Deposit Account Administration - Iowa Bankers Association

Articles

FAQs

Campaign Accounts

Cash Advances

Legal Orders

Miscellaneous

POD Accounts

Realtor Trust Accounts

Reg. GG

State Sales Tax

Taxpayer Identification Numbers

Trust Accounts

Uniform Trust to Minor Accounts

Campaign Accounts

Question: We have a customer who is running for a state representative position and has asked us to place his campaign posters in our lobby. Can we accommodate this request?

Answer: No. According to Iowa Code Chapter 351-4.44, “corporate entities” (including banks, savings and loan institutions, credit unions, and insurance companies) may not provide any sort of candidate advocacy on premise. This includes placing candidates’ signs on corporate property, providing corporate campaign contributions to the candidate, placing candidates’ or other political advertising on bumper stickers of corporate vehicles, or allowing the candidate to use corporate space (e.g., a meeting room inside the bank) UNLESS the candidate reimburses the corporation at the fair market value for use of the space. Using countertop or bulletin board space for distributing brochures or campaign literature is also prohibited. Corporate entities may however, provide or publicize voter education information so long as the information provided does not expressly advocate the election or defeat of a clearly identified candidate.

Question: We have a customer who is running for county supervisor position and wants to open a campaign account at our bank. How should the account be titled and can we use his Social Security number or must he obtain an EIN for banking purposes?

Answer: The account structure is determined by the source of funds deposited into the account.

If contributions into the account are made only by the candidate, then the account should be titled in the name of the candidate, designated as a campaign fund; e.g., John Doe Campaign Fund. The candidate personally owns the funds and therefore can use his/her Social Security number for tax purposes. The candidate will have transaction authority on the account and could appoint an authorized party to act on his behalf on the account.
If contributions into the account are made by persons other than the candidate, the account should be titled in the name of the committee supporting the candidate; e.g., Committee to Elect John Doe, Susie Smith, Treasurer or Citizens for John Doe, Susie Smith, Treasurer. Since contributions are made by persons other than the candidate, the campaign account must obtain an EIN and the campaign committee must appoint a treasurer or authorized representative to transact on the account.

Cash advances

Question: I have two questions related to MasterCard and VISA cash advances. Do we have to offer cash advance (or disbursement) services to noncustomers of the bank? Are we able to set maximum advance limits to ensure we have enough cash on hand to accommodate cash disbursement requests?

Answer: The answers to your questions are found in MasterCard and VISA’s operating rules. Both issuer’s operating rules have “non-discrimination” clauses requiring institutions that provide cash disbursement services to provide the service to any person issued a card of that brand. Further, the rules require cash disbursement services be provided to all cardholders on the same terms and conditions, regardless of the issuer.

The operating rules do allow participating institutions to establish maximum cash disbursement amounts, within certain guidelines. Here again, such limits must be uniformly applied to all cardholders of the same card type, regardless of whether or not the person requesting the cash disbursement is customer of the disbursement agent. Maximum disbursement amounts vary depending upon whether the card is a prepaid card or credit card as well as the method the disbursement agent is using to authorize the disbursement (manually or via an electronic terminal). Institutions should refer to their MasterCard or VISA agreement for the rules surrounding maximum disbursement amounts.

Question: A local tax preparer is providing payment of income tax refund loans to his clients in the form of a Mastercard debit card. We have noncustomers coming in the bank requesting cash advances on the debit cards. Do we have to provide this service? If so, can we charge a cash advance fee to noncustomers?

Answer: If these are VISA or MasterCard branded cards, financial institutions and merchants that participate in the VISA or Mastercard program, are required to provide all the services that VISA or MasterCard rules require. This includes providing face-to-face cash disbursement services to all VISA or MasterCard cardholders, on the same terms and regardless of card issuer or program, at all offices where teller services are available. Also, subject to applicable law, financial institutions and merchants may not charge any fee, discount, or service charge to any VISA or MasterCard cardholder, including those who are not the institution’s own customers, when providing face-to-face cash disbursements.

Question: We had a non-customer come the bank and request a cash advance on a prepaid debit card that was issued by the State of Iowa for unemployment benefits. Do we have to honor such requests for non-customers and if so, we can charge a cash advance fee for the service?

Answer: We contacted the Iowa Work Force Development (IA WFD) about the unemployment benefit pre-paid cards. They are issued through Wells Fargo and are VISA-branded. The cards can be recognized as from the IA WFD by their background which contains the Iowa flag. The contracts banks enter into with MasterCard and VISA prohibit them from refusing cash advances requests from non-customers and charging a fee for cash advances to non-customers. However, if the debit card is used at an ATM, banks may collect their standard surcharge fees.

LEGAL ORDERS

Question: We received a garnishment order today on a customer who has two accounts at our bank: a checking account that receives a federal benefit payment and a savings account that does not receive a federal benefit payment. I performed the required account review, determined the “protected amount” in the checking account, and have attached the amount of excess funds in the checking account. The savings account does not receive federal benefit payments so I have attached the funds in that account as well. My question is related to monitoring the accounts. I know I am not to monitor the account receiving the federal benefit payments for additional deposits to satisfy the garnishment order, but I am not sure what my responsibilities are related to the other account that does NOT receive federal benefit payments. Should I be monitoring that account?

Answer: You are correct in that the account review must be performed separately for each account in the customer’s name against whom the garnishment order was issued. If the account review shows no benefit payment was directly deposited during the lookback period, the federal garnishment rule does not apply to that account and the bank must follow its customary procedures for handling garnishments related to that account. So since the savings account does not receive federal benefit payments, the bank should monitor the savings account according to its garnishment procedures for the remaining garnishment period.

Question: Does the Federal Garnishment Rule apply to only garnishments or both garnishments and levies?

Answer: The Garnishment of Accounts Containing Federal Benefits rule in part 212 applies to both garnishments and levies. In part 212.3, the rule defines garnishments to include levies: Garnish or garnishment means execution, levy, attachment, garnishment, or other legal process.

However, it is important to note that if the garnishment or levy includes the “Notice of Right to Garnishment Federal Benefits”, the legal order is excluded from the Federal Garnishment rules per 212.4(b). Some orders, such as child support levies, often include this notice and are exempt. (December 2020)

Question: The bank received a garnishment order for a customer. This customer received a direct deposit from the State of Iowa. Is this payment considered protected funds for the Federal Garnishment rule?

Answer: The definition of benefit payment in the Federal garnishment rules in 212.3 is as follows: Benefit payment means a Federal benefit payment referred to in § 212.2(b) paid by direct deposit to an account with the character “XX” encoded in positions 54 and 55 of the Company Entry Description field and the number “2” encoded in the Originator Status Code field of the Batch Header Record of the direct deposit entry.

Therefore, the ACH transaction must contain both “XX” in positions 54 and 55 of the Company Entry Description field and “2” in the Originator Status Code field to be considered protected funds and be excluded from the garnishment order. Since the direct deposit reference is from the state of Iowa and not from a federal government agency, it will not include both of these indicators in the ACH transaction record and is NOT considered protected funds. (December 2020)

Question: The bank received a garnishment for an account with protected funds and there are not funds in excess of the protected amount. Is the bank required to send the Notice to the Account Holder?

Answer: No. If the account contains protected funds and there is not money in excess of the protected amount, the Notice to Account Holder is not required. The Federal Garnishment rules in 212.7(a) state that the notice is only required when there are funds above the protected amount:
(a) Notice requirement. The financial institution shall send the notice in cases where:

A benefit agency deposited a benefit payment into an account during the lookback period;
The balance in the account on the date of account review was above zero dollars and the financial institution established a protected amount; and
There are funds in the account in excess of the protected amount.

Question: We received a garnishment notice for a customer who has one account at the bank, a checking account. The only funds that come into the account are their monthly Social Security benefits. I know that Social Security is a federal benefit and federal benefits are protected funds. Can I return the garnishment without reviewing the account and say that the funds are protected?

Answer: No. You are required to perform the “look back” to determine the amount of protected funds so you can compare this to the balance in the account as of the date before you are performing your review. You are correct that Social Security benefits are protected funds, however, the Garnishment of Federal Benefit Payments rule says that only the “protected amount” is the amount that is protected from the garnishment (and levies). The protected amount is defined as the lower of:

The current balance at the close of business on the day before the account review is conducted; or
The total of the deposits from protected sources that have been deposited into the account during the lookback period. The lookback period starts on the day before the account review is conducted and goes back two months from that date.

The final rule provides the following example: the bank receives a garnishment on May 20 and conducts the review on the same day. The lookback period starts May 19 and ends on March 19, the corresponding date two months earlier. During this period, two payments from Social Security, a protected source, totaling $2,500 were received. The current balance is $1,000. The current balance is less than the total of the protected payments received during the lookback period, thus the current balance is the protected amount. Since all of the funds in the account are protected, the bank does not remit any of the funds with the garnishment. Also, the bank is not required to send a notice to the customer. Since there were protected funds in the account, the garnishment is now complete — meaning the bank should not continue to monitor the account for other deposits.

Now, let’s reverse the situation where the current balance is higher than the protected amount. The current balance, all from Social Security, is $2,500 on the day before the account review was conducted. A total of $1,000 in deposits from Social Security were made into the account during the lookback period. Since the current balance (i.e. $2,500) is higher than the total of all deposits from protected sources received during the lookback period (i.e. $1,000), the protected amount is $1,000. Thus, the amount in the account that exceeds the protected amount (i.e. $1,500) is subject to garnishment, even though all of those funds are from a protected source. In this situation, the bank must send a notice to the customer of the garnishment. Again, since there were protected funds in the account, the garnishment is now complete with the remittance of the $1,500. Learn more. (July 2020)

Question: We received a levy notice from the Child Support Recovery Unit against an Individual Retirement Account (IRA) of a person who is delinquent in child support payments. Are IRA’s subject to attachment in order to satisfy this levy order?

Answer: Yes. Iowa Code § 627.6(f) generally exempts from attachment or execution an individual’s contributions or assets held in ERISA-qualified plans, simplified employee pension plans (SEPs), Keogh plans (also known as H.R. 10 plans), individual retirement accounts (IRAs), Roth individual retirement accounts (Roth IRAs), savings incentive matched plan for employees, salary reduction simplified employee pension plans (also known as SARSEPs) and similar plans for retirement investments authorized in the future under federal law. However, Iowa Code § 627.6A essentially eliminates this exemption if a person is obligated for payment of child support, spousal support or medical support. So levy orders received from the Child Support Recovery Unit against IRAs may be satisfied with funds from the IRA. Also, if the IRA is held in a certificate of deposit or annuity where early withdrawal penalties or surrender charges would apply, the bank may impose such charges or penalties.

Question: Our past procedure regarding garnishment orders has been to identify the nature of funds deposited to the account and, if applicable, respond to the order advising the sheriff that the only funds in the account are from exempt income, such as Social Security or unemployment benefits. We recently learned that by responding to a garnishment in this manner, the bank may have some liability to the person that obtained the judgment and garnishment order. Can you explain?

Answer: Iowa Code section 642.22 obligates a financial institution as a garnishee holding property of the defendant to turn over amounts in accounts owned by the defendant, up to the amount shown on the garnishment order. Other than the requirement to determine if the account contains protected Federal benefit deposits during a two-month period prior to receiving the garnishment order, the financial institution is under no obligation to make a determination as to whether funds in the account are exempt from execution. If no protected funds exist, after paying the sheriff for any amount in the account on the date the garnishment notice is served, the financial institution must monitor the account for any additional amounts at least monthly while the garnishment order is in effect. A garnishment order is effective until the earliest of:

The annual maximum permitted to be garnished under Iowa Code section 642.21 has been withheld (net earnings withholding);
b. The writ of execution expires;
c. The judgment is satisfied; or
d. The garnishee is served with a notice that the garnishment shall cease.

Any defendant wishing to claim an exemption may do so in accordance with Iowa Code section 642.15. The defendant may petition the court to adjust or discharge the amount of garnishment that is exempt. It’s the defendant’s responsibility to show the court the facts evidencing the funds are exempt from execution.

If a financial institution refuses to deliver property in its possession upon being served a notice of garnishment, the financial institution may be held liable to the plaintiff up to the full amount of the garnishment order. If your bank has any question relative to exempting funds under garnishment orders, seek advice from your legal counsel.

MISCELLANEOUS

Question: Can/should we obtain a consumer report (such as ChexSystems) on non-owner, authorized signers on deposit accounts?

Answer: Under the Fair Credit Reporting Act, you must have a permissible purpose to obtain a consumer report. ChexSystems does meet the definition of consumer report and the FCRA does provide a permissible purpose for “business transactions initiated by the consumer.” In the case of the deposit account application that includes a non-owner authorized signor, the owner of the account is initiating the business transaction, not the authorized signor.

If the owner appoints an individual as an authorized signor, the authorized signor is not initiating the business transaction, further the authorized signor does not have legal liability for the account. (There is a provision in Iowa code 554.3402 that states an owner of an account can appoint an individual to act on their behalf, but the owner remains liable for any action on the account conducted by the authorized party.) Therefore, the bank would NOT have a permissible purpose to obtain a credit report for the authorized signor.

Question: We want to close an account due to excessive overdrafts; however, the account owner receives Social Security benefit payments. One of our employees thought we could not close the account until we first provided advance notice to the customer, but our deposit account agreement states we have the right to close the account without prior notice to the account owner. Is there another rule that requires us to provide advance notice before closing this account?

Answer: Yes, the U.S. Treasury rules likely require you to provide advance notice despite your deposit contract language, unless fraudulent activity is occurring on the account. Fraudulent activity could include the account owner being a victim of fraud (e.g., their online account access has been taken over by a fraudster) or the owner is engaging in fraudulent activity (e.g., such as check kiting or acting as a money mule). The U.S. Treasury’s Green Book, the guide to federal government ACH payments, provides the following on Pages 1-38:

Termination by the Financial Institution

Financial institutions may close an account to which benefit payments are currently being sent thereby revoking the enrollment authorization by providing a 30-day written notice to the recipient prior to closing the account. In cases involving fraud, accounts may be closed immediately. The financial institution cannot revoke the enrollment authorization by notifying the federal agency and not the recipient.

The 30-day written notice should remind the recipient to make other arrangements for the handling of their payments. The financial institution must credit to the recipient’s account any payments received during the 30-day notice period. The financial institution must also immediately return to the federal government all payments received after the 30-day notice period. A financial institution that closes an account without properly terminating the enrollment must make the funds available to the recipient until proper notice is provided.

Note, if the deposit account does NOT receive federal benefit payments, the bank’s account agreement with the customer would dictate. Meaning, if the account agreement provided the bank had the right to close the account without prior notice, the account could be closed and the account owner notified at the time of the closure. Advance notice would only be required for those accounts receiving federal benefit payments.

Question: We have an authorized signor on a consumer account who is requesting copies of account statements. Does the authorized signor have the authority to make such a request?

Answer: The power of an authorized signor is determined by the bank’s contract with the deposit account owner and bank policy. Therefore, what powers or authority an authorized signor has on an account are determined by the bank’s contract, policies and procedures.

Question: In titling joint accounts with rights of survivorship, is there a difference between use of the conjunctions “and” or “or” between the names on the account?

Answer: No. Conjunctions used to separate names make no distinction as to ownership. When an account is owned by two or more natural persons with “rights of survivorship”, ownership of the funds during the lifetime of all parties is joint and each named owner on the account can act on the account without action by any other owner. The account is payable on request to any named owner or authorized party on the account. If one of the owners of the account dies, the ownership interest passes to the surviving owners of the account.

Unlike check endorsements, using the conjunction “and” will not trigger the requirement for two signatures to authorize transactions. If two signatures are required, the account agreement, the title of the account and the signature card should specifically state this requirement. It’s also important to understand the financial institution does not have to agree to requests by account owners that two signatures be required to act on the account. However, if the institution does agree to such a provision in its contract, it is liable to the account owners for transactions that are not properly authorized with two signatures, so the institution should have proper monitoring in place if it permits such contract provisions.

Question: We have recently received a request from a current bank customer (a senior housing facility) to provide onsite-banking services for their residents one time per month. Based on our discussions, we would send one bank employee to the senior housing facility with approximately $500 cash to be available to cash resident checks during a one-hour time frame, open accounts and take deposits. From a public relations standpoint, we are definitely interested in pursuing this, but want to ensure we do it properly.

Answer: It appears the senior housing facility is requesting “mobile banking services.” Per the Iowa Administrative Code, mobile banking services are defined as:

187—2.17(17A,524) Mobile offices, courier services, and convenience offices.
2.17(1) Definitions…“Mobile office” means a bank office that does not have a permanent site and functions out of a mobile banking unit that stops at predetermined locations to conduct banking activities.

To provide this type of service, the institution must comply with state banking law requirements. The requirements for “mobile banks” are outlined in the Iowa Administrative Code, (IAC) chapter 187 – 2.17 found online at: https://www.legis.iowa.gov/docs/iac/rule/03-29-2006.187.2.17.pdf.

The requirements of IAC 187-2.17 include adopting a board-approved policy governing operation of the mobile office appropriate for the nature and scope of the bank’s mobile office activity, which must include at a minimum, the following items:

Steps the bank will take to protect the security of the office, its customers, employees, its customers’ financial information and deposits. The security plan may include implementation of customer and employee security systems such as security cameras, external lighting, and internal or attached protection zones.
A requirement to maintain deposit insurance coverage for the mobile office.
A requirement to maintain adequate insurance coverage covering the bank in case of robbery, accident, other loss of items, delay in the delivery of items to other destinations, and other liabilities associated with operating the office.
A determination of the types of activities the bank will conduct from the mobile office.
A requirement for a bank office manager or officer of the bank to be physically present at the mobile office, during a majority of its business hours as required by Iowa Code section 524.1201.
A requirement to maintain a daily log of operations including descriptions of the time and locations of each stop made by the mobile office or bank–owned courier service, the locations and the hours a convenience office was operated and the names of the bank personnel working at the mobile office, bank–owned courier service, or convenience office during those times.
What, if any, signage the bank will place on the mobile office.
How the bank will determine the locations at which it will provide services and the times it will be at those locations. The policy must also address how the bank will ensure that the mobile office is located in a safe location and that it has the necessary permission of the owner of the property where the mobile office located to operate at that location.

IAC 187 – 2.17(3) then requires the bank to submit an application to operate a mobile office describing the general geographic area to be served. Public notice of application must also be made pursuant to 187 IAC 2.12(2). Publication in several newspapers may be required to establish mobile offices that will serve several communities or geographic areas. The publication need not identify specific sites to be served by the mobile office, but should state the general geographic area to be served, such as the city, county, or other identifiable geographic area. Changes in the general geographic area to be served require additional publication of notice in the new geographic areas and are subject to approval by the Iowa Superintendent of Banking. Finally, if the bank is required to obtain approval from any federal agency, such as the Federal Deposit Insurance Corporation (FDIC), prior to operating a mobile office, such federal approval will be a condition of approval by the Superintendent of Banking of the application to operate a mobile office.

For more information or to make an application for mobile banking services, contact the Iowa Division of Banking at 515-281-4140.

Question: We are considering changing the earnings credit on business checking accounts from a fixed charge to a variable charge. Do we need to disclose this change to current business customers? If so, can this be a statement message and how far in advance do we need to disclose to the customer before we can make the change?

Answer: For legal purposes, since the customer is accustomed to a certain “course of dealing” in the way earnings credits have been calculated, the bank must send a change-in-terms notice to affected customers – under state law.

See section 524.805(3):
2. The terms and conditions attending an agreement to pay interest on deposits shall be furnished to each customer at the time of the acceptance by the state bank of the initial deposit. No change made in the terms and conditions attending an agreement to pay interest which adversely affects the interest of a depositor shall be retroactively effective. Savings account depositors and holders and payees of automatic renewal time certificates of deposit shall be given reasonable notice of any change in the terms and conditions attending an agreement to pay interest prior to the effective date thereof.
3. A state bank may make such charges for the handling or custody of deposits as may be fixed by its board of directors provided that a schedule of the charges shall be furnished to the customer at the time of acceptance by the state bank of the initial deposit. Any change in the charges shall be furnished to the customer within a reasonable period of time before the effective date of the change.

The Division of Banking typically suggest 30 days as a “reasonable period of time.” The change in terms notice may be a statement message…just be sure it’s on statement cycles earlier enough so that the customers receiving the last cycle have at least 30-days’ notice.

Question: We had a customer come in and request that we establish a “Miller Trust” account for her mother for the purpose of qualifying for financial assistance for nursing home care. What is a “Miller Trust”?

Answer: A Miller Trust account is another name for a medical assistance income trust, which is an irrevocable trust, established for the benefit of an individual whose income is greater than that allowed for Medicaid assistance but not enough to cover actual monthly costs of nursing home care. All of the beneficiary’s income (both earned and unearned) is assigned to and deposited into the trust and the State of Iowa is designated as the residuary beneficiary of the trust and will receive all amounts remaining in the trust upon the death of the beneficiary up to the amount of Medicaid paid out for the beneficiary’s care. Your customer will need to provide the bank with a trust agreement designated for the purpose of medical assistance. The trust must be irrevocable and may be in the grantor’s social security number with the grantor certifying his/her social security number. It does not appear that the State of Iowa requires that a certain person or entity be appointed trustee, so the grantor can appoint his/her trustee. All income however, must be directed into the trust. Also, the trust agreement must designate the State of Iowa as the primary beneficiary of any funds remaining in the account upon the death of the grantor to reimburse the state for Medicaid expenditures made.

Question: Are banks required to cash savings bonds for non-customers?

Answer: Under the terms of your paying agent agreement, you are required to redeem eligible bonds when the presenter provides satisfactory identification in accordance with Treasury identification guidelines.

The Treasury recently released an updated guide for cashing savings bonds. It can be found online at https://www.treasurydirect.gov/forms/sav0022.pdf. The guide steps through properly identifying the bond owner and who can negotiate the bond on behalf of another named owner. It’s actually quite helpful!

POD Accounts

Question: Can a rep payee account have a payable on death (POD) designation?

Answer: According to Social Security Administration’s Guide for Organizational Payees, upon the death of the beneficiary, any remaining funds in the account become the property of the beneficiary’s estate. Therefore, a POD beneficiary cannot be added because such designations operate outside of the scope of the estate. The SSA guide says the following:

Conserved Funds After the Beneficiary Dies:
Upon the death of the beneficiary, any conserved or other funds you have belonging to the beneficiary become the property of his or her estate. You must immediately turn over conserved funds to the legal representative of the beneficiary’s estate for disposition under State law. If there is no legal representative, you must contact the State probate court for instructions on what to do with remaining funds. If you need information about State law, contact the probate court or an attorney.

Question: At a recent training session, the instructor mentioned banks need to obtain the Social Security Number (SSN) for the Payable on Death (POD) beneficiary at the time the beneficiary claims the account. Currently, if the POD beneficiary is NOT a current customer of the bank, we run an OFAC check on the POD, verify name, identity and DOB but we do not obtain their SSN. Does this mean we need to get the POD’s SSN when we disperse the funds to them? If they are closing the account and taking the funds, they are not becoming our customer so we don’t need the SSN for CIP purposes. Please explain why their SSN would be needed.

Answer: The POD’s SSN is needed for tax reporting purposes if the inherited account is interest bearing. According to the IRS rules, interest earned on the account is reported under the account owner’s tax ID number up to the date of death. Then, from date of death until the account is closed, the interest earned on the account is reported under the beneficiary’s tax ID number if that amount is $10 or more. Many times the account is closed quickly and the interest earned is under $10, so it’s not reportable. However, if the account earns $10 or more in interest after the account owner passes away, that interest income must be reported under the beneficiary’s SSN, as they are the individual receiving the interest income.

Question: We recently had a POD account in which the POD beneficiary was someone other than a “qualified beneficiary” for FDIC insurance purposes – a local church. The bank paid the POD beneficiary the amount in the account upon proper proof of the death of the account owner and proper identification. Later the bank was contacted by the estate attorney for the deceased who indicated the bank should not have paid the benefit because there were other claims against the estate. It was my understanding POD accounts operate outside the scope of the estate proceedings and the bank had no liability to the estate for releasing the funds as long as it was sure the account owner was deceased and properly identified the beneficiary.

Answer: Unfortunately, for the POD beneficiary, the proceeds of a POD inheritance are still subject to the debts of the estate and the payment of state inheritance taxes, if applicable. However, fortunately for the bank, the bank has no liability in releasing the funds nor does it have an obligation to warn the beneficiary he/she may not get to keep all the inherited funds. See Iowa code 524.805(8): 8. A state bank may receive deposits from one or more persons with the provision that upon the death of the depositors, the deposit account shall be the property of the person or persons designated by the deceased depositors as shown on the deposit account records of the state bank. After payment by the state bank, the proceeds shall remain subject to the debts of the decedent and the payment of Iowa inheritance tax, if any. A state bank paying the person or persons designated shall not be liable as a result of that action for any debts of the decedent or for any estate, inheritance, or succession taxes that may be due this state.

Question: Can a deposit account customer name a charity (such as a church or other non-profit organization) as POD beneficiary on their deposit account?

Answer: Yes. Iowa Code section 524.805(8) permits a state bank to permit account owners to name “persons” in the deposit account agreement to whom the account balance shall be paid to upon the account owner’s death.

524.805(8.) A state bank may receive deposits from one or more persons with the provision that upon the death of the depositors the deposit account shall be the property of the person or persons designated by the deceased depositors as shown on the deposit account records of the state bank…

Important to note here is the definition of “person.” The Iowa Code defines a “person” as “an individual, corporation, Limited Liability Company, government or governmental subdivision or agency, business trust, estate, trust, partnership or association, or any other legal entity.” Thus, a charitable organization would fall under this definition if it is legally organized. It is also important to note that FDIC insurance rule changes provide for expanded FDIC insurance protection on POD accounts. Previously, FDIC insurance was only provided for “qualifying beneficiaries” on POD accounts, which included only natural persons who were family members of the deposit account owner. The recent FDIC rule changes expanded insurance availability on POD accounts. A beneficiary must be a person, charity or another non-profit organization (as recognized by the Internal Revenue Service) to be eligible for coverage under the revised FDIC insurance rules.

Question: May a trust be named as a POD beneficiary on a deposit account?

Answer: Yes – a trust may be designated as a POD on a deposit account. See Iowa code section 524.805(8):

524.805 Deposits.

A state bank may receive deposits from one or more persons with the provision that upon the death of the depositors the deposit account shall be the property of the person or persons designated by the deceased depositors as shown on the deposit account records of the state bank. After payment by the state bank, the proceeds shall remain subject to the debts of the decedent and the payment of Iowa inheritance tax, if any. A state bank paying the person or persons designated shall not be liable as a result of that action for any debts of
the decedent or for any estate, inheritance, or succession taxes which may be due this state.

Also, see Iowa code section 4.1(20) (referenced in the preceding Q&A) as to the definition of “person” – since 524.805 does not expressly define the term “person,” the general default is the definition found at section 4.1(20).

One caution, however. The account will be insured as either an individual or joint account for FDIC purposes, rather than being insured under the “revocable” or “irrevocable” trust category, which provides for expanded coverage. A trust is not a “qualifying beneficiary” under the FDIC insurance rules. Only natural persons, charitable organizations or non-profit organizations are qualifying beneficiaries under the expanded FDIC insurance provisions for the POD/revocable trust account ownership category.

REALTOR TRUST ACCOUNTS

Question: Can realtors deposit client funds in a trust account to which the interest earned is remitted to someone other than the State of Iowa for the benefit of the Iowa Finance Authority?

Answer: Yes. In 2003 a change in Iowa Code 543B.46-1 provided that if there was a written agreement between a buyer and seller, interest earned on a realtor trust account deposits could be transferred to a third party other than the State of Iowa. If the interest is not paid to the state, the most common options are paying the interest earned to one of the parties involved with the transaction (such as the buyer or seller) or the REALTOR Foundation® of Iowa.

Question: What should we do if we receive a request from a realtor to send interest earned on trust deposits to the REALTOR® Foundation of Iowa?

Answer: If an institution receives a request by a realtor to have interest earned on trust deposits be remitted to the REALTOR Foundation® of Iowa, the institution should follow the instructions provided on the REALTOR® Foundation of Iowa website.

Question: Do you know where I can obtain a copy of the Iowa REALTORS Foundation Interest Remittance form?

Answer: The form can be downloaded and printed from the REALTOR® Foundation of Iowa website.

Reg. GG

Question: Regarding Reg. GG, for new commercial accounts, is it sufficient to simply add a question and check box to our due diligence sheets or must we have the customer sign something stating they are not involved in unlawful Internet gambling?

Answer: For due diligence purposes, you may just add a few additional questions to ask commercial customers for screening purposes to determine whether they engage in online gaming. The IBA has updated its “Business Customer Due Diligence Risk Rating Form” to add several questions. The questions added for Reg. GG purposes include:

A description of business activities;
The state in which the business is established;
The types of financial services the business expects to use, such as ACH, wire, credit cards, checks/drafts or online services; and
Whether the business engages in online gaming; if yes, the business is asked to provide an explanation.

The only time a commercial customer must sign something is if the customer indicates the business operates a lawful Internet gambling business. Then the customer must provide the bank a certification of the business’s legal authority to offer online gaming. The customer must further make a commitment to notify the bank if its legal authority to offer online gambling is changed and the customer must provide to the bank a third-party certification that its Internet gambling business has controls in place to prevent improper use of the site by minors or from other individuals in other geographic locations where such gambling would be prohibited. For example, if a customer in South America (where online gambling is legal in some countries) wants to open an account at your bank, the bank would have to obtain the customer’s certification of the facts mentioned in the preceding paragraph.

Banks are not required to open accounts for businesses operating authorized Internet gaming. Even when a customer claims to be operating a legal online gaming business, before opening the account the bank should consider the overall compliance and BSA/AML risk of holding an account of such business.

Question: Regarding Reg. GG, is it correct that non-profits are excluded from coverage and the disclosure requirement?

Answer: The definition in Reg. GG for “commercial customer” is very broad:

(i) Commercial customer means a person that is not a consumer and that contracts with a non-exempt participant in a designated payment system to receive, or otherwise accesses, payment transaction services through that non-exempt participant.

However, in section 6 of the regulation, there is a bit of clarification about commercial customers that are deemed to be of minimal risk and that may be exempted from the bank’s Reg. GG program:

(4) With respect to the determination in paragraph (b)(2)(i) of this section, participants may deem the following commercial customers to present a minimal risk of engaging in an Internet gambling business—

(i) An entity that is directly supervised by a Federal functional regulator as set out in §233.7(a); or
(ii) An agency, department, or division of the Federal government or a State government.

Essentially – the only commercial customers (non-individual customers) that can be excluded from Reg. GG monitoring/blocking procedures are federal regulated entities (e.g., domestic banks and credit unions, bank holding companies, government entities and entities regulated under the Commodity Exchange Act).

STATE SALES TAX

Question: We hold several checking accounts for government units. Since the government unit is exempt from state sales tax, may the bank suppress sales tax collection from these checking accounts? What about other tax-exempt entities, such as charitable organizations that have been expressly exempted from income tax under Internal Revenue Code sections? May banks suppress the collection of state sales tax from these checking accounts as well?

Answer: Iowa Code section 422.45(5) exempts sales tax on sales/services made directly to governments of Iowa. This includes divisions, boards, commissions, agencies or instrumentalities of state, federal, county or municipal government. However, there is an exception to the statute. If the checking account is in the name of a municipally owned public utility, tax is imposed. Also, if the account is held for an out-of-state government unit, tax is imposed. The government exemption is only for Iowa instrumentalities.

As for nonprofit organizations, the qualifying nonprofit organizations are spread throughout Iowa Code chapter 422. Following is a list of the current types of nonprofit organizations that enjoy an exemption. If a nonprofit organization claims a sales tax exemption, they would be required to provide the bank a valid exemption certificate (Form 31-014), available from the Iowa Department of Revenue and Finance.

Nonprofit Educational Institutions
Nonprofit Community Health Centers
Nonprofit Migrant Health Centers
Nonprofit Residential Care Facilities for the Mentally Retarded
Nonprofit Intermediate Care Facilities for the Mentally Retarded
Nonprofit Residential Care Facilities for the Mentally
Nonprofit Residential Facilities for Mentally Retarded Children
Nonprofit Residential Facilities for Child Foster Care
Nonprofit Rehabilitation Facilities that Provide Rehabilitation Services to Persons with Disabilities
Nonprofit Community Mental Health Centers
Nonprofit Private Museums
Nonprofit Organ Procurement Organizations
Nonprofit Legal Aid Organizations
Nonprofit Hospitals
Nonprofit Art Centers

Question: We are an Iowa bank located along the border of the state and are opening a branch office in a neighboring state. We are not sure about the assessment and collection of Iowa Sales tax on services charges related to a checking account. Is the determination of whether or not Iowa sales tax should be assessed based upon where the account is opened, where the customer resides, or where the main bank is located?

Answer: First, let’s review the general rule regarding collection of sales tax on bank services. The Iowa Department of Revenue rules require Iowa banks to charge and collect sales tax on the gross receipts from “service charges which relate to a depositor’s checking account.” Examples of taxable services charged related to a depositor’s checking account include fees for transferring funds from one account to another, stop payment charges, debit card replacement fees, copy and research fees, bill payment fees, return item fees, etc. if billed to the checking account. Since only the gross receipts of financial institution service charges that relate to a “checking account” are subject to tax, the same service performed by a financial institution could be taxable or not taxable, depending on whether it was performed in relation to a checking account. For example, a depositor loses their bank’s monthly statement and requests a replacement. The bank sends the customer another monthly statement and assesses the customer’s account a “duplicate statement fee.” If the duplicate statement fee is assessed to checking account, the fee is subject to tax. If the duplicate statement fee is assessed to the customer’s savings account, the fee is not subject to tax. (See more regarding sales tax on service charges in the Iowa Banking Guide, Tax Issues chapter, found here.)

The applicability of sales tax is based on a concept referred to as “sourcing” of the taxable item/service. Where the service is performed does not determine where the service is “sourced.” Sourcing is based upon where first use of the service occurs. The sourcing rules are found in Iowa Code chapter 423.15. The sourcing concept becomes tricky for banks with branches located outside the state.

Generally, the applicability of sales tax for most bank charges that are assessed to the depositor’s checking account (such as maintenance fees, stop pay fees, ATM fees, fund transfer fees, etc.) will be determined by the address of the customer because the customer is considered to have “first used” that service at the address listed on the account records. So customers located in Iowa according the bank records are subject to Iowa sales tax, but a customer with an out of state address would not be subject to Iowa sales tax. The determination is based upon where the depositor uses the service, not where the account was opened.

The exception to this is when a consumer purchases a taxable “tangible service” at a branch location. A “tangible service” is something physical such as a cashier’s check. If the customer purchases that tangible service in an Iowa branch location (regardless of the address on the account) and the fee for that service is assessed to the depositor’s checking account, it is subject to Iowa sales tax. But if the same customer purchases the same service in an out-of-state branch and the fee for the service is assessed to the depositor’s checking account, it is not subject to Iowa sales tax.

To illustrate, let’s go back to our duplicate statement example. A depositor loses their bank’s monthly statement and goes into an Iowa branch location and requests a replacement. The Iowa branch location provides the duplicate statement and assesses the customer’s checking account a “duplicate statement fee.” The duplicate statement fee is taxable in Iowa because the service was “sourced” (delivered) in Iowa. However, if the same customer went to an out-of-state branch, requested and received the duplicate statement and the fee was assessed to their checking account, the fee would not be taxable in Iowa because the service was not “sourced” (delivered) in Iowa.

For additional guidance on the Iowa Department of Revenue tax rules, contact the IDOR here. This is a webpage that permits Iowa taxpayers to submit questions on Iowa tax law matters.

TAXPAYER IDENTIFICATION NUMBERS

Question: Must a single member LLC (SMLLC) account have an EIN?

Answer: It depends. If the member of a SMLLC is filing a corporate tax return, they will use an EIN. If the member of a SMLLC is filing taxes as a “disregarded entity” (reporting income on their own tax return), they may use the member’s individual tax identification number (SSN, EIN, ITIN). If the member’s tax identification number is being used, their name should appear first in the account title. For example, a SMLLC account would be titled as Jane Doe, as, Doe Woodwork, LLC when using Jane Doe’s SSN. A bank should not make the determination for the customer, but should instead ask the customer to provide and certify the tax ID number to be used for reporting purposes.

Question: We have a deposit account for a corporation that recently changed ownership. The entire corporation was sold to a new group of investors but the corporation itself remains intact. Can the new investors retain the EIN of the original corporation or must then obtain a new EIN?

Answer: According to the IRS publication 1635, “Understanding your EIN” (https://www.irs.gov/pub/irs-pdf/p1635.pdf), the corporation may retain the EIN even after a sale to a new owner:

You will need a new EIN if any of the following are true:

You are a subsidiary of a corporation and currently use the parent’s corporate EIN;
You become a subsidiary of a corporation;
The corporation becomes a partnership or a sole proprietorship;
You create a new corporation after a statutory merger; or,
You receive a new corporate charter.

You will not need a new EIN if any of the following are true:

You are a division of a corporation;
After a corporate merger, the surviving corporation uses its existing EIN;
A corporation declares bankruptcy. However, if a liquidating trust is established for a corporation that is in bankruptcy, an EIN for that trust is required. See Treasury Reg. §301.7701-4(d);
Your business name changes;
You change your location or add locations (stores, plants, enterprises or branches);
You elect to be taxed as an S Corporation by filing Form 2553;
After a corporate reorganization, you only change identity, form, or place of organization; or,
The corporation is sold and the assets, liabilities and charters are obtained by the buyer.

Question: Can a Limited Liability Corporation (LLC) open an account and use the owner’s personal social security number for tax reporting and identification purposes?

Answer: According to guidance from the IRS website, if the LLC has a single member then it may use a personal social security number to open an account under certain conditions.
“Depending on elections made by the LLC and the number of members, the IRS will treat an LLC either as a corporation, partnership, or as part of the owners’ tax return (a “disregarded entity”). “If a single-member LLC does not elect to be treated as a corporation, the LLC is a “disregarded entity,” and the LLC’s activities should be reflected on its owner’s federal tax return.” (July 2020)

Question: We have a customer who wants to establish a class reunion account, but doesn’t want to apply for a separate taxpayer identification number (TIN) for banking purposes. The class treasurer insists that the account be interest bearing, and asked whether we could just open the account without a TIN, or simply use her SSN, since the account will be open for only six months.

Answer: One of requirements of the USA PATRIOT Act Identification Verification procedures is that a bank obtain at the time of account opening (or shortly thereafter) an identifying number of the person opening the account or the entity which owns the account. Further, for a U.S. person, that identifying number must be tax identification number, such as a social security number, EIN or TIN. In addition, if the account is interest bearing and you have no TIN, under Internal Revenue Code procedures you must back-up withhold at the current rate on any interest payments.

For these types of requests, it’s best NOT to open the account in the name of any individual representing the class, since an account in an individual’s name would be subject to levies, attachments, garnishments, etc. of that individual. Furthermore, should the individual die, the funds would belong to their estate and not the reunion group. If the account were interest bearing and titled in an individual’s name, for tax-reporting purposes you’d have to file a 1099-INT under that person’s Social Security Number. Also, there may be liability on the bank’s part if that person converts funds for her own personal use.

Therefore you should only open the account in the name of the class, show the treasurer as an authorized signer only, have the treasurer and/or other representative sign “Authorization of Organization” forms and the bank’s signature cards, and apply for a TIN for banking purposes only. Customers can apply online at www.irs.gov/businesses, by mail or via fax, so it’s not difficult getting the TIN, even for short-term use. Note, you can get the TIN immediately by using the online method. It takes approximately 24 hours if submitted by fax.

Trust Accounts

Question: We often receive requests to allow two revocable trusts to own a single deposit account (typically, husband and wife each having a separate revocable trust). Is this permissible?

Answer: Iowa code neither expressly permits nor expressly prohibits this type of arrangement. The only section of the Iowa code that addresses jointly owned bank accounts is section 524.806:

524.806 Deposit in the names of two or more individuals.
When a deposit is made in any state bank in the names of two or more individuals, payable to any one or more of them, or payable to the survivor or survivors, the deposit, including interest, or any part thereof, may be paid to any one or more of the individuals whether the others be living or not, and the receipt or acquittance of the individuals so paid is a valid and sufficient release and discharge to the state bank for any payment so made.

Generally, as it relates to deposit accounts, the rest of the Iowa banking code uses the term “person” when referring to account ownership; however, you’ll note that this particular section of the banking code uses the term “individuals” when authorizing jointly held accounts. “Person” is very broadly defined at Iowa code section 4.1:

4.1 Rules.
In the construction of the statutes, the following rules shall be observed, unless such construction would be inconsistent with the manifest intent of the general assembly, or repugnant to the context of the statute:
…20. Person. Unless otherwise provided by law, “person” means individual, corporation, Limited Liability Company, government or governmental subdivision or agency, business trust, estate, trust, partnership or association, or any other legal entity.

Therefore, by itself, section 524.806 appears to indicate that jointly held accounts are allowed by state law only between “individuals” (natural persons). Further, check your deposit agreement – it may not allow for jointly held accounts except between natural persons. If you agree to title the account jointly between the two trusts, it would likely be an exception to your bank’s policy, requiring senior management approval. Also, consider titling the account as joint as tenants in common rather than joint with right of survivorship; however, that may not be necessary if both trusts name each other as the primary beneficiaries. Again, this is a matter for discussion with your bank’s legal counsel.

Separately, there is a provision of the Iowa Trust Code that allows for “combined” trusts when the beneficial interests of the trust are the same. See Iowa Code section 663A.2207:

633A.2207 Combination of trusts.

A trustee, without approval of court, may combine two or more trusts with substantially similar beneficial interests unless the trust is a court reporting trust.
On petition by a trustee or beneficiary, the court may combine two or more trusts, whether or not the beneficial interests are substantially similar, if the court determines that administration as a single trust will not defeat or significantly impair the accomplishment of the trust purposes or the rights of the beneficiaries.
Where the court orders the combination of two trusts that are not essentially identical, the court shall include in its order a finding as to which trust provisions control.

Whether this provision of the trust code allows the trusts to remain separate and jointly owned deposit accounts, or, instead, that the two existing trusts would be combined into one trust is a matter for a trust attorney to determine upon appropriate review of each separate trust document. Before your bank agrees to a jointly held account between the two trusts, have your bank attorney review both trust instruments to ensure there is nothing in the language of the two trusts that would prohibit or create conflicts in such an arrangement…for example, if the trustees or successor trustees are different between the two trusts or if beneficiaries of the trusts differ.

Uniform Trust to Minor Accounts

Question: Does a bank have to open a Uniform Transfers to Minors Act (UTMA) account if a minor wishes to obtain a deposit account?

Answer: No, an UTMA is not required. The handling of minor accounts is entirely a bank policy decision. Iowa Code 524.805(5) allows the opening of a deposit account by a minor and lets a bank treat the minor the same as an adult:

Except as provided in section 524.807, a state bank may receive deposits by or in the name of a minor and may deal with a minor with respect to a deposit account without the consent of a parent, guardian or conservator and with the same effect as though the minor were an adult. Any action of the minor with respect to such deposit account shall be binding on the minor with the same effect as though an adult.

To reduce risk, some banks have specific procedures and policies in place for minor accounts, such as limiting access to ATM or debit cards or only allowing a minor to open an account when an adult also signs as a joint owner. A bank is allowed to control the risks by having limitations or requirements on minor accounts, but the minor is still an account owner and may transact just like any other owner of a deposit account.

UTMA’s are most often opened when the child is not old enough to sign their name on the signature card, but are also opened if the party opening the account wants the minor to own the funds but does not want the minor to have access to or control over the funds. A UTMA can have only one custodian per Iowa Code 565B.10. The custodian controls the account and disburses the funds for the benefit of the minor. An UTMA account is set up under the minor’s SSN. The custodian, not the bank, is responsible for ensuring proper use of the funds.

Question: Can the bank release the funds in an UTMA account to the minor once they turn age 21?

Answer: No. The rules in Iowa Code 565B that govern UTMA accounts require the delivery of the funds by the custodian to the minor upon the minor reaching 21 years of age. The bank is not to release the funds to the minor or let the minor transact on the account, even when they reach the age of 21. However, if the custodian will not release the funds to the minor once they are 21, the minor may obtain a court order that permits the bank to release the funds at that time.

Question: Can a custodian close an UTMA account and turn the funds over to the minor before the minor reaches the age of 21?

Answer: Yes, the custodian can provide any or all funds in an UTMA account to the minor before they are age 21. The custodian has authority to pay funds to the minor, for use by the minor, at any time the custodian thinks appropriate, even prior to the minor’s 21st birthday.

Question: Can a minor with an UTMA account be issued an ATM card or debit card?

Answer: The Uniform Transfers to Minors Act governs custodial accounts for minors. As a general matter for custodial accounts, a custodian manages the funds in the account on behalf of the minor, meaning the minor would not be able to withdraw funds without the custodian’s approval. Therefore, a minor beneficiary of a custodial account should not be provided an ATM or debit card that permits withdrawals; only the custodian should be issued such access devices.

Tools

Garnishment of Accounts Containing Federal Benefit Payments

Garnishments: Notice of Garnishment to Account Holder

Garnishments: Notice of Right to Garnish Federal Benefits

Iowa Statutory POA Certification (courtesy of Iowa Trust and Estates Counsel)

Iowa Statutory POA Form (courtesy of Iowa Trust and Estates Counsel)

Realtor Trust Fund Interest Remittance Form – Iowa Realtors Association Foundation

Realtor Trust Fund Interest Remittance Form – State of Iowa

Subpoena, Summons, Garnishment & Tax Levy Guide