Can a lawyer arrange for a CPA to take over, or buy, the lawyer's tax-return practice if the lawyer becomes disabled or retires?

Plain-English summary

A lawyer whose practice included preparing income tax returns asked three questions about winding it down. First, whether (with notice and consent) he and a CPA could agree that the accountant would complete and sign returns prepared on the lawyer's software if the lawyer became disabled. Second, whether he could sell his federal tax-return preparation practice to a CPA. Third, how to protect the confidentiality of client information stored on his computer if the practice were sold.

On the first inquiry, the committee said more facts were needed, but assuming the clients retained the lawyer as a lawyer, delegating return preparation to an independent accountant (a subcontractor) would require client consent under RPC 1.6(a) to reveal confidences and secrets, and the lawyer would have to structure the relationship so that no partnership formed (contrary to RPC 5.4(b)) and no fees were shared (contrary to RPC 5.4(a)), while avoiding facilitating the unauthorized practice of law under RPC 5.5(b) or (c). If instead the accountant were an employee, RPC 5.3(a) and (d) would require the lawyer to ensure the accountant's conduct was compatible with the lawyer's obligations and to maintain supervisory authority, and the lawyer could face discipline under RPC 1.1, 1.4, and 5.5 to the extent his disability left him unable to competently prepare returns, communicate with clients, or supervise. The committee noted that proposed RPC 5.7 on law-related services might offer further guidance.

On the second inquiry, the committee said a lawyer may sell a law practice, or a portion, to another lawyer or lawyers, citing Formal Opinion 192 (1996), but there was no precedent in Washington courts or its own opinions authorizing the sale of all or any portion of a practice to a non-lawyer, and the rules identified in the first inquiry would apply equally; it noted proposed RPC 1.17 would provide guidance. On the third inquiry, the committee said a multi-client database should not be disclosed to another person without informed consent satisfying RPC 1.6 from all affected clients, and that individual client electronic files might be transferred (for example, on a compact disc) to a successor once the necessary consents were obtained.

Currency note

This opinion was issued in 2005, before the Washington State Bar Association's adoption of the 2006 revisions to the Rules of Professional Conduct, including the proposed RPC 1.17 (sale of law practice) and RPC 5.7 (law-related services) the opinion anticipates. Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule mentioned here.

In practice

Under the Washington rules as they stood at the time of the opinion, the committee drew a firm line at the lawyer-nonlawyer boundary. A CPA could be involved only without a partnership or fee split (RPC 5.4) and without crossing into the unauthorized practice of law (RPC 5.5), and every disclosure of client information required informed consent under RPC 1.6. The committee said a practice could be sold to lawyers but found no authority to sell any part of it to a non-lawyer, and it treated transfer of client files, whether on sale or on a disability handoff, as gated on client consent. The committee flagged the then-proposed RPC 1.17 and 5.7 as the source of future guidance.

Common questions

Q: Can a lawyer have a CPA finish and sign clients' tax returns if the lawyer becomes disabled?

A: The committee said it could be possible with each client's informed consent under RPC 1.6, but the lawyer must avoid a partnership or fee split with the accountant (RPC 5.4) and must not facilitate the unauthorized practice of law (RPC 5.5).

Q: Can a lawyer sell a tax-return practice to a CPA?

A: The committee said a lawyer may sell a practice to other lawyers, but found no precedent authorizing the sale of any portion of a law practice to a non-lawyer.

Q: How is client data on the lawyer's computer protected if the practice is transferred?

A: The committee said a multi-client database may not be disclosed without informed consent satisfying RPC 1.6 from all affected clients; individual files might be transferred to a successor once consents are obtained.

Background and rules framework

The opinion interprets RPC 1.6 (Model Rule 1.6, confidentiality), RPC 5.4 (Model Rule 5.4, professional independence; no fee sharing or partnership with non-lawyers), RPC 5.5 (Model Rule 5.5, unauthorized practice of law), RPC 5.3 (Model Rule 5.3, responsibilities regarding nonlawyer assistants), and RPC 1.1 and 1.4 (Model Rules 1.1 and 1.4, competence and communication), and anticipates RPC 1.17 (sale of law practice) and RPC 5.7 (law-related services). It relies on Formal Opinion 192 (1996) for selling a practice to lawyers. The analysis turns on keeping a non-lawyer out of fee sharing, partnership, and the practice of law, and on client consent for any disclosure or transfer.

Citations and references

Rules of Professional Conduct:

• Model Rule 1.6 / Washington RPC 1.6 (confidentiality; informed consent to disclose)
• Model Rule 5.4 / Washington RPC 5.4(a), (b) (no fee sharing or partnership with a non-lawyer)
• Model Rule 5.5 / Washington RPC 5.5(b), (c) (unauthorized practice of law)
• Model Rule 5.3 / Washington RPC 5.3(a), (d) (responsibilities regarding nonlawyer assistants)
• Model Rule 1.1 / Washington RPC 1.1 (competence); Model Rule 1.4 / Washington RPC 1.4 (communication)
• Model Rule 1.17 / proposed Washington RPC 1.17 (sale of law practice); proposed Washington RPC 5.7 (law-related services)

Other opinions cited:

• WSBA Formal Opinion 192 (1996): a lawyer may sell a law practice, or a portion, to another lawyer or lawyers

See also

• WSBA Ethics Op. 1658: Sale of a Law Practice, Pricing and Gradual Sale
• WSBA Ethics Op. 1384: Noncompete Restrictions on a Retiring Partner
• WSBA Ethics Op. 1258: Safeguarding a Deceased Lawyer's Client Property

Source

• Landing page: https://ao.wsba.org/print.aspx?ID=1337

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

Advisory Opinion: 2098
Year Issued: 2005
RPC(s): RPC 1.1, 1.4, 1.6, 1.17, 5.3, 5.4, 5.5
Subject: Lawyer planning for closure of his business which includes tax accounting and preparing

Inquiry No. 1 The inquirer seeks the Committee’s opinion regarding whether it would be ethical, assuming appropriate notice and consent of the lawyer’s clients, for a lawyer and a certified public accountant to enter into an agreement whereby the accountant would complete and sign income tax returns prepared on the lawyer’s computer software in the event the lawyer suffers a disability.

Response: More facts are necessary to fully address the inquiry. The Committee assumes that the lawyer’s clients have retained the lawyer with the expectation that the lawyer would interpret and apply the relevant laws in connection with the preparation and filing of tax returns. In other words, the Committee assumes the lawyer’s clients have retained the lawyer in the capacity as a lawyer and not in the capacity as an accountant.

If the lawyer intends to delegate the responsibility to prepare and file forms to an independent accountant (i.e. a subcontractor), then the lawyer would be required by RPC 1.6(a) to obtain the consent of each client—after consultation—to reveal the client’s confidences and secrets relating to the preparation of tax returns. The lawyer would have to carefully delineate his relationship with the accountant so that (i) a partnership was not deemed to exist between the two (which would be contrary to RPC 5.4(b)), and (ii) fees were not shared between the two (which would be contrary to RPC 5.4(a)). The lawyer also would be required to take precautions that he was not violating RPC 5.5(b) or (c), relating to the unauthorized practice of law by non-lawyers, by allowing the accountant to complete and file the tax returns. The question as to what activities constitute the unauthorized practice of law is outside the scope of this Committee.

If the lawyer intends to retain the accountant as an employee (and not as a subcontractor), then the lawyer would be required by RPC 5.3(a) to ensure that the accountant’s conduct was compatible with the lawyer’s professional obligations. In addition, the Committee is concerned with the lawyer’s ability to maintain the necessary supervisory authority over the accountant, as required by RPC 5.3(d), if the lawyer intends that the accountant complete (while the lawyer is incapacitated) the legal services for which the lawyer was retained by clients. Furthermore, to the extent the lawyer maintains supervisory authority over the accountant-employee, the lawyer could be subject to discipline under RPC 1.1 (to the extent the lawyer’s disability renders the lawyer incompetent to prepare clients’ tax returns), RPC 1.4 (to the extent the lawyer’s disability renders the lawyer unable to communicate with his clients), and RPC 5.5 (to the extent the accountant-employee continues the lawyer’s tax form practice while the lawyer was incapacitated).

The Committee notes that the Washington Supreme Court has circulated proposed amendments to the Rules of Professional conduct. These can be viewed on the Washington State Bar Association’s internet web site. Proposed RPC 5.7, if adopted in its proposed form, might provide the lawyer with further guidance on this matter(See note 1 below). The comments to the proposed rule list accounting as a typical law-related service and describe “tax advice” as a law-related service that may be hard to distinguish from purely legal advice. Proposed RPC 5.7, comments 7 and 9. The comments also urge lawyers to communicate to the client that the law-related services they are receiving do not carry with them “the protections normally afforded as part of the client-lawyer relationship.” Proposed RPC 5.7, comment 1.

Inquiry No. 2 The inquirer also seeks the Committee’s opinion regarding whether, assuming the same ethical considerations were appropriately followed and applied (including appropriate notice and consent of the lawyer’s clients), a lawyer can sell to a certified public accountant the lawyer’s federal tax return preparation practice (e.g. the preparation of Internal Revenue Service Forms 706, 709, 1040, 1041, 1065, 1120 and 1120S).

Response: A lawyer may sell his law practice, or a portion thereof, to another lawyer or lawyers. See Formal Opinion 192 (1996). However, there is no precedent in the decisions of Washington courts or the opinions of this Committee authorizing a lawyer to sell all (or any portion) of the lawyer’s practice to a non-lawyer. This Committee believes the Rules of Professional conduct identified in response to Inquiry No. 1 would apply equally to the sale of a law practice by a lawyer to a non-lawyer.

The Committee notes that Proposed RPC 1.17, if adopted in its proposed form, would provide guidance in this area (see note 2 below).

Inquiry No. 3 The inquirer finally seeks the Committee’s opinion regarding how a lawyer would adequately protect the confidentiality of information stored on the lawyer’s computer hard drive if the lawyer’s federal tax return preparation practice is sold to a certified public accountant or if the lawyer’s entire practice is sold to another lawyer.

Response: A multi-client database should not be disclosed to another person unless the lawyer has received the informed consent to do so (in a manner that satisfies the requirements of RPC 1.6) from all clients for whom records are stored on such hard drive.

The Committee is not familiar with the lawyer’s computer hardware or software. However, the Committee believes there may be ways in which the electronic files of individual clients can be loaded onto a compact disc and sent to the person who will succeed the lawyer in providing tax-related services. This assumes, of course, that the lawyer will obtain the necessary consents from the client to transfer the information.

--------------------------- Note 1: Proposed RPC 5.7 (“Responsibilities Regarding Law-Related Services”) states: (a) A lawyer shall be subject to the Rules of Professional Conduct with respect to the provision of law-related services, as defined in paragraph (b), if the law-related services are provided: (1) by the lawyer in circumstances that are not distinct from the lawyer’s provision of legal services to clients; or (2) in other circumstances by an entity controlled by the lawyer individually or with others if the lawyer fails to take reasonable measures to assure that a person obtaining the law-related services knows that the services are not legal services and that the protections of the client-lawyer relationship do not exist. (b) The term “law-related services” denotes services that might reasonably be performed in conjunction with and in substance are related to the provision of legal services, and that are not prohibited as unauthorized practice of law when provided by a non-lawyer.

Note 2: Proposed RPC 1.17 (“Sale of Law Practice”) states: A lawyer or a law firm may sell or purchase a law practice, or an area of law practice, including good will, if the following conditions are satisfied: (a) The seller ceases to engage in the private practice of law, or in the area of practice that has been sold, in the geographic area in which the practice has been conducted; (b) The entire practice, or the entire area of practice, is sold to one or more lawyers or law firms; (c) The seller gives written notice to each of the seller’s clients regarding: (1) the proposed sale; (2) the client’s right to retain other counsel or take possession of the file; and (3) the fact that the client’s consent to the transfer of the client’s files will be presumed if the client does no take any action or does not otherwise object within ninety (90) days of receipt of the notice. If a client cannot be given notice, the representation of that client may be transferred to the purchaser only upon entry of an order so authorizing by a court having jurisdiction. The seller may disclose to the court in camera information relating to the representation only to the extent necessary to obtain an order authorizing the transfer of a file. (d) The fees charged client shall not be increased by reason of the sale.