FDIC insurance coverage set to change Jan. 1 for IOLTA accounts

Unless Congress takes unanticipated action, as of Jan. 1, 2013, FDIC insurance available to IOLTA accounts will be $250,000 per owner of the funds (client), per financial institution, assuming that the account is properly designated as a trust account and proper accounting of each client’s funds is maintained. Non-interest-bearing trust accounts will have this same level of coverage.

IOLTA and non-interest-bearing accounts currently have unlimited FDIC insurance coverage pursuant to Section 343 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which has a sunset date of Dec. 31, 2012.

For more information, please visit http://www.abanow.org/2012/12/fdic-insurance-coverage-to-change-for-iolta-and-non-interest-bearing-accounts/.

Important information for lawyers who accept credit card payments

Changes in the law regarding the reporting of credit card transactions have the potential to negatively affect IOLTA accounts.

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 his or her legal name with those found on file with the IRS. An exact match is required.

For the purposes of this requirement, lawyers who accept credit card payments are considered “merchants.”

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 could be serious consequences, including:

  • Beginning January 2013, the IRS will impose a 28 percent withholding penalty on all credit card transactions, including those that the lawyer directs to his or her IOLTA account, and
  • 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 could be raised.

Credit card processing companies 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. Here are steps lawyers can take now to avoid potential ethical issues:

  • Contact the credit card processor to determine that a match occurred.
  • Correct mismatches if informed of one.

For more information on this issue, see https://www.lawpay.com/news/irs6050w.pdf

From the National Organization of Bar Counsel