Handbook on Client Trust Accounting for Attorneys
Rule of Professional Conduct 1.15
Business & Professions Code sections 6091.2, Article 14 - 6211, 6212, and 6213
Rules of the State Bar of California, Title 2, Division 5, Trust Accounts
FAQs about IOLTA
Eligible Financial Institutions
Client funds that can earn revenue for the client in excess of the costs to hold those accounts must be deposited for the benefit of the client.
Client funds that are nominal in amount or are on deposit for such a short period of time that the funds cannot earn net income (income over costs) for the client, must be deposited or invested by attorneys into pooled IOLTA (Interest on Lawyers’ Trust Accounts) on which the interest or dividends are paid to the State Bar. (Business & Professions Code sections Business and Professions Code section 6091.2, Business and Professions Code sections 6211, 6212 and 6213)
There are no tax consequences to the attorney or the client for the interest or dividend remitted to the State Bar from an IOLTA account that bears the State Bar’s taxpayer identification number. Because the State Bar is tax exempt, it is not necessary for the financial institution to complete IRS Form 1099 for interest or dividends on IOLTA accounts.
Note: The State Bar’s federal taxpayer identification number is only for the interest or dividends paid to the State Bar, not for the principal of settlement or other funds placed in the trust account.
An IOLTA account that has been opened or closed must be updated for State Bar records in one of two ways:
The State Bar of California
Legal Services Trust Fund Program
180 Howard St.
San Francisco, CA 94105
Report any changes to your IOLTA account immediately. You only need to report an attorney Client Trust Account coded with the State Bar of California's taxpayer identification number. You do not need to report an out-of-state account.
Your bank or financial institution can help you evaluate whether or not it is possible to earn income for the client, taking into consideration the amount of interest an individual client's funds must generate to be practical in light of the costs involved in earning and accounting for the interest. Factors that must be considered in making this determination are stated in the Rules of the State Bar of California, Title 2, Division 5, Rule 2.110(A)
The State Bar will not bring disciplinary charges against a member for determining in good faith whether or not to place funds in an IOLTA account. [State Bar Rule 2.110(B)]