Continuing my posts on best practices for IOLTA accounts/transactions, I wanted to share this information with you. This information comes via the ABA Commission on IOLTA.
“Beginning January 2013, new IRS requirements regarding the reporting of credit card transactions will go into effect and may have the potential to negatively impact IOLTA accounts and lead to ethical violations by lawyers. Here are the key points about you will want to know about if you accept credit cards:
1. Pursuant to the Housing Assistance Tax Act of 2008, credit card processing companies are required to verify and match each merchant’s federal tax identification number and her legal name with those found on file with the IRS. An EXACT match is required.
2. For the purposes of this requirement, lawyers who accept credit card payments are considered “merchants.”
3. If there is NOT an exact match between the information provided to the credit card processing company and the information on file with the IRS, there are serious consequences:
- Beginning January 2013, the IRS will impose a 28% withholding penalty on all credit card transactions, including those that the lawyer directs to her IOLTA account
- If client funds that should be in the IOLTA account are withheld due to the lawyer’s failure to act and thus are not available to the client on demand, ethical issues are raised.
- The credit card processing company should have received information from the IRS if a mismatch occurred and already notified the lawyer of the problem. However, it is not known if all processing companies have provided such notice.”
What action should you take to avoid an ethical violation in 2013:
- Contact your credit card processor to verify that your legal name on your merchant account matches the legal name you use to file your tax returns;
- Correct mismatches if informed of one.
For more infomration: https://www.lawpay.com/news/irs60502.pdf