Dear Ms. Yashar and Mr. Goldwasser:

I am responding to your request that this Department review for conformance with the relevant laws and rules the proposed acquisition by American Express Tax and Business Services, Inc. ("TBS") of the "non-professional" assets of a firm registered in this State to practice Certified Public Accountancy ("the CPA firm"). We have studied this matter as it pertains to New York State Laws, Regents Rules, and Commissioner’s Regulations. We have also obtained the views of the leadership of the New York State Society of Certified Public Accountants and advice from the New York State Board for Public Accountancy.

We submitted a number of questions to you that reflect our concerns over the need for TBS and the CPA firm to be wholly independent after the acquisition. This State’s regulatory system requires that professional services be provided directly to the client, and that the Certified Public Accountant’s professional judgement must be thoroughly independent of any business consideration that might arise from the dual roles that might be undertaken by licensed Certified Public Accountants under the proposed transaction.

You have described the acquisition as involving TBS’ purchasing the assets of the CPA firm that are not included within the definition of the practice of the profession of Certified Public Accountancy, as reflected in section 7401 of the Education Law. You have provided certain assurances regarding the practice of the CPA firm and CPAs employed by TBS after the transaction, and you have agreed additionally to comply with certain principles that we have identified as necessary to protect the public in this transaction.

Under the circumstances noted above, and those known to this Department at this time, and based upon TBS’ and CPA firm’s agreement that the assurances and principles noted below will be fully complied with by all CPAs working for the CPA firm and TBS after the transaction, including the partners of the CPA firm, TBS’ acquisition of the CPA firm does not appear to violate any provision of New York State laws relating to the practice of Certified Public Accountancy. Please note, however, that if additional facts or facts different from those of which the Department is aware of at this time characterize your business relationship, the Department's opinion may change.

In addition, the Department cautions the members of the CPA firm, along with the individual CPAs employed by TBS, that in the future the Department may review this entire matter in considerable depth to determine the necessary conditions under which licensees may associate with TBS. Following the conclusion of that review, the Department's opinion regarding the propriety of the transaction may change. If that should occur, the Department will contact you to discuss your options at that time.

Moreover, the Education Department does not engage in review for endorsement, approval or disapproval of private business transactions such as that contemplated between TBS and the CPA firm. Therefore, this letter should not be construed to constitute any form of official approval of the proposed transaction. The above representations should not be interpreted as superseding or waiving in any way the Regents authority to regulate the practice of Certified Public Accountancy under the Education Law and Regents Rules. Nor should conformance with the above terms and assurances be construed as shielding an individual Certified Public Accountant or firm from professional misconduct charges under the Education Law or Regents Rules. The Department is statutorily authorized and required to investigate and evaluate any allegations of potential professional misconduct or illegality which it receives, and any such allegation concerning this or any similar transaction will be investigated in the normal course.

Both TBS and the CPA firm will employ a model that contains some specific features developed to meet the goal of maintaining the quality and independence of the CPA profession, specifically:

Separate Business and Services. The CPA firm will be a separate and distinct legal entity from TBS. The CPA firm will be wholly owned by individual CPAs licensed to practice in New York. TBS will not have an ownership interest in the CPA firm and will not have any control with regard to the governance and organizational structure of the CPA firm. The CPA owners will make all decisions regarding the organization of the CPA firm, such as the form of entity, who to admit or terminate as owners, decision-making processes and other ongoing governance issues.

Separate Client Engagement and Billing. Clients will enter into separate engagement letters with the CPA firm for engagements to be performed by the CPA firm and will enter into engagement letters with TBS for engagements to be performed by TBS. The owners of the CPA firm will use CPA firm business cards and letterhead when engaged in CPA firm business. The accounts of the CPA firm and TBS will be separate and funds will not be commingled. The CPA firm would not collect funds for TBS. In addition, clients are billed separately for services provided by each entity and each entity is responsible for the collection of its own client receivables.

Names, Logos, and Marketing. TBS and the CPA firm will use distinct names and logos so that clients and the general public would understand that these are separate entities, running separate businesses. TBS’ marketing materials will reflect this separation and enhance public awareness of same, including an affirmative statement in TBS correspondence to potential clients for services contained within the scope of practice of Certified Public Accountancy, and advertising that TBS is not a licensed entity in the State of New York and is not engaged in the practice of Certified Public Accountancy. In circumstances where there is a potential for confusion, the CPA firm will explicitly inform the clients or potential clients, that TBS and its CPA employees may not practice Public Accountancy.

Employees. TBS will enter into agreements with its CPA employees, which contain provisions regarding the extent of service required, non-solicitation and confidentiality.

The terms of the employment agreements with the CPA employees who are selling their non-attest assets to TBS will include provisions regarding, (i) the position and duties of the employee; (ii) the extent of service; (iii) compensation; (iv) benefits; (v) the termination of the employment relationship; (vi) confidentiality; and (vii) non-solicitation.

Independence Standards. To assure that the CPA firm has sufficient independence to provide attest services, TBS and its affiliated entities will agree that they will not enter into certain specified prohibited business relationships with any of the attest clients of the CPA firm provided that the CPA firm has notified TBS of its relationship with such client. Similarly, the CPA firm will agree that it will not accept as a client any party with or for whom TBS or any of its affiliated entities has or provides any prohibited relationship and activity.¹

The CPA firm will agree with TBS that it will inform all of its clients that it is not part of TBS and that the CPA firm and its owners are responsible for the work of the CPA firm. The CPA firm has separate engagement letters with its clients and bills its clients separately for its engagements. The CPA firm sets its fees, approves billings and maintains separate books of accounts.

The economic independence of the CPA firm is further assured in that the CPA firm and its owners bear all risk of loss for the services it provides. At its sole cost and expense, the CPA firm will agree to maintain professional liability insurance.

Administrative Resources and Employee Leasing. The CPA firm and TBS will enter into an agreement which permits the CPA firm, in its sole discretion, to hire TBS to provide administrative services such as payroll, billing, purchasing, bookkeeping, collections and clerical support. This is a non-exclusive arrangement; in other words, the CPA firm can choose to handle these administrative services internally or to hire other persons or companies to provide them. In addition, the CPA firm and TBS will enter into an agreement which permits the CPA firm, in its sole discretion, to have access to and use certain of TBS’ office equipment. This is a non-exclusive arrangement, allowing the CPA firm to choose to purchase and use its own equipment or to lease the use of equipment from someone else. For the use of the administrative services and the office equipment, the CPA firm will pay TBS a flat monthly fee.

The CPA firm will also enter into a non-exclusive agreement which permits the CPA firm, in its sole discretion, to lease employees from TBS, but the CPA firm retains the right to hire its own personnel or lease employees from any outside firm. For any employees that it leases from TBS, the CPA firm will pay a fixed percentage of TBS’ standard hourly rates (or such other rate as negotiated between the parties) and reimburse TBS for out of pocket expenses incurred in connection with providing these services.

The CPA firm will also enter into a sublease agreement with TBS pursuant to which TBS agrees to sublease a specified area of its office space to the CPA firm for a fixed monthly flat fee rent.

Confidentiality of Client Information. TBS would agree to cause its employees who provide leased services to the CPA firm to maintain in confidence all confidential information with respect to clients of the CPA firm acquired in performing services for the CPA firm. TBS would also agree to maintain reasonable safeguards to prevent the dissemination or use of confidential information which is acquired through the provision of services to the CPA firm and would agree that it will not use such information or permit any of its affiliates to use such information for marketing purposes except as such client consents. With respect to parties that are clients of both TBS and the CPA firm, TBS and the CPA firm would agree to use commercially reasonable efforts to include in their respective engagement letters the consent of the client to the use by TBS and the CPA firm of information acquired by the other.

The regulatory framework in this State requires safeguards to ensure the independence of the practice of the profession of Certified Public Accountancy. In addition to the assurances provided above, you have agreed that the practices after the acquisition will conform to the principles noted below, some of which may be covered in your assurances.

• First, the CPA firm and TBS must maintain separate business identities. TBS may not perform or offer services within the definition of practice of Certified Public Accountancy. TBS may not own or in any way control or influence the operation of the CPA firm.
• Second, the two entities must maintain distinct operations in order to perpetuate the autonomy of the CPA firm. This autonomy is necessary to ensure that the Department licenses only properly constituted firms, to ensure the independence and objectivity of the accounting firm.
  TBS may employ Certified Public Accountants, but only to provide services that are not within the definition of practice of Certified Public Accountancy. The CPA firm may lease CPAs, and they are permitted to work in the same way as licensees employed by firms such as Accountemps. Such individual licensees could not provide public accounting services through, or as employees of, the business services firm directly to an individual or entity seeking public accounting services.
• Third, the two entities would need names which were sufficiently different so as to avoid reasonable confusion that the unlicensed business services firm was able to offer or provide public accounting services.
• Fourth, the two entities would have to take affirmative steps to inform the public and potential clients of the distinction between the two firms.
• Fifth, in order to maintain the distinction between the entities and to eliminate the appearance that TBS would be able to offer and provide public accounting services, the two firms would need to enter into separate engagement letters with each client. Note, however, that Part 29 of the Board of Regents Rules prohibits the obtaining of clients through any corporation or business used as a feeder.
• Sixth, in order to maintain the level of independence required by the Regent Rules, the CPA firm could not provide public accounting services to TBS.
• Seventh, licensees would be prohibited from receiving, directly or indirectly, contingent fee payments through TBS if such payments were from a client who is also a client of the CPA firm, for services that are within the scope of practice of Certified Public Accountancy.
• Eighth, neither the CPA firm nor the licensees may give or receive, directly or indirectly, commissions or referral fees for services that are within the definition of the CPA practice. Moreover, in no event would it be permissible to transfer profits of any kind to or from the CPA firm via TBS through the business arrangements contemplated in this transaction.
• Ninth, the CPA firm partners may only be compensated by TBS at the fair value of services actually performed. The value paid by the CPA firm for services provided by TBS must also be at a fair value of the services provided.
• Tenth, the CPA firm must make provision for compliance with quality review procedures, particularly where the CPAs or Public Accountants performing the public accounting services are not the permanent employees of the CPA firm.

Thank you for your cooperation with us during the course of our review. As we discussed, we hope to share with you more specificity about our interpretation of the scope of the Certified Public Accountancy profession in the future.