# O

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| ## Comptroller of the Currency                                        |
|                                                                       |
| > Administrator of National Banks                                     |
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Washington, DC 20219

#### Interpretive Letter #1017

January 28, 2005 **February 2005**

**12 USC 24(7)**

Re: Pennsylvania Interest on Lawyers Trust Account Board/NOW Accounts

Dear **\[ \]**:

This is in response to your letter to Daniel Stipano, Acting Chief
Counsel, requesting the OCC's concurrence with your opinion that
interest-bearing negotiable order of withdrawal ("NOW") accounts may be
established at national banks for the purpose of receiving and holding
qualified trust funds deposited under the Pennsylvania Supreme Court's
Interest on Trust Account Program for the Minor Judiciary (the "MJ-IOTA
Program").

As you have explained, the MJ-IOTA Program is very similar to another
program, also governing the maintenance of qualified trust funds, for
which you previously requested OCC review. In 1996, the OCC advised you
that attorney trust funds could permissibly be deposited in NOW accounts
maintained at national banks under the Pennsylvania Interest on Lawyers
Trust Account ("IOLTA") Program. (Letter from Peter Liebesman, Assistant
Director (November 26, 1996)). The primary difference between these two
programs is that the IOLTA Program governs qualified funds received by
attorneys while the newer MJ-IOTA Program governs qualified funds
received by judges, magistrates and district justices. In all other
material respects, the two programs appear nearly identical.

The IOLTA Program was established pursuant to an order of the
Pennsylvania Supreme Court dated July 17, 1996 (the "1996 Order"), which
amended Rule 1.15 of the Pennsylvania Rules of Professional Conduct. The
1996 Order directed the Interest on Lawyers Trust Account ("IOLTA")
Board to administer the IOLTA Program. The IOLTA Board is an
unincorporated nonprofit entity exempt from federal tax pursuant to
section 501(c)(3) of the Internal Revenue Code. It is also tax-exempt as
an instrumentality of the Commonwealth of Pennsylvania.

On August 3, 2004, the Pennsylvania Supreme Court issued another order
(the "2004 Order") establishing the MJ-IOTA Program and directing the
IOLTA Board to administer this new program "to the extent practicable as
a supplement to the IOLTA Program..."

Annex "A" to the 2004 Order ("Annex") provides that a judicial official
(defined as a judge, magistrate or district judge) shall place all
qualified funds in a MJ-IOTA account. Qualified funds are defined in the
Order as funds received by a judicial official in a custodial capacity
that are considered nominal in amount or are reasonably expected to be
held for such a short period of time that sufficient interest income
will not be generated to justify the expense of administering a
segregated account.

A MJ-IOTA account (like the IOLTA accounts the OCC reviewed in 1996) is
an unsegregated interest bearing account maintained at a depository
institution for the deposit of qualified funds by a judicial official.
Interest earned on these accounts is to be remitted directly by the
depository institution to the IOLTA Board, which will expend and
disburse the funds for certain specified purposes.[^1] The Annex further
provides that the rate of interest payable on MJ-IOTA accounts shall be
not less than the rated paid by the depository institution on NOW
accounts.

The eligibility requirements for NOW accounts are provided by federal
law. The relevant provisions are found at 12 U.S.C. § 1832(a). A NOW
account must consist solely of funds in which the entire beneficial
interest is held by one or more individuals, by a governmental unit, or
by an organization that is operated primarily for religious,
philanthropic, charitable, educational, political, or other similar
purposes and which is not operated for profit.

The Annex provides that the IOLTA Board shall hold the beneficial
interest in MJ-IOTA funds. In this, it mirrors Rule 1.15, which
expressly provides that the IOLTA Board shall hold the beneficial
interest in trust accounts participating in the IOLTA Program. In 1996,
you provided the OCC with an opinion from the Pennsylvania Attorney
General concluding that the IOLTA Board held the entire beneficial
interest of an IOLTA account. You have now furnished a similar opinion
from the Pennsylvania Attorney General, dated November 1, 2004,
concluding that the IOLTA Board holds the entire beneficial interest in
MJ-IOTA accounts within the meaning of 12 U.S.C. § 1832(a)(2).

Current federal regulations with respect to eligibility for NOW accounts
are located at 12 C.F.R. § 204.130, and expressly permit nonprofit
organizations qualifying under section 501(c)(3) of the Internal Revenue
Code to open NOW accounts. 12 C.F.R. § 204.130(c)(1)(i). Governmental
units are also permitted to open NOW accounts. 12 C.F.R. § 204.130(d).
As noted above, the IOLTA Board is exempt from federal tax both as a
nonprofit entity and as an instrumentality of the Commonwealth of
Pennsylvania and therefore qualifies under both these provisions.

Since the IOLTA Board is a nonprofit entity, and in reliance on the
opinion from the Pennsylvania Attorney General that the IOLTA Board
holds the beneficial interest in MJ-IOTA accounts, it is my conclusion
that funds deposited in such accounts pursuant to the MJ-IOTA Program
may be deposited in NOW accounts held at national banks.

Please contact Sue E. Auerbach, Counsel, at 202-874-4662 if you have
further questions.

Sincerely,

/s/ Eric Thompson

Eric Thompson

Director

Bank Activities and Structure Division

[^1]: The Annex limits the use of MJ-IOTA funds to (1) educational
    clinical programs and internships administered by law schools
    located in Pennsylvania; (2) delivery of legal services to the poor
    and disadvantaged in Pennsylvania by nonprofit corporations; and (3)
    administration and development of the MJ-IOTA Program.