Yes, and No. This depends on your licensing agency and the organizations you belong to.
In summary, IRS & EA’s are clear to transfer client lists but CPA’s in California need consent.
IRS
1.302.7216-2 sets forth use and disclosure regulations for client data. The tax preparer may, without prior
written approval, transfer the client list in combination with the sale or disposition of the firm.
According to the Chief Counsel for OPR: 301.7216-2(m) disclosure for evaluating a practice in the sale or due diligence process is exempt from Client consent rules under Circular 230 301.7216-2(n) transfer of client files in the sale of a tax practice is exempt from Client consent rules under Circular 230
AICPA
AICPA rules of professional conduct 1.700.001 do not allow for a member to disclose any confidential
client information without the specific consent of the client.
However, AICPA has an exception that specifically allows for the review of a practice (due diligence purposes, etc.) in association of a sale, merger, or purchase of the firm. Section 1.700.050 states that in order to reduce the threat of client data being released to an acceptable level, you may use a confidentiality agreement for this purpose.
California Board of Accountancy
California Code of Regulations Title 16 ss 54.3 state that a licensee that transfers all or part of the practice
to another person, and does not retain any ownership in the practice, will need to comply with written
notice to the clients. If you are a CA CPA then this section applies to you. You can see the full text of the
code including rules for notification online here, at CaseText.com.
If you decide to discontinue your practice without selling, you must still comply with some client notice
as described here, at CaseText.com.
Your Insurance Carrier
Unfortunately, you have to ask your specific E&O carrier. In our experience, all insurance carriers will err
on the side of caution and tell you to obtain client consent prior to releasing any client data to the Buyer.
Client Consent and My Sales Price:
If your situation requires client consent, then your sales price could be affected, and the terms of your
sale need to take this into account.
Your sales price could be determined by the number of clients who consented and not the full practice. Your revenue guarantee could be larger, and you may need to carry more financing to make up for any non-consenting clients than you were originally planning on.
Please plan ahead, your final closing date may need to be set 90 days in the future to allow for the deemed
client consent timeline to expire. This may prove to be difficult to accomplish if you sell in
November/December.
Client Notification Letters:
Every practice and situation will be different.
We feel that a personalized letter to the client with information on your situation is the best method to gather consent. You want to tell your clients what’s going on, who is taking over, calm their nerves by letting them know your plans (still working for a year, available to the buyer for phone calls/questions, or ability to review the return or client situations with the buyer, etc.)
Provided the 90-day term is specified in the consent letter, CA CBA and AICPA allow for a 90-day default consent if the client does not respond to authorization.
