California CPA commission and referral fee disclosure rules

The short answer for California CPAs

California sets its own rules. The California Accountancy Act, in Division 3, Chapter 1 of the Business and Professions Code, is where commissions and referral fees are usually addressed, with section 5061 the provision most often cited, and the California Board of Accountancy enforces it. Confirm the section number and current wording yourself; we have not reproduced it. Three questions decide whether a SourceX referral reward is workable: does your firm perform attest work for the client, have you disclosed the payment in writing, and does your firm's policy allow it.

This guide does not reproduce section 5061. Open the current text on the California Legislative Information site and read it with the Board's regulations in Title 16 of the California Code of Regulations before you act. The steps below show what to do with what you find.

Where do California's rules sit?

Four layers can apply to one referral, and the strictest one sets your limit.

The AICPA Code keeps these topics together: its section on fees and other types of remuneration contains both 1.510, contingent fees, and 1.520, commissions and referral fees (AICPA Code, copy hosted by the Minnesota Society of CPAs). The AICPA's online Code is the authoritative version. For your California license, the Accountancy Act and the Board's regulations are the text that counts, and their wording can differ from the AICPA's.

A step list for California firms

1. Pull the current text. Download section 5061 and the related Board regulations, and note the retrieval date.
2. Map the client's services. From the engagement letters, list audits, reviews, compilations, examinations of prospective financial information, tax work and advisory work.
3. Flag attest relationships. If your firm performs any attest service for the company, stop and get an answer from counsel or the Board before mentioning a reward. The explainer on whether a CPA can introduce an audit client to a data licensing program sets out why that is the hardest case.
4. Classify the payment. A SourceX reward is a payment from a third party for introducing a client to that third party's service, contingent on a completed and paid deal. Decide with counsel which California category it fits.
5. Decide who is paid. The firm or an individual licensee, following firm policy.
6. Write the disclosure. Payer, basis of calculation, trigger, effect on the client and your role, delivered before the client applies.
7. Screen fit anonymously. Run the company fit checker before you raise it, so a disclosure is never spent on a company that falls short of the baseline.
8. Introduce, then step back. Send your referral link or use the referral form, sharing only basic fit facts.

How does engagement type change the answer?

On exit work, keep two processes apart. A data licensing introduction is not a securities transaction in a company sale. The M&A broker exemption in Exchange Act section 15(b)(13), in 15 U.S.C. 78o, concerns brokers effecting securities transactions to transfer ownership of an eligible privately held company; it does not address data licensing introductions. Our guide to the M&A broker exemption explains its limits.

California clients that hold consumer data

If the company you introduce does business in California and holds consumer personal information, the licensing work has to respect the California Consumer Privacy Act. The Attorney General's CCPA overview describes consumers' rights to know, delete, correct, opt out of the sale or sharing of their personal information and limit use of sensitive personal information. It also explains that the law applies to for-profit businesses doing business in California that meet any one of three thresholds.

That analysis belongs to the company, its counsel and SourceX, and it is one more reason your role stops at the introduction. Companies whose records are mainly consumer personal data with no licensing basis are poor candidates in any case; operational business records such as tickets, project files, CRM histories and finance workflows are the usual focus.

What to disclose, and how

Write it in the client's language rather than legal terms, and deliver it before the client applies:

Keep the signed acknowledgment with the engagement records. If section 5061 or the regulations call for particular content, such as the amount or basis of the payment, add it in the form the text requires.

Questions to ask counsel or the Board

• Does section 5061 cover a payment SourceX makes only when a deal completes, given that SourceX is not your client?
• Which attest services rule the payment out, and do compilations count?
• What must the written disclosure state, and when must the client receive it?
• Does the answer change if the firm, not the individual licensee, receives the payment?
• Do the Board's regulations add conditions beyond the statute?

Reward payments and 1099 reporting

Partners earn 25% of the eligible platform fees SourceX actually collects from the referred company's licensing deals, capped at $100,000 per referred company. Rewards are payable only after the buyer pays and SourceX receives its fee; no reward is guaranteed.

The IRS instructions for Forms 1099-MISC and 1099-NEC explain when a business reports payments to someone who is not its employee for services. The reporting threshold depends on the year of payment, so check the current instructions with your tax adviser. Payment details are governed by the program terms.

This is general information, not legal, tax or financial advice. Confirm with your own counsel, tax adviser or professional body before acting.

Next step

With all eight steps done, register as a partner and share your link with the client. For a contrast with another large state, see Texas CPA commission and referral fee rules, and the accountant partner overview for the client profiles that tend to qualify.