By Julie Bays, OBA Management Assistance Program Director

It is tax season, which means banks are sending out 1099 forms.

If you receive a 1099 for your IOLTA trust account, stop and do not ignore it.

That should never happen.

In a properly set up IOLTA account, the interest does not belong to the lawyer, and it does not stay in the account. The bank is supposed to automatically remit that interest to the Oklahoma Bar Foundation. The lawyer should never see it, never report it and never receive a tax form for it.

So how does something like this occur?

Sometimes, the bank simply sets the account up wrong. That happens more often than you might think. But if interest has been accumulating in the account long enough for the bank to issue a 1099, that also means no one noticed.

Interest does not appear overnight. It shows up on monthly statements. It shows up in the transaction register. It shows up during reconciliation.

Which means this is not just a bank mistake. It is a reconciliation mistake.

A properly functioning IOLTA account should be boring. You should never see interest credited to it. Ever. If you do, that is your cue to stop immediately and call the bank.

This is why reviewing your trust account statements and performing a true three-way reconciliation every month matters so much. Reconciliation is not just about making sure the math works. It is about spotting activity that should never be there in the first place.

Software will happily reconcile an account that is set up completely wrong. Only a lawyer who understands what an IOLTA should look like will catch this in the first month.

If it has been a while since you reviewed the basics of trust accounting and three-way reconciliation, now is a good time for a refresher. I wrote a detailed article for the Oklahoma Bar Journal, “Trust Accounting Basics,” that walks you through the process step by step.

You can also learn more about how IOLTA interest is handled by visiting the Oklahoma Bar Foundation.

Your IOLTA account should never surprise you. If it does, that is the warning sign.