What You Need to Know About the IRS’s New AI Guidance & Your Pricing

If you’re an accounting marketer, there’s some new IRS guidance about using AI in a federal tax practice that you need to know about. I know “IRS AI guidance” sounds like something to forward to the tax department and move on with your day. But buried in the discussion about professional responsibility, confidentiality and the use of AI is something that could directly affect how firms price their services and bill clients.

And last time I checked, price is still one of the four Ps of marketing.

Here’s What You Need to Know

The IRS recently issued guidance for tax professionals using AI. Much of it is what you would expect. Using AI doesn’t eliminate a practitioner’s professional responsibilities. Professionals still need to review the work, exercise judgment, protect client information and remain accountable for the advice they provide. From there, though, the guidance gets into fees.

Circular 230 already prohibits practitioners from charging an “unconscionable fee.” The new guidance applies that principle to AI and says that when AI reduces research and drafting time, practitioners should openly pass those efficiencies on to clients. It also addresses appropriate disclosure of AI-assisted activities and crediting cost reductions to the client.

That should get the attention of anyone whose firm still bills based on time. Suddenly the AI conversation has moved from which tools your firm approves and how you can use them to what happens to your revenue when those tools do exactly what you bought them to do.

AI tools save time, but if your pricing model is built on selling hours, what happens when AI eliminates a whole bunch of them?

AI Is Exposing a Pricing Problem

Let’s say a tax engagement historically took 10 hours. AI and automation help your team deliver the same result in six. That’s fantastic from a productivity standpoint, but if the firm sells hours, you now have to consider what happens to those four hours of revenue.

The IRS guidance makes it clear that firms can’t simply pretend the hours were worked. That makes perfect sense. If you’re billing based on time, the time has to be real. However, that exposes a much bigger issue. The problem is that the firm tied the value of the work to how long it took in the first place.

Clients didn’t hire the firm because they wanted 10 hours of tax work. They wanted an accurate return, sound professional judgment, confidence that they were making the right decisions and perhaps advice that helped them see something they otherwise would have missed. AI may change how efficiently the firm delivers those things, but it doesn’t necessarily change what those things are worth to the client.

That’s why this guidance should trigger a much bigger pricing conversation inside accounting firms – and accounting marketers need to be part of it.

Remember That Fourth P?

Marketing 101 gave us four Ps: product, price, place and promotion. Yet somewhere along the way, many accounting marketers became responsible for about three of them. You help firms determine what services to offer, who they’re for, what problems they solve and why clients should buy them. Then someone says “pricing,” and suddenly it’s a partner or finance conversation.

AI is going to make that separation increasingly difficult. For a profession that talks constantly about communicating value, we’ve been remarkably willing to let someone else decide how that value gets priced.

If you’re helping determine what a service is, who it’s for and why a client should buy it, shouldn’t you have some role in determining how it gets packaged and priced? That doesn’t mean marketing gets to pick a number and put it on the website. It means marketing needs a seat at the pricing table, especially as the question shifts from “How many hours will this take?” to “What is this worth?”

The Answer Isn’t Just “Charge Fewer Hours”

If your takeaway from the IRS guidance is simply that firms need to reduce bills as AI reduces hours, you’re missing the bigger opportunity. Maybe it’s time to reconsider why hours are determining the price in the first place.

I’ve advocated for value pricing for years. I even wrote a book, Radical Pricing, about it. I believe clients should pay based on the value they receive rather than the effort required to produce it. But firms don’t all have to adopt the exact same pricing methodology.

There are fixed or set fees. There are subscriptions and retainers. Services can be packaged into tiers. Firms can use value pricing or combinations of different approaches depending on the service and the client. What matters is starting to separate what the client pays from how many hours it took to produce it. This is becoming increasingly important since AI is going to keep changing the second half of that equation.

Your Invoice Is Marketing, Too

Marketers should also pay attention to the invoice itself. What does your firm’s invoice tell clients they’re buying? If it’s primarily a list of professionals, hourly rates and time spent, you’ve trained clients to evaluate your value based on effort. The more hours listed, the more work they assume you did. When the hours disappear, clients naturally expect the price to disappear with them.

Now imagine a firm that has agreed upfront on a price based on a clearly defined scope, outcome or package of services. The conversation changes. The client understands what they’re buying before the work begins. The price reinforces the value proposition instead of turning the end of the engagement into an accounting of how many hours everyone spent producing it.

Your invoice is one of the last messages a client receives about the value of your work. Make sure it reinforces what you sold them instead of reducing that value to hours.

What Should Marketers Do Now?

This shift is not as easy as walking into your managing partner’s office and saying the firm has to eliminate billable hours. Instead, you need to walk in with questions:

• Has someone in the firm reviewed the new IRS AI guidance?
• What does this mean for how we currently bill AI-assisted work?
• Which services are likely to see the greatest reductions in delivery time as AI adoption increases?
• How much of our pricing is still tied directly to hours?

Then start asking the marketing questions:

• What are clients actually buying from us?
• What do they value most?
• How could we package those services differently?
• Where could we test a fixed, value-based, subscription or other pricing model?
• What research do we need to understand willingness to pay?
• How should our proposals and invoices communicate the value clients are receiving?

You don’t need to become the firm’s pricing expert overnight, but you should be in the room. You have spent years helping firms tell a better story about their value. AI may finally force the profession to make sure the pricing model tells the same story.

The IRS is telling firms how to operate responsibly as AI changes how the work gets done. Your opportunity as marketers is to ask a bigger question: If AI is changing how we deliver value, is it finally time to change how we price it?

The billable hour wasn’t built for an AI world. Marketers can help build what comes next.

 

ABOUT THE AUTHOR: Jody Padar, CPA, is known as The Radical CPA for challenging the accounting profession to rethink how firms work, price and create value. She is the author of Radical Pricing, The Radical CPA and From Success to Significance, and co-founder of XcelLabs, where she is helping accounting professionals develop the human skills needed to lead and advise in an AI-first world. A longtime advocate for value pricing and technology-enabled transformation, Jody brings a practical, provocative perspective to what’s next for the profession.