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What are the tax consequences of IOLTA accounts?

April 26, 2017accounts consequences IOLTA tax

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What are the tax consequences of IOLTA accounts?

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A. There are none. According to the Internal Revenue Service, interest income that is earned on pooled accounts containing clients’ nominal or short-term funds held by lawyers and paid over to the Foundation pursuant to an order of the Arkansas Supreme Court is not includable in the gross income of either the clients or the lawyers. (Rev. Rul. 81-209). The interest belongs to and is paid directly to the Foundation, a nonprofit corporation, so there are no tax consequences. The Foundation’s tax identification number is used, and the interest is paid by the financial institution directly to the Foundation.