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 impact IOLTA accounts and lead to ethically violations by lawyers.
  • 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.
  • 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 are serious consequences:
    • Beginning January 2013, the IRS will impose at 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.
  • Steps lawyers can take now to avoid and ethical violation in 2013:
    • Contact the credit card processor to determine that a match occurred;
    • Correct mismatches if informed of one.
This entry was posted in General and tagged , , , . Bookmark the permalink.

Leave a Reply