Do I need to issue a 1099-Misc to a client for payments on a loan made from the clients Escrow (IOLTA) account?
“According to the Internal Revenue Service, normal IOLTA participation imposes no tax consequences to the client or the lawyer. (See Revenue Ruling 81-209.) Each IOLTA account bears the tax identification number of the IOLTA Board of Trustees to ensure that all accumulated interest is reported as income of the IOLTA program. However, we would have to do further research to determine the requirements concerning a loan from an IOLTA and the consequent interest paid. While generally, a company would be required to report the interest payments on form 1099-INT (not 1099-MISC) to a client if the client is an individual, in the case of an IOLTA, the interest earned on the client’s money in the IOLTA is not paid to the client but used for public benefit, typically legal aid for indigent persons. It would appear that interest paid by your firm to the IOLTA on the loan would likely be viewed similarly.
Related Questions
- How does a lawyer or law firm determine which client funds should be deposited in an IOLTA account and which should be invested on behalf of individual clients?
- Can I use the Special Account for capital repayment of my housing loan? What about progress payments for my private property which is still under construction?
- Can I hold escrow funds in an IOLTA account in another state?
