The IRS Just Made the Case Against Hourly Billing
What OPR’s new AI guidance means for how tax work gets priced
Robert Schulte · CEO, Exactera
On June 24, 2026, the IRS Office of Professional Responsibility issued Alert 2026-19, “Introductory Guidelines for Responsible AI Use in Federal Tax Practice.” Most of the profession is reading it as a compliance checklist. I read it as validation of a bet we made early at Exactera.
It’s the most comprehensive guidance OPR has put out on AI in tax practice. It takes the duties that have governed practitioners for years (due diligence, competence, confidentiality, fees, etc.) and shows how each one applies the moment you put a generative AI tool to work. The fees’ part is the one nobody in the industry wants to sit with.
The overlooked rule
Section 10.27 of Circular 230 has prohibited practitioners from charging an “unconscionable fee” since 2008. The phrase has mostly sat in the background, undefined and rarely tested. The new Alert aims it straight at AI.
The language is worth digesting word for word… AI can cut research and drafting time, OPR writes, “such that billing clients for manual labor or time that was not actually spent or double billing for AI-assisted tasks may violate § 10.27, depending on the facts.” Cost savings “should be passed on openly.” Practitioners should “fairly credit to the client’s account any cost reductions.”
In other words, if AI cut the work in half, the client’s bill is supposed to reflect it.
This is a facts-and-circumstances test, not an automatic violation. A single fast engagement isn’t misconduct but a pattern across clients is a different story. To me, the direction is unmistakable. The agency just told every tax practitioner in the country that efficiency gains belong to the client, not the invoice.
The dirty secret that’s now in the open
I’ve spent a lot of years building in this industry, and I’ll say plainly what most operators know and few admit. Firms adopt technology, get dramatically faster, and quietly keep the hours.
It isn’t usually fraud as much as it is maximizing the model. The billable hour rewards exactly this behavior — more hours mean more revenue, even when the work takes less time. When your unit of sale is time, every efficiency is a problem to manage rather than a gift to pass along. The better you get, the more you’re incented to pretend you didn’t. AI breaks that truce: when a tool compresses a week of research into an afternoon, the gap between time billed and value delivered stops being a rounding error and becomes the whole conversation.
What the guidance does and doesn’t do
I want to be precise, because precision is the point. The Alert does not ban hourly billing or mandate a pricing model. It never mentions value-based pricing, fixed fees, or outcomes. Anyone telling you that the IRS just outlawed the billable hour is overselling it.
What it does is narrower and, in my view, more consequential. It closes the economic argument for keeping AI gains off the client’s bill. Once an agency with disciplinary authority says efficiencies “should be passed on openly,” the firm that bills as if nothing changed is officially exposed versus just being behind the curve. OPR didn’t start the trend; in a 2026 survey of more than a thousand tax professionals, 69% said they anticipate moving to a value-based, hybrid, or fixed-fee billing model as AI commodifies routine work1 FloQast CEO Mike Whitmire put it more bluntly to Accounting Today: AI has already eroded the billable hour because it “completely decouples output from time spent.” The guidance simply removes the last comfortable place to hide.
The bet we made
This is the distortion we set out to fix when we built Exactera as an AI-native services company.
Our model is outcome-based. We use AI to absorb the most time-consuming parts of tax work (research, drafting, benchmarking, document assembly) so our experts spend their time where it matters: judgment, review, and the calls that carry real risk. We don’t bill for the hours AI eliminates. We charge for the expertise on top of the work and the defensible outcome it produces. That isn’t a pricing trick. It’s the only honest way to price work when the marginal cost of the next deliverable is collapsing.
The firms that internalize this first will define what tax services look like in five years. The ones that resist will eventually have to explain to their clients why the bill didn’t shrink when the work plainly did… and by then the client will already have a quote from someone who structured it honestly from the start.
We bet early that the future of this business is AI-enabled expertise delivered at a fixed, transparent price. On June 24, the IRS told the rest of the industry the bet was right.
The age of billing for time is ending. The age of billing for outcomes has begun.
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[1]Blue J and CPA.com, 2026 AI Tax Research Solution Outlook Report (June 8, 2026), based on a survey of more than 1,000 U.S. tax professionals. See cpa.com/2026-ai-report.
