What it Means for You – Part 2: Brand New Day (for Fees)

As discussed in Part 1 of this article, on June 24, 2026, the IRS Office of Professional Responsibility (OPR) released Issue Number 2026-19, providing the first formal regulatory framework for the use of Artificial Intelligence (AI) in federal tax practice.  Part 1 focused on client data security and best practices to ensure compliance with the new guidance. In Part 2, the focus is on how the guidance approaches fees and offers a way to restructure engagements to ensure long-term business health and scalability.

Moving Toward Value-Based Pricing

Setting aside the R&D tax credit focus of Part 1 for a moment, AI is disrupting the accounting landscape whole-cloth. The billable hours for time-intensive audit, compliance, and bookkeeping work are going the way of the dinosaurs. Copious articles and blog posts have been written about how accountants should embrace and adopt AI tools, but the method of adoption is left up to the practitioner or firm. An obvious question from an accountant is, “how do I bill a client for the use of this new tool or technology?” The IRS’ guidelines spell out what a practitioner cannot do and what they must do when using AI tools.

Using AI is envisioned as reducing research and drafting time and the IRS uses Circ 230 Sec. 10.27(a) to disallow billing clients for the time saved (not spent) conducting those tasks. Moreover, the guidance uses the term “double-billing” for AI-assisted tasks. While not specifically stated, this cautions against a practitioner billing two hours for the same real-world hour. For example, billing for the time spent working on a task for client A while an AI agent or tool works on client B. Or, if you are billing in minimum increments, billing a quarter hour for work that is not substantive on the human’s part like clicking “approve once” in Claude. What is specifically stated is that practitioners are to a) disclose the use of AI tools to clients, and b) calculate the savings created by use of those tools and pass them along to the client. This seems easier said than done, especially when there are multiple systems in use and varying levels of transparency in token usage or costs per project. It is our perspective that this guidance is what will finally lead to the death of the billable hour.

It is time for all of us to embrace value-based pricing or value billing. Value-based pricing is the best way to navigate the uncertainty created by AI, outside investment (private equity) leading to super-firm mergers, and the disfunction inherent to an understaffed IRS. 

Value Billing in Practice

Value billing is a pricing model where clients are charged based on the value, outcome, or benefit provided by a service rather than the time spent or resources used to deliver it. This approach contrasts with traditional hourly billing, as fees are determined by the economic impact, cost savings, or strategic worth of the service to the client.

Key characteristics and implications include:

• Client Predictability: Clients pay a fixed or agreed-upon fee upfront, eliminating anxiety over runaway costs and unexpected invoices.
• Aligned Incentives: Providers are rewarded for efficiency and results rather than billable hours, encouraging them to use technology and streamlined processes to deliver outcomes faster.
• Risk Sharing: The service provider bears the risk if a task takes longer than expected, while the client may pay a premium for work completed by a more experienced team.

Determining the subjective “value” requires collaboration and transparency; disagreements on perceived value can lead to disputes, and providers face financial risk if they underestimate the effort required. The best path here is a forensic approach. For a client’s project, review the hours worked by staff in prior years, provide context with tax savings or other valuable results, and assign a fixed fee that the client is used to for subsequent years’ work. If hours can be reduced by leveraging technology, account for it to the best of your ability as a percentage or fixed amount of hours reduction. Then share this with the client for discussion. In subsequent years, you can update the analysis based on the prior year actuals. In this way, you can pass along savings to the client or show a reason why the cost must increase the next year based on the data.

The greatest obstacle most firms will need to overcome is inertia. Modifying your entire practice’s fee structure will take some work but it is worth it to adapt to the guardrails the IRS has created and ensure profitability. As mentioned in Part 1, when using AI tools, you need a competent professional reviewing the output to ensure the work is valid or viable. The better the professional, the fewer mistakes a client will ever see, less time is spent making corrections, and the better value the client receives. A firm with a good team can and should charge more for the work of their team, provided they have the results and track record to support a premium rate. Clients will choose if they want lower fees with more exposure or the need for more hands-on involvement in monthly accounting, or if they prefer to pay a premium for peace of mind and being able to focus on the business. This may sound exactly like life before AI, and it should. The point is to keep the market predictable but change how you charge clients in response to the new guidance.

The LAB’s Perspective: Turning Compliance into a Competitive Advantage

At The LAB Business Solutions, we help accounting firms integrate technology not just for speed, but for ongoing advisory and quality control. The firms that thrive in this new regulatory environment are those that stop viewing AI as merely a “shortcut” and start viewing it more as a tool for cementing yourself as a trusted advisor. 

For example, the R&D tax credit requires an intensive process of interviewing, drafting, and analyzing a great deal of documentation. AI can compress some of the time by handling data entry, initial drafting, and other tasks. However, the process should always have human judgement before anything makes it onto a return. The greatest value a trusted advisor brings has always been their judgement. The math of the R&D tax credit can be done on a four-function calculator. Judgement is required because there is a lot of guidance with varying levels of complexity and cross-references to other statutory information – all of which must be evaluated in the context of the client’s fact pattern with professional judgement about what is noise and what is not. AI cannot reliably replace the trusted advisor’s client-facing experience and good judgement. You cement yourself as the trusted advisor by relying on your sharpened skillsets and leveraging AI using your SVP (see Part 1).  

Additionally, if your firm still relies on hourly billing for anything from audit, compliance, or even R&D studies, you are facing a “race to the bottom” in terms of revenue for the tasks you routinely perform. More importantly, you may be running afoul of the IRS’s new guidance if you do not disclose your AI usage (see Part 3) and credit their accounts for gained efficiency. This is why I recommend that every CPA firm build out a fixed-fee-based CAS practice and/or expand its consulting capabilities under fixed-fee engagements. The point of the CAS practice unit is to leverage human experience and judgement to provide better outcomes for clients. When you’re good, clients will pay a premium for the peace of mind your judgement affords.

Firms should view this as an opportunity to move toward value-based pricing for advisory services. By agreeing to a fixed fee with an expected deliverable, you align your interests with the client’s and stay compliant with the OPR’s expectations. You negotiated the fee based on the value of the work and client is protected from additional billings if you are not as efficient as you anticipated.

Conclusion: A New Standard for R&D Excellence

The IRS OPR bulletin does not have to be a stumbling block. This guidance can serve as a roadmap for how to navigate the changes we are seeing in the industry. By adopting these introductory guidelines early, your firm can demonstrate a level of professionalism and security that sets you apart. The goal is to use technology to enhance your professional judgment, not replace it.

If you are looking to scale your practice while staying ahead of these regulatory changes, contact The LAB to discuss how we can help.

Stay tuned for the thrilling conclusion to this series in Part 3: Disclosure(s) Day.