Do I need to issue a 1099-MISC to a client for payments on a loan made from the client's 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. If so, the interest would not be reported to the client, but may have to be reported as having been made to the IOLTA.

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