A CPA letter of intent is the document that captures the proposed terms of an accounting firm sale or merger before either side signs a binding purchase agreement. It covers price, payment structure, the seller’s transition role, confidentiality, exclusivity, and the tax framework the deal will follow. Most of what the LOI says is expressly non-binding, but a short list of clauses becomes enforceable the moment both parties sign, and treating them casually can create real liability even if the deal never closes.
How the LOI Differs From the Purchase Agreement
The LOI is a negotiation framework, not a draft contract. A purchase agreement is the binding instrument, with representations, warranties, indemnification, and closing conditions. The LOI’s job is narrower: confirm that buyer and seller agree on the headline terms before either side spends serious money on attorneys, tax advisors, and forensic review.
A well-drafted LOI says plainly that most of its provisions are non-binding and that a separate definitive agreement will govern the actual transaction. When terms are left open for later negotiation, courts are unlikely to treat the LOI itself as an enforceable contract. The exceptions are a handful of provisions the parties intentionally make binding from signature, discussed below.
Price and Payment Structure
The purchase price in a CPA firm sale is almost always tied to gross recurring fees. Buyers typically apply a multiple between 1.0 and 1.5 times annual recurring revenue. Where you land in that range depends on client quality, revenue concentration, and how transferable the relationships are. A diversified book with retention consistently above 90 percent commands the top end. A practice heavily dependent on one or two large clients, or on the founder’s personal rapport, lands lower.
Payment structure matters as much as the headline number. Many deals split the consideration into installments tied to client retention. A common arrangement pays roughly a third at closing, a third after 12 months, and a third after 24 months, with each later installment adjusted by how much of the original client revenue actually stayed. Clawback provisions do that adjusting: if retained revenue drops below an agreed threshold during the earn-out period, remaining payments shrink proportionally. Spell out the retention formula, the measurement dates, and the adjustment mechanics in the LOI. Leaving them vague is how deals turn ugly in year two.
The Seller’s Transition Role
Sellers typically stay on for six months to two years after closing, introducing clients, transferring institutional knowledge, and co-signing engagement letters. Define the length of the transition, the seller’s compensation during that window, and what happens if the seller leaves early. The seller’s post-closing role also drives the client consent question described below, so a clear description now avoids rework later.
Non-Compete and Exclusivity
A non-compete protects the buyer’s investment by preventing the seller from opening a competing practice nearby and pulling clients back. State law controls enforceability. Courts generally look at whether the duration and geographic scope are reasonable; restrictions longer than two years or covering an unreasonably large territory draw judicial skepticism. California, Montana, North Dakota, and Oklahoma ban or severely restrict non-competes altogether. Non-competes tied to the sale of a business have historically received more favorable treatment than employment non-competes because the seller is being paid directly for the restriction. The FTC’s 2024 attempt to ban most non-competes nationwide was blocked by a federal court in August 2024 and remains unenforceable as of 2026. The LOI should specify the geographic radius, duration, and restricted activities so the definitive agreement isn’t starting from zero.
Exclusivity, often called a no-shop clause, is a separate protection and operates differently. It bars the seller from entertaining other offers for a defined window, usually long enough for the buyer to finish due diligence. Unlike the non-compete, exclusivity is normally binding from the moment the LOI is signed.
Which Provisions Actually Bind You
Most of the financial terms in a CPA LOI are expressly non-binding. The purchase price, payment schedule, and closing timeline are all subject to renegotiation once due diligence surfaces the full picture. A smaller group of clauses, though, is designed to be enforceable from signature:
- Confidentiality. Both sides agree not to disclose sensitive information learned during negotiations, including client lists, fee structures, internal financials, and staffing details. The obligation survives even if the deal collapses.
- Exclusivity. The seller agrees not to solicit or negotiate with competing buyers for a defined period. A breach can expose the seller to the buyer’s out-of-pocket expenses or a break-up fee.
- Governing law and dispute resolution. The LOI specifies which state’s law applies and whether disputes go to arbitration or litigation.
Break-up fees in M&A transactions generally run 1 to 4 percent of deal value. In smaller CPA firm sales, the fee is often a flat dollar amount rather than a percentage, but the idea is the same: the party that walks away without justification compensates the other for wasted time and expense.
The Tax Framework the LOI Should Set Up
Tax treatment can move hundreds of thousands of dollars between buyer and seller, and the LOI is where the basic structure gets established. Two issues matter most: goodwill amortization and purchase price allocation.
Goodwill and Section 197
A large share of what you pay for a CPA practice is goodwill: client relationships, reputation, and the expectation that work will keep coming. Goodwill qualifies as a Section 197 intangible, which lets the buyer amortize it over 15 years starting from the month of acquisition.1Office of the Law Revision Counsel. 26 U.S. Code 197 – Amortization of Goodwill and Certain Other Intangibles That amortization creates annual deductions that reduce the effective cost of the deal over time.
Sellers should pay attention to the split between personal and enterprise goodwill. Personal goodwill reflects the individual CPA’s relationships, reputation, and skills. When the seller is a shareholder in a C corporation and no employment agreement assigns those relationships to the corporation, personal goodwill can be sold directly by the individual and taxed at the lower capital gains rate rather than suffering double taxation at the corporate and individual levels. Raise this early and reflect it in the LOI’s allocation framework.
Purchase Price Allocation and Form 8594
Federal law requires both buyer and seller to allocate the purchase price among specific asset classes and report the allocation on Form 8594.2Office of the Law Revision Counsel. 26 U.S. Code 1060 – Special Allocation Rules for Certain Asset Acquisitions The classes run from cash and inventory through tangible assets like furniture and equipment and on up through intangibles including covenants not to compete, client-based intangibles, and goodwill.3Internal Revenue Service. Instructions for Form 8594 Asset Acquisition Statement Under Section 1060
If buyer and seller agree in writing on the allocation, that agreement binds both parties for tax purposes unless the IRS determines it is inappropriate.2Office of the Law Revision Counsel. 26 U.S. Code 1060 – Special Allocation Rules for Certain Asset Acquisitions The LOI need not finalize the allocation, but it should establish the framework. Buyers prefer to load more value into assets they can depreciate or amortize quickly; sellers often prefer allocations that produce capital gains rather than ordinary income. Deferring this to the purchase agreement stage is a reliable way to create a last-minute dispute that kills the deal.
AICPA Client Consent and Its Effect on Timing
This is where many buyers and sellers get tripped up. The AICPA Code of Professional Conduct, at ET Section 1.400.205, requires written client consent before client files transfer when the selling CPA completely gives up ownership in the successor firm.4AICPA. AICPA Code of Professional Conduct – ET Section 1.400.205
The selling CPA must send a written request to each client explaining the transaction, identifying the acquiring firm, and giving the client at least 90 days to respond. If the client doesn’t respond, consent is presumed. The acquiring firm cannot access or use any client file until the client affirmatively consents or the 90-day period runs out.4AICPA. AICPA Code of Professional Conduct – ET Section 1.400.205
There is an important exception. If the selling CPA becomes an equity owner in the acquiring firm, at any ownership percentage, the written consent requirement is waived. The exception does not apply if the seller comes on as a non-equity partner, employee, or consultant. Specify the seller’s post-closing role in the LOI clearly enough to determine which path applies, because the 90-day waiting period can meaningfully shift the closing date and the buyer’s ability to begin serving clients.
Professional Liability Tail Coverage
CPA professional liability policies almost always operate on a claims-made basis: they cover claims reported during the policy period, not claims arising from work done during it. When a firm changes hands and the seller’s policy lapses, any malpractice claim filed after the sale, even for work completed years earlier, falls into a coverage gap.
Tail coverage, formally an extended reporting period, fills that gap by extending the window for reporting claims under the seller’s old policy. Tail policies come in durations of one, three, or five years, or unlimited. The right length depends on the applicable statutes of limitation for professional negligence in the relevant state. The LOI should name who pays for tail coverage and set the minimum duration, because the cost can be significant and the question gets contentious if left to the purchase agreement stage. If the acquiring firm agrees to cover the seller’s prior acts under its own policy, tail coverage may be unnecessary, but that arrangement shifts malpractice risk to the buyer and should be reflected in the price or the indemnification terms.
Due Diligence Timeline and State Board Notice
Once both sides sign, formal due diligence begins. The buyer digs into individual client files, billing realization rates, work-in-progress, staff turnover, and any pending or past malpractice claims. The LOI should set a specific due diligence deadline, typically 30 to 60 days, and describe what happens if the buyer finds material problems: the right to renegotiate price, extend the deadline, or walk away. Because the 90-day AICPA consent window can run longer than due diligence itself, build both tracks into the LOI so the closing date accounts for them.
Most state boards of accountancy require notification when a licensed firm’s ownership changes. Rules vary, but a common requirement is written notice to the board within 30 days of any change in partners, shareholders, or members. Some states treat an ownership change combined with a name change as the creation of an entirely new firm, triggering a fresh license application rather than a simple notification. The LOI should identify which party handles state board filings and the associated fees. Missing a notification deadline can produce disciplinary action or a license lapse that undermines the entire transaction, and firms operating across state lines may face notification obligations in several jurisdictions at once.