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Key Facts
- Federal level: H.R. 6398 became Public Law 111-343 on December 29, 2010 and addressed federal deposit-insurance coverage for interest on lawyers trust accounts (IOLTA).
- Federal level: The Congressional Record discussion described the Term Asset Guarantee program expiring on December 31, 2010 and said a Dodd-Frank equivalent program starting January 1, 2011 omitted IOLTA coverage due to an inadvertent omission.
- Federal level: The Congressional Record passage stated that the bill corrected that inadvertent omission so that IOLTAs would be fully insured.
- Federal level: Current U.S. Code defines “interest on lawyers trust account” (IOLTA) as a system in which lawyers place certain client funds in interest-bearing or dividend-bearing accounts and use the interest or dividends to fund programs such as legal service organizations.
- Federal level: 12 U.S.C. § 1787(k)(5) instructs that the Administration provide pass-through share insurance for deposits or shares of any IOLTA or other similar escrow accounts.
- National overview: Rev. Rul. 87-2 treats a Lawyer Trust Account Fund as an integral part of the state when it is created, supervised, and controlled by a state Supreme Court.
- Federal level: Rev. Rul. 87-2 states that interest income earned on pooled accounts and paid over to the state-supervised fund pursuant to a state Supreme Court order is not includible in the gross incomes of either clients or lawyers.
- Federal level: IRS private letter ruling PLR-110527-98 states that interest earned in an IOLTA trust account and paid to a tax-exempt foundation is not includible in the client’s or law firm’s income and discusses general information-reporting concepts under 6049.
- State level: A Wisconsin Supreme Court order shows state court involvement in IOLTA mechanics by describing a petition to amend Supreme Court Rule 20:1.15 relating to interest paid on IOLTA accounts and ordering a public hearing.
This archive recovery pulls together the federal insurance and federal income-tax concepts connected to interest on lawyers trust accounts (IOLTA), using 2010 legislative history and current statutory and IRS guidance to show how the moving parts fit together.
- What IOLTA means in federal law
- Why IOLTA deposit insurance became a 2010 issue
- What Congress enacted in late 2010
- Federal insurance and federal income tax address different questions
- Federal statutory concepts for IOLTA pass through share insurance
- Federal income tax concepts for state supervised lawyer trust funds
- Information reporting concepts discussed in IRS guidance
- State court rulemaking can shape IOLTA mechanics
- Why this archive material still matters
- Sources
What IOLTA means in federal law
Current U.S. Code defines “interest on lawyers trust account” (IOLTA) as a system in which lawyers place certain client funds in interest-bearing or dividend-bearing accounts and then use the interest or dividends to fund programs such as legal service organizations (12 U.S.C. § 1787(k)(5)(i)).
Why IOLTA deposit insurance became a 2010 issue
In the Congressional Record discussion of H.R. 6398, the debate described the Term Asset Guarantee program, or TAG program, as expiring on December 31, 2010. The discussion then states that a Dodd-Frank equivalent program starting January 1, 2011 did not cover IOLTAs due to an inadvertent omission, and it says the bill corrected that omission so that IOLTAs would be fully insured.
What Congress enacted in late 2010
Congress.gov lists H.R. 6398 as having become Public Law 111-343 on December 29, 2010, which provides the enacted-law date tied to the legislative record described above.
Federal insurance and federal income tax address different questions
Readers often see IOLTA discussed in two separate lanes—(1) whether covered IOLTA accounts receive the relevant federal insurance treatment and (2) whether IOLTA-related income flows into taxable income for particular recipients.
| Topic area | What federal authorities focus on | Primary example sources |
|---|---|---|
| Insurance coverage for covered IOLTA accounts | Whether federal law provides pass-through insurance treatment for IOLTA deposits or shares | 12 U.S.C. § 1787(k)(5); Congressional Record discussion of H.R. 6398 |
| Federal income tax treatment | Whether and how IOLTA-related income is taxable to clients or lawyers under federal tax principles tied to state-supervised trust structures | Rev. Rul. 87-2; IRS private letter ruling PLR-110527-98 |
Federal statutory concepts for IOLTA pass through share insurance
12 U.S.C. § 1787(k)(5) provides that the Administration shall provide pass-through share insurance for the deposits or shares of any IOLTA or other similar escrow accounts, tying the federal insurance concept directly to the IOLTA system described in the same provision.
Federal income tax concepts for state supervised lawyer trust funds
IRS guidance in Rev. Rul. 87-2 describes a Lawyer Trust Account Fund that functions as an integral part of the state when it is created, supervised, and controlled by a state Supreme Court. The ruling also explains that interest income earned on pooled accounts and paid over to the Fund pursuant to a state Supreme Court order is not includible in the gross incomes of either clients or lawyers.
Information reporting concepts discussed in IRS guidance
IRS private letter ruling PLR-110527-98 addresses an IOLTA program structure in which client funds earn interest in an IOLTA trust account and the interest is paid to a foundation. The ruling states that the interest is not includible in the income of the client or law firm, and it discusses general information-reporting concepts under 6049, including that the financial institution is not required to report the interest paid to the foundation on an information return in the circumstances described.
State court rulemaking can shape IOLTA mechanics
Federal sources supply insurance and income-tax concepts, but state court rules often describe how IOLTA interest gets handled in practice. A Wisconsin Supreme Court order, for example, describes a petition to amend Supreme Court Rule 20:1.15 relating to interest paid on IOLTA accounts and orders a public hearing on the amended petition.
Why this archive material still matters
IOLTA sits at the intersection of federal deposit-insurance and federal income-tax analysis on one side and state-court supervision and rulemaking on the other. That combination explains why 2010 legislative history and IRS guidance show up together in many IOLTA discussions, while state court proceedings illustrate the local mechanics.
Some archive readers also look at ABA archive coverage connected to rule-of-law themes for additional historical context in a rule-of-law framing.
Sources
- Congress.gov bill status for H.R. 6398
- Congressional Record excerpt on H.R. 6398 and IOLTA
- 12 U.S.C. § 1787(k)(5) IOLTA pass-through share insurance
- Rev. Rul. 87-2 on Lawyer Trust Account Fund income tax
- IRS private letter ruling on IOLTA income and reporting
- Wisconsin order on amending Rule 20:1.15 for IOLTA
