NOW Account Eligibility

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Question:

Doesn't the IRS automatically consider a sole owner LLC to be a sole proprietorship (unless they have elected to be treated as a corporation)? As such, would this sole proprietorship not be eligible for a NOW account?

Answer:

The IRS does not establish the rules of eligibility for NOW accounts. Congress took care of that in 12 USC 1832(a). Nowhere in that law is there any mention of LLCs (not surprising, since they didn't exist when the law was written).So far, the Fed has not seen a need to opine on this question, so the current word is "LLC does not get NOW."

P.S. On August 23, 2006, the Federal Reserve Board corresponded with the Tennessee Department of Financial Institutions, and opined that a single member LLC is not eligible to hold a NOW account unless it is operated "primarily for religious, philanthropic, charitable, educational, political, or other similar purposes and . . . is not operated for profit." Click HERE to read the opinion letter.

First published on BankersOnline.com 10/28/02; updated 7/10/09