If you accept credit cards from clients, you should read this!
Soon, a new IRS regulation will go into effect that impacts lawyers who accept debit and credit card payments from clients. If certain precautions are not taken before Jan. 1, 2013 you may adversely impact your client trust accounts.
Section 6050W was added to the Tax Code in January 2012, requiring credit card processing companies to verify and match your federal tax identification number and legal name on your merchant account to IRS records (“Form 1099-K”). An EXACT match is required. If you have either abbreviated your name or used an acronym for your merchant account, you will need to contact your credit card processor to assure that your legal name on your merchant account exactly matches the legal name you use to file your tax returns.
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:
- Beginning Jan. 2013, the IRS will impose a 28% withholding penalty on all credit card transactions, including those that the lawyer directs to the IOLTA client trust account.
- 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.
If a mismatch occurred you should have already received notice from your credit card processing company of the problem. However, there is no certainty that all processing companies have provided notice. We encourage you to contact your credit card processor today to ensure you have an exact match.
You’ll find more information on Section 6050W on the IRS website.