the beneficiaries are otherwise eligible
to maintain NOW accounts. The Board believes that such a classification
should continue since fiduciaries are required to invest even temporarily
idle balances to the greatest extent feasible in order to responsibly carry
out their fiduciary duties. The availability of NOW accounts provides a
convenient vehicle for providing a short-term return on temporarily idle
trust funds of beneficiaries eligible to maintain accounts in their own
names.
(f) Grandfather provision. In order to avoid unduly disrupting account
relationships, a NOW account established at a member bank on or before
August 31, 1981, that represents funds of a nonqualifying entity that previously
qualified to maintain a NOW account may continue to be maintained in a
NOW account.
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