Do you take credit cards? If so please read about the changes to IRS verification requirements effective January 2013!
Significant penalties in 2013 if credit account information doesn’t match
If you accept credit card payments, you may be impacted by IRS verification requirements that may impact you and your practice in 2013.
Under federal law, credit card processing companies are required to verify information regarding each merchant accepting credit card payments. For the purposes of this requirement, a lawyer or law firm that accepts credit card payments is considered a “merchant.”
The credit card processors must verify and match each merchant’s federal tax identification number and legal name with those found on file with the Internal Revenue Service. An EXACT match is required.
There are serious consequences for lawyers if there is NOT an exact match:
- Beginning January 2013, the IRS will impose a 28% withholding penalty on all credit card transactions, including those that the lawyer directs to an IOLTA account.
- The lawyer may be in violation of the Illinois Rules of Professional Conduct if client funds that should be in the IOLTA account are withheld by the IRS (and not available to the client on demand) due to the lawyer’s failure to act.
Take action now
If you accept credit card payments, take steps now to avoid IRS penalties and potential rule violations:
- Contact the credit card processor to determine that a match occurred. (The credit card processor should have information from the IRS if a mismatch occurred and already have notified the lawyer of the problem. However, it is not known if all processors have provided such notice.)
- Correct any mismatch if you have been informed of one.
For more information on this issue, see:
- New IRS Section 6050W: What is it, and How it Affects Attorneys from LawPay (a CBA Member Benefit)
- Important Information for Lawyers Who Accept Debit and Credit Card Payments from IARDC
- FAQs on New Payment Card Reporting Requirements from IRS
Want to learn more about trust accounting rules? Watch the archived program “Trust Accounting: Everything You Need To Know” from the CBA, and check out the New Lawyer Toolkit: Basic Skills and Opening a Law Practice programs (both complimentary for CBA members) which include information about trust accounting, taking credit cards and best practices for billing.