NUMBER 343 1938

Question. One of the members of a law firm has been specializing in internal revenue matters. From time to time he has been employing an accountant, who is also admitted to practice before the United States Board of Tax Appeals, as a consultant. In a number of the tax cases received by the law firm, a fee is contingent upon the amount of the tax refund received from the Government, or upon the amount by which the additional tax assessment is reduced.

May the law firm enter into an arrangement with the accountant whereby fees are paid to the said accountant for his services only in the event that a fee is received by the law firm, the amount of such accountant’s fee to be a certain percentage of the amount received by the lawyers?

Answer. The question states that the member of the law firm “has been employing an accountant . . . as a consultant.” It also refers to “tax cases received by the law firm” and presumably controlled by it; and the proposed arrangement is one “whereby fees are paid to the said accountant for his services “The Committee, therefore, assumes that neither the law firm nor the accountant contemplates payment to the other of a procurement commission, which is disapproved by both professions. (See Canon 34, Canons of Professional Ethics of American Bar Association; Opinions 42 and 250;. Opinion 97 of the Committee on Professional Ethics and Grievances, American Bar Association; Rule 4, Rules of Professional Conduct of American Institute of Accountants.)

The percentage to be received by the accountant would presumably be fixed to cover not only the services of the accountant but also his risk. In effect, he would either share with the lawyer through reduction of the latter’s compensation or assume by arrangement with him the risk of litigation expenses. The Committee deems this a violation of the spirit, if not the letter, of Canon 42 of the Canons of Professional Ethics which reads: “A lawyer may not properly agree with a client that the lawyer shall pay or bear the expenses of litigation; he may in good faith advance expenses as a matter of convenience, but subject to reimbursement.”

In the opinion of the Committee, if a lawyer retained in a tax case finds that it requires the services of an accountant not in his regular employ, his proper course is either to contract for such services on a fixed fee or per diem basis and charge the expenses thereof to the client as a necessary disbursement, or preferably to recommend to the client that the latter retain and pay the accountant (see Opinion 287).

If the lawyer’s fee has been previously agreed upon on the assumption that he will not require outside assistance, and his own services are less than those contemplated, in the opinion of the Committee it would, of course, not be professionally improper for the lawyer to make a corresponding reduction in his charge.

This opinion does not countenance any device by which the lawyer directly or indirectly divides his fee with a layman. (See Canon 34, Canons of Professional Ethics; Opinions 47, 74, 96, and 287 of this Committee.)

The proposed arrangement does not measure the compensation of either the lawyer or the accountant by the respective services of each, and in the opinion of the Committee it would not be professionally proper for the lawyer to enter into it.


(Note: The Committee calls attention to the provision in Regulations for Practice before the Treasury Department effective October 1, 1936: “A wholly contingent fee agreement shall not be entered into with a client by an enrolled person unless the financial status of the client is such that he would otherwise be unable to obtain the services of an attorney or agent.” Department Circular No. 230, Revised September 15, 1936, Page 6 (y).)