May a New York attorney's nonlegal entity (here, one providing tax filings) share a percentage of revenue with a nonlawyer technology developer, and pay referral fees to other attorneys who refer clients to the entity?
NY State Bar Ethics Opinion 1289: Law-Related Services Entity Owned by Attorneys
Short answer: The opinion concludes that an attorney-owned entity providing nonlegal services (here, annual tax filings) may share a percentage of its revenue with a nonlawyer technology developer and pay referral fees to outside attorneys, provided the attorney owners give the written Rule 5.7(a)(4) disclaimer and otherwise prevent any reasonable customer belief that the entity is providing legal services. If the entity is treated as a law firm because the customer could reasonably perceive a client-lawyer relationship, the proposed payments would violate Rule 5.4(a) and Rule 7.2(a).
Disclaimer: This is an advisory ethics opinion. Advisory opinions are not binding; they interpret the New York Rules of Professional Conduct and are persuasive authority. This summary is for research purposes only and is not legal advice. Verify current rules before acting on any specific guidance.
About this page: The plain-English summary and Q&A below were written by Ezel based on the official opinion. We do not reproduce the opinion text on this page; follow the linked source for the official text, which controls.
Plain-English summary
The inquirer is a New York-admitted attorney proposing an entity owned and operated by attorneys that would submit annual tax filings on behalf of companies. The entity would (1) pay a nonlawyer technology developer a percentage of revenue for building the platform, and (2) pay referral fees to attorneys who refer clients to the entity. The Committee analyzes the proposal under Rule 5.4(a), Rule 5.7, Rule 7.2(a), Rule 8.4(a), and Rule 1.7.
The Committee identifies Rule 5.4(a) as the starting point. Read directly, if the entity were a law firm, the revenue-sharing arrangement with a nonlawyer would violate Rule 5.4(a)'s prohibition on sharing legal fees with nonlawyers. The Committee notes Rule 5.4(a)'s purpose is to remove incentives for nonlawyers to interfere with lawyer judgment, citing NYC Bar Op. 2014-1 and 2018-5.
The Committee then turns to Rule 5.7, which governs nonlegal services provided by attorneys or by entities they own or control. Rule 5.7(a)(3) provides that the Rules apply if the recipient of the nonlegal services "could reasonably believe that the nonlegal services are the subject of a client-lawyer relationship." Rule 5.7(a)(4) creates a presumption of that belief unless the lawyer has given written notice that the services are not legal services and that the client-lawyer protections do not apply. Per the opinion, if the attorney owners provide that written disclaimer and otherwise avoid creating a reasonable belief in a client-lawyer relationship, the entity is not subject to Rule 5.4(a) for the proposed revenue-sharing.
The Committee flags but does not resolve a threshold legal question: whether the New York Judiciary Law permits a nonlawyer entity to file annual tax returns. The Committee cites Rule 5.7(c)'s definition of "nonlegal services" as services that are not prohibited as unauthorized practice of law when provided by a nonlawyer, and points to N.Y. State 813 and N.Y. State 1068 for the principle that the Committee does not opine on what constitutes unauthorized practice of law. If the underlying statute forbids a nonlawyer entity from providing tax filings, the entity cannot be operated.
On referral fees, the Committee notes Rule 7.2(a) would bar payments by a law firm for client referrals, but the prohibition does not reach a nonlegal entity that has properly avoided application of the Rules. Rule 7.2(a) does not bar lawyers from accepting referral fees from nonlawyer entities. The Committee qualifies this with Rule 8.4(a): the attorney owners cannot knowingly assist another attorney in violating the Rules, so if they know a referring attorney is forbidden under Rule 1.7 or other law from accepting a referral fee, or is not obtaining client consent, they may not pay it. The Committee cites N.Y. State 845 (real estate broker context) for the parallel principle.
On Rule 1.7, the Committee identifies the circumstances in which an attorney accepting a referral fee may face a personal-interest conflict. The Committee compares N.Y. State 1200 (no referrals to financial advisors for a fee), 1086 (nonwaivable conflict for investment-firm referrals), and 845 (real estate brokers) with N.Y. State 981 (referral fee from security-services provider permissible because unrelated to legal representation). The Committee declines to opine on whether specific referring attorneys may accept fees in this context, treating that as a fact-specific inquiry the inquirer must make on a case-by-case basis.
In practice
Under this opinion, an attorney-owned entity providing nonlegal services in New York may pay nonlawyer developers a percentage of revenue and may pay referral fees to outside attorneys, provided two conditions are met. First, per Rule 5.7(a)(4), the attorney owners must give customers a written disclaimer that the services are not legal services and that no client-lawyer protection attaches; and the surrounding circumstances must not give customers a reasonable belief that the entity is providing legal services. Second, per Rule 8.4(a), if the attorney owners know a referring attorney is forbidden by Rule 1.7 or other law from taking the referral fee, or that the referring attorney is not obtaining the client consent Rule 1.7(b) requires, the entity may not pay the referral fee.
The opinion does not resolve whether the inquirer's specific service (annual tax filings) constitutes nonlegal services under New York Judiciary Law. The Committee identifies that as a question of law outside its mandate.
Common questions
Q: When does Rule 5.4(a)'s ban on fee sharing with nonlawyers apply to an attorney-owned nonlegal entity?
A: The opinion concludes that Rule 5.4(a) applies if, under Rule 5.7(a)(3), the customer could reasonably believe the nonlegal services are the subject of a client-lawyer relationship. Per Rule 5.7(a)(4), this belief is presumed unless the attorney provides the customer with a written disclaimer that the services are not legal services. If the attorneys give the disclaimer and otherwise avoid creating the misimpression, Rule 5.4(a) does not bar revenue-sharing with the nonlawyer.
Q: Can the entity pay referral fees to other attorneys who send clients to it?
A: The opinion concludes yes, if the entity has properly avoided application of the Rules under Rule 5.7. Rule 7.2(a) does not apply to a nonlegal entity that is not a law firm, and Rule 7.2(a) does not bar lawyers from accepting referral fees from nonlawyer entities. Per Rule 8.4(a), however, the owners may not knowingly pay a referral fee to an attorney who is forbidden by Rule 1.7 or other law from accepting it.
Q: When may a referring attorney accept a fee for referring clients to a nonlawyer entity?
A: The opinion is fact-specific. The Committee compares opinions reaching different results: N.Y. State 1200 (no, financial advisors), 1086 (nonwaivable conflict, investment firms), and 845 (no, real estate brokers when the lawyer represents a buyer or seller) with N.Y. State 981 (yes, referrals to security-services provider unrelated to legal representation). Per Rule 1.7(a)(2)/1.7(b), if there is a significant risk that the expected referral fee will adversely affect the lawyer's professional judgment, the lawyer may proceed only with informed client consent confirmed in writing.
Q: Does the Committee resolve whether annual tax filings by a nonlawyer entity is the unauthorized practice of law?
A: No. The Committee identifies that as a question of law beyond its jurisdiction, citing N.Y. State 813 and N.Y. State 1068, and points to Judiciary Law §§ 476-a, 476-b, 478, 484-486 and 485-a as the relevant statutory framework. If the Judiciary Law forbids a nonlawyer entity from providing the services, the entity cannot operate.
Background and rules framework
The opinion interprets New York's Rule 5.7, which governs lawyers' nonlegal services and the conditions under which those services are subject to the Rules of Professional Conduct, alongside Rule 5.4(a) (sharing legal fees with nonlawyers), Rule 7.2(a) (payments for recommending lawyers), Rule 8.4(a) (knowingly assisting Rules violations), and Rule 1.7 (concurrent conflicts). The Committee follows its prior line on attorney-owned entities providing nonlegal services and on referral fees, principally NYC Bar Op. 2014-1, NYC Bar Op. 2018-5, N.Y. State 832 (2009), N.Y. State 845 (2010), N.Y. State 981 (2013), N.Y. State 1086 (2016), and N.Y. State 1200 (2020).
Citations and references
Rules of Professional Conduct (New York):
- N.Y. Rule 5.4(a) (no sharing of legal fees with nonlawyers)
- N.Y. Rule 5.7(a)(3), (a)(4), (c) (lawyer-owned entities; written disclaimer; definition of nonlegal services)
- N.Y. Rule 7.2(a) (no payments for client recommendations)
- N.Y. Rule 8.4(a) (no knowingly assisting Rules violations)
- N.Y. Rule 1.7(a)(2), (b) (personal-interest conflicts and informed consent)
Statutes referenced (not interpreted):
- N.Y. Judiciary Law §§ 476-a, 476-b, 478, 484-486 (unauthorized practice)
- N.Y. Judiciary Law § 485-a (felony violation provisions)
Other opinions cited:
- N.Y. State 557 (1984): tax-return preparation as a service performable by both lawyers and nonlawyers.
- N.Y. State 662 (1994): tax-return preparation by a lawyer holding out as a lawyer constitutes the practice of law.
- N.Y. State 813: Committee does not opine on unauthorized practice.
- N.Y. State 832 (2009): Rule 5.7(a)(4) written notice requirement.
- N.Y. State 845 (2010): referral fees in real estate broker context; Rule 8.4(a) parallel.
- N.Y. State 981 (2013): referral fees from a security-services provider are permissible.
- N.Y. State 1068 (2015): Committee does not opine on the criminal unauthorized-practice statute.
- N.Y. State 1086 (2016): nonwaivable conflict in investment-firm referral fees.
- N.Y. State 1200 (2020): referrals to financial advisors for fees prohibited.
- NYC Bar 2014-1 (2014): Rule 5.4(a) purpose.
- NYC Bar 2018-5 (2018): revenue-share and profit-share with nonlawyers under Rule 5.4(a).
See also
- NY State Bar Op. 1288: Nonlawyer Ownership of a Professional Corporation
- NY State Bar Op. 1291: Participation in an Alternative Business Structure (ABS)
- ISBA Op. 25-02: Participation in 3rd Party For-Profit Client Referral Service