A customer,actually a board member, has started a LLC (limited liability company, not corp) with her SSN as the company's TIN. Her accountant, also a board member, wants her to have a NOW acct since her SSN is the TIN. I disagree since the LLC does provide personal liablity protection, it's a seperate entity and not eligible for a NOW. Agree/Disagree?? BTW, I'm playing in a golf tournament with the accountant today at 1!!!!!!! As always, thanks for the help.

Agree with you. NOT eligible for a NOW. FWIW, we cited a Director's son for just this type of account at an exam at one point; the bank failed to close it and it progressed to civil money penalties at a subsequent exam.

I absolutely agree, it does not matter what ID number is being used, if it is an LLC it cannot be a NOW account. The rules are very specific in these instances that only sole properietors and government entities are eligible for NOW accounts. There is no ifs ands or buts about it.

You are correct. It doesn't matter that it is a SSN or an EIN, what matters is: is this a business for profit? If so, they are not eligible for a NOW account. Here is how we address this in our Advanced Deposit Operations manual (with emphasis added).
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Negotiable Orders of Withdrawal (NOW) Accounts: [§204.130 – page 7586.18]

NOW accounts, which allow unlimited transactions are classified as “transaction” accounts for the purpose of reserve requirements. Like regular savings accounts and MMDAs, NOW accounts must reserve the right to require seven days’ notice of intent to withdraw funds. This requirement must be disclosed in the account agreement and is usually found on the bank’s signature cards. Unlike regular savings accounts and MMDAs, NOW accounts are only available to individuals, sole proprietorships, non-profit organizations and governmental units. All other businesses for profit are prohibited from this account type.
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Thanks everybody!!!

We have recieved a written response from the OCC relating to this same topic that indicates they are eligible to earn interest.

"If the funds in the LLC's account represent that of an individual used in their sole proprietor business, 12 CFR 204.130(b) would permit the establishment of a NOW account."

So... we have a few LLC accounts that are interest bearing... per the OCC.

I just want to address the use of a SSN by a LLC.

The IRS permits a single member LLC to use the single member's SSN provided the single member has no employees.

If your director either has (A) employees OR (B) additional members in his/her LLC, then the LLC must use an EIN.

Here is the question we asked them...
"What is the OCC's interpretation concerning single-owner/member Limited Liability Companies (LLC's). Are they eligible for NOW accounts? We have been told by several local CPA firms that single member LLC's are the equivalent of sole proprietors. They use their personal social security number for tax reporting purposes and file personal tax returns along with a schedule C for business entity, just like a sole proprietor. So, do we treat them like a sole proprietor and allow them to have an interest bearing checking account, or do we treat them like multiple owner LLC's and say they are ineligible to earn interest on their checking account?"

Their reply is as stated earlier... "If the funds in the LLC's account represent that of an individual used in their sole proprietor business, 12 CFR 204.130(b) would permit the establishment of a NOW account."

First, I disagree with the OCC.
Second, Reg D is a Federal Reserve regulation - not an OCC regulation.
Third, you probably don't care. If the OCC blessed this, go for it.
Fourth, I would not recommend this to anyone.

First, the OCC employee's answer contradicts itself, an LLC an a sole proprietorship are two different things a sole proprietorship does not exist inside an LLC;
Second, the OCC's conclusion is wrong, sole proprietorships are eligible for NOWs becasue they are for most practical purposes the funds of an individual, the funds in the LLC account belong to the entity;
Third, since the OCC is MRG's regulator, he or she can proceed with impugnity. Anyone else relying on that advice will end up in the corner wearing a dunce cap.

Admittedly, LLCs and LLPs hadn't been "invented" yet when 12 USC 1832 was passed (this is where NOW accounts are authorized and defined).

Federal regulators interpreted the language of 1832(b) to include sole proprietors because their personal and business funds are often commingled. They have also interpreted the law to permit NOW accounts in cases where the account is owned by a person otherwise ineligible (a for-profit corporation, for example), if the beneficial interest in the account is held by one or more individuals (and by no ineligible persons).

Regulators have never seen fit to include single-owner corporations (such as the PCs often formed by professionals). They have likewise never agreed to include LLPs or LLCs.

If regulators want to publish an update to their eligibility interpretations, and include single-member LLCs, then (and only then) would I include them in my list of eligible owners. Absent such a change, I believe the OCC letter in question is founded on spurious logic and ought not to be followed.

I agree with John, Ken & David. Thanks for your help, guys. That validates my original opinion that the reason you start a LLC rather than a sole is to avoid the personal liability as well as some possible tax benefits. Can't have that cake and eat it too. We are not giving them a NOW acct.

How would you address a trust account? I have a partnership NOW account titled P&H, Madison Trust Account. As a partnership it would not be eligible for the NOW, but since it has a trust would this be eligible? I believe I've read that funds held in a fiduciary capacity are eligible. Just want to make sure I understood this correctly. Thank you.

First, determine what type of entity holds the account. The fact that it says "trust" doesn't mean it's a trust that owns it.

Then determine whether that entity is eligible for a NOW account.

If not, determine if the entity is holding the funds as a fiduciary or agent for others. If so, determine if all of the beneficial owners are always individuals. If so, the entity may be eligible for a NOW account as a fiduciary or agent.

Here is one I came across today that I don't think is eligible but wanted a second opinion. Account is set up in name of corporation - 123 Corp (FSA) for Flexible Spending Account. I don't believe these would be funds held in a fiduciary capacity since it appears the corporation would receive the beneficial interest. I am not sure if these funds are the forfeited amounts from the FSA accounts. NOW account, yes or no? Thanks so much!

In FSA arrangements with which I am familiar, any unclaimed contributions get turned back to the participants at the end of the claim year. The "refund" (for lack of a better word) takes the form of lower contributions for all participants.

For example, if my 2004 bi-weekly deduction is set at $50 (giving me $1,300 in medical payments during the year from pre-tax money), the total participant census is 100 persons, and the amount of 2003 contributions that is "left over" on March 31, 2004 (the deadline in our plan for filing 2003 bills) is $1000, each participant gets a credit toward 2004 contributions equal to $10, which is divided by the number of paydays left until the end of 2004. I still get my $1,300 in bills I can submit, but I pay less than $1,300 to get it.

This is a long way around the barn to explain that the funds in the FSA plan are beneficially owned by the individuals participating, not by the company sponsoring the plan.

End result, I believe the plan would qualify for a NOW account.

Can an LLP have a NOW account?

No, unless it qualifies as an IOLTA account or the funds are held in a fiduciary or agency relationship on behalf of persons that are all qualified owners of NOW accounts.

Can they have a Money Market Accout? I now this is redundnt...

Yes, they can have a money market.

Thank you! In a older new accounts seminar book it said no but I thought I read somewhere that they could. Again thanks

Anon: You might find it helpful to download the "Interest on Deposits - Reg D" chapter from our Advanced Deposit Operations Manual. It can be downloaded free from our website.

I am going to bring this thread back to the front because I need some help. I have read the discussion on whether an LLC can use a SS # or must have an EIN#. I understand that distinction that it can use SS # if it is a single member and has no employees or other members. If it does, the LLC needs to have an EIN #. The part that I am having trouble with is the ability to have an interest bearing NOW account. I have had several businesses tell me that they can have an interest bearing account because they are a single member LLC. I told them no at the beginning. The more research that I do, I am thinking they could be somewhat right. On the IRS website it states that "If the LLC has only one owner, it will automatically be considered to be a sole proprietorship (referred to as an entity to be disregarded as separate from its owner), unless an election is made to be treated as a corporation". It also states that "An LLC may be classified for Federal income tax purposes as a sole proprietorship, partnership or corporation". I know that these were created after the section to qualify NOW accounts was enacted, but do the customers have a ligitimate point with the IRS stating this. Please help if anyone else has run into this situation.