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