Ethics Opinion

Opinion No. 79-2

February 1979

Summary: An attorney may receive commissions from promoters of tax shelter sales, while at the same time providing legal advice to purchasers of the tax shelters, if the amount of the commissions and any possible adverse interest thereby created are fully disclosed to the purchaser-client and the purchaser-client consents.

Facts: An attorney has inquired whether he may establish a professional corporation which would receive fees based upon the selling price of a tax shelter, usually a limited partnership interest. The attorney who would receive such fees would also advise the purchasers as to the suitability for tax purposes of purchasing the limited partnership interest. The attorney would not charge a legal fee for the legal advice given, and would fully disclose to the purchaser-client the fee he received from the promoter.
The attorney does not represent the promoter in a legal capacity. Substantive law prohibits the purchaser-client from receiving a portion of the fee or commission from the promoters of the tax shelters. The attorney inquires whether this proposal is prohibited by the Code of Professional Ethics.

Discussion: It is well established that an attorney may engage in another profession other than the practice of law. Usually the entity involved in the other business is different from the entity providing legal advice. The committee finds no express prohibition on the professional corporation which provides legal advice on the suitability of tax shelters from receiving a fee from the promoter provided that the fee is fully disclosed. DR 5-101(A) provides:
Except with the consent of his client after full disclosure, a lawyer shall not accept employment if the exercise of his professional judgment on behalf of his client will be or reasonably may be affected by his own financial, business, property, or personal interests. (Emphasis added.)
If there is full disclosure of the amount of the fee and any possible adverse interest thereby created and consent by the purchaser-client, we cannot say in the facts stated that this rule proscribes rendering legal advice on the suitability of the tax shelters to the purchaser-clients. It would appear under the circumstances that the attorney's independent professional judgment "may reasonably be affected." However, DR 5-101(A) explicitly permits this arrangement if, after full disclosure, the client consents. The attorney should be extremely cautious in making full disclosure and obtaining meaningful consent. We emphasize that full disclosure and consent in these circumstances must mean that the purchaser-client fully understands the attorney's financial interest in the transaction and thereafter freely agrees to the representation.
DR 5-104(A) prohibits a lawyer from entering into a business transaction with a client "if they have differing interests and if the client expects the lawyer to exercise his professional judgment therein for the protection of the client, unless the client has consented after full disclosure." Similarly, if there is full disclosure of the amount of the fee and the possible adverse interest thereby created to the client, the committee believes that there can be no criticism of the attorney's conduct.

Permission to publish granted by the Board of Delegates, 1979. As stated in the Rules of the Committee on Professional Ethics, this advice is that of a committee without official governmental status.