Thursday, January 3, 2013

Important Information from the ABA Regarding Lawyers Who Accept Credit Card Payments

New IRS requirements regarding the reporting of credit card transactions have the potential to negatively impact IOLTA accounts and lead to ethical violations by lawyers. Here are the key points about which you may wish to alert members who accept credit card payments:

  • 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:

o Beginning January 2013, the IRS will impose a 28% withholding penalty on all credit card transactions, including those that the lawyer directs to her IOLTA account.

o 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 an ethical violation in 2013:

o Contact the credit card processor to determine that a match occurred

o Correct mismatches if informed of one

For more information on this issue, see

This information was provided to us by the ABA Commission on IOLTA. If you have questions, please direct them to Beverly Groudine, staff counsel to the Commission,