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We prepared an IRS Form 1099-INT for the Lawyers Trust Fund of Illinois for interest income earned on our IOLTA accounts. On the form, we listed the Lawyers Trust Fund tax identification number (TIN) and identified the recipient as “IOLTA.” However, we received a CP 2100A notice regarding backup withholdings from the IRS indicating that we had listed the recipient’s name incorrectly. How should we list the name? Do we need to spell out “Interest on Lawyers Trust Account”? – IBA Compliance Connection

IBA Compliance Connection

Your go to source for compliance!

We prepared an IRS Form 1099-INT for the Lawyers Trust Fund of Illinois for interest income earned on our IOLTA accounts. On the form, we listed the Lawyers Trust Fund tax identification number (TIN) and identified the recipient as “IOLTA.” However, we received a CP 2100A notice regarding backup withholdings from the IRS indicating that we had listed the recipient’s name incorrectly. How should we list the name? Do we need to spell out “Interest on Lawyers Trust Account”?

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First, we note that you do not need to prepare 1099 Forms for the Lawyers Trust Fund of Illinois, because the organization is tax exempt. We spoke with the director of banking for the Lawyers Trust Fund of Illinois, who confirmed that 1099 forms are unnecessary and recommended that banks suppress these forms instead of sending them to her organization. In addition, she informed us that any tax-related forms involving the Lawyers Trust Fund (such as W-9 forms or 1099 forms), must list their name as “Lawyers Trust Fund of Illinois.”

For resources related to our guidance, please see:

  • IRS Publication 1281, pg. 6 (“Q… What is a CP2100 or CP2100A Notice? A… It is a notice that tells a payer that he or she may be responsible for backup withholding. It is accompanied by a listing of missing, incorrect, and/or not currently issued payee TINs.”)
  • Lawyer Trust Fund of Illinois – IOLTA Account Instructions (“Because the Lawyers Trust Fund is tax-exempt, no Form 1099 needs to be issued for the IOLTA account. A payer is not liable for penalty under Section 6676(b) for filing an information return with a mismatched TIN number when, pursuant to IRS Regulation Section 35a.9999-1, A-29, and IRS Publication 1281 (Rev. 8-90), p. 42, the payee is an exempt organization.”)