AI Saved Your Agency 12 Hours. You Don't Owe the Client a Discount.

By Craig S. Cody, CPA, Certified Tax Coach.

Here's the answer up front. No, your agency doesn't owe a client a lower fee because AI made the work faster. The only case where you do is if your fee was a count of hours to begin with. If it was, AI didn't create the problem. It exposed one you already had. The rest of this article is about a fight my own profession is having with its regulator right now over exactly this question, why the outcome matters to marketing and PR agency owners, and the three sentences you should add to your next proposal before a client's procurement team asks.

I'm a CPA. The rules that govern how I practice before the IRS are called Circular 230, and in June the office that enforces them told practitioners like me that when AI saves us time, the savings should show up on the client's bill.

Here's my problem with that. My firm has never priced by the hour. We've always priced on the deliverable. What a client pays us for is the insight, and then the right numbers in the right boxes. There are no hours in that fee for AI to take out. In September, the AICPA, the body that represents my profession, pushed back on the same ground. I've watched this argument from the inside, and I'm telling you about it because you're next.

What Did the IRS Tell Tax Practitioners About AI and Fees?

On June 24, 2026, the IRS Office of Professional Responsibility posted what it called introductory guidelines for responsible AI use in federal tax practice. Most of it is uncontroversial. Review everything the machine produces. Check the citations. Protect client data. Nobody in my profession argued with any of that.

Then it got to fees. Practitioners using generative AI, the guidance said, should pass along efficiencies gained from the technology through billing practices that reflect reduced research and drafting time. Firms should "fairly credit to the client's account any cost reductions." And it tied all of that to section 10.27 of Circular 230, which prohibits charging "an unconscionable fee."

Read that carefully, because there are two ideas in it and only one of them is right.

The first idea is that you can't bill a client for twenty hours of manual labor when the work took eight. That's correct, and it always was. Billing for time that wasn't spent is a lie with a dollar sign on it, and no AI policy was ever needed to make it wrong.

The second idea is the problem. Pass along the efficiencies. Credit the client for the cost reduction. That sentence only makes sense if the fee was built out of hours in the first place. It assumes the bill is a labor recipe, and that when an ingredient gets cheaper, the price of the dish must drop.

Why Did the AICPA Push Back?

On September 8, The Tax Adviser reported that the AICPA is asking the IRS to clarify the language. The three arguments its leadership made are the same three you're going to need, so pay attention to the shape of them.

The first is that adoption isn't free. Eva Simpson, the AICPA's vice president for tax and advisory member value, said the IRS statement "implies that any efficiencies gained through AI should be directly passed on to the client," and called that view overly simplistic because it ignores "software licensing costs, implementation expenses, governance requirements, and the significant investment needed to train professionals to use these tools responsibly and effectively."

The second is that the liability never moved. Mark Koziel, the AICPA's president and CEO, pointed out that CPAs still carry the risk and liability that come with preparing and filing a return, and said the OPR language was not authoritative and might be "overstepping a little bit." Melanie Lauridsen, who runs tax policy and advocacy, put it more directly: "value pricing is something that is just part of business, and you have to be able to include the liability that you're taking."

The third is the one that ends the argument. Jan Lewis, the AICPA's chair, said the work "has a cost and it has a benefit, and we need to bill for that service based on the value provided." Under value pricing, the number of hours not spent isn't a discount owed. It isn't a number at all.

Why Should a Marketing or PR Agency Owner Care About a Tax Rule?

Because you don't have a Circular 230, and what you have instead has sharper teeth.

You have a client with a procurement team and a renewal date. And a federal agency just wrote down, in a public bulletin, the exact argument that client is going to make to you: the tool made it faster, so the bill should be smaller. My profession got the polite version, from a regulator, with a comment period. You'll get it on a Tuesday afternoon call with a client who read the same headlines about AI that you did.

Here's the difference in how the two of us can answer it. The AICPA has decades of institutional weight, a policy team, and a Washington office. When it says "we price on value, not hours," the IRS has to engage with that. When you say it to a client, you'd better have already been doing it, because the client can check.

Which is why I'd treat this as an early warning rather than a curiosity. Watch how the profession's answer holds up. Then make sure yours is built before you need it.

Do You Actually Owe the Client a Discount?

Only if you sold them hours.

That's the whole test, and it's worth sitting with, because the discount demand isn't really a negotiation. It's a diagnostic. A client can only ask for hours back if you handed them hours in the first place. If your last proposal has a line that reads forty hours of design at a rate, you gave the client the formula for their own discount, and when AI cuts the forty to fifteen, they'll do the arithmetic before you do.

I've argued before that AI isn't a discount strategy, and I still mean it. Clients didn't ask for cheaper work because you got faster. But I'll be honest about the uncomfortable half of this, because the IRS is right about one thing. If you bill hours, and AI cut the hours, and you're still invoicing the old number, then you're billing for time you didn't spend. Every agency owner reading this knows at least one shop that's doing exactly that right now and hoping the client doesn't notice. That's the one move everyone in this fight agrees is wrong. Don't defend it. Change the model instead.

The pass-through logic is unanswerable under hourly billing. That's precisely why the profession's answer couldn't be "the discount should be smaller." It had to be "we don't price that way." It's the answer my own firm gives, and it's true: there were never any hours in the number to begin with. Yours has to be the same.

What Did the Client Actually Buy?

Not a labor recipe. Nobody hires an agency to consume hours. They hire an agency because something needs to go out under their name and be right, and someone other than them needs to be accountable when it isn't.

That's where the liability point turns from a CPA problem into your problem. When a campaign misses, when the creative gets pulled, when the press release lands wrong, the client doesn't call the software. The tool doesn't sign the statement of work. It doesn't sit in the client review. It doesn't get fired when the quarter goes badly. You do.

AI is a subcontractor that can't be sued. That's not a complaint about the technology. It's a description of what the fee is for. The fee buys the judgment about what to make, and the accountability for what got made. AI compressed the time between those two things. It didn't touch either of them.

It's the same split in my shop. The client is paying for the insight about what to do, and then for the right numbers landing in the right boxes. A tool can speed up the boxes. It can't supply the insight, and it doesn't sign the return.

So when a client asks what they're paying for now that the drafts come faster, the answer is: the same thing you were paying for before. You're paying for the humans who decide, and the humans who answer for it. That part never got cheaper. If anything, sixty variants need more judgment than six.

What Does It Mean to Prove the Economics?

The AICPA's position rests on being able to show value. So does yours, and this is where a CPA earns the right to be in the conversation.

Before you defend a fee, know what AI actually did to your own numbers. There are only three places it can show up. Your gross margin on the work went up. Your capacity or your speed went up in a way you could sell. Or the client's outcome got better in a way you can point to. If AI improved none of those three, you don't have AI leverage to defend. You have another software bill, and the client's procurement team will be right to ask about it. Start with the margin, and make sure you're calculating it on the right denominator, because a margin figure that includes pass-through media in the base will lie to you first and to the client second.

I've written separately about how to measure the return and how to control what the tools spend. This article isn't that. This one is about the conversation, and the conversation goes better when you walk in already knowing which of the three moved.

How Do You Answer the Discount Question Before It's Asked?

You write the answer into the proposal, so the question never gets to arrive first.

Notice what the IRS also asked for in that same bulletin: disclosure. Tell the client, in general or specific terms, what the AI did. My profession bristled at the fee language, but the disclosure request is a gift, and it's a gift for you too. The agency that discloses AI use on its own terms controls the pricing conversation. The agency that gets found out owes a discount by default, because now it's negotiating from the position of having hidden something.

So put three sentences in every proposal and every renewal from now on. Adapt the words, keep the jobs they do.

One, disclose. "We use AI tools in parts of our research, production and analysis."

Two, state the basis of the fee. "Our fee covers the scope and outcomes described in this agreement. It isn't a count of hours."

Three, own the accountability. "Every deliverable is reviewed by our team before it reaches you, and we stand behind all of it."

Disclosure, basis, accountability. Those are the same three things the AICPA argued to the IRS, in the same order, and they're the same three things that hold up when a client pushes. If you've said them before the work starts, the discount question is already answered. If you say them for the first time when the client asks, you're explaining, and explaining is what a discount sounds like on the way in.

And when the question does come anyway, and it will, don't answer with a number. Answer with a question: "Which outcome in the agreement would you like less of?" Said calmly, it does two things. It moves the conversation off hours and back onto what they bought. And it tells you very quickly whether you're talking to a client or to a purchasing department.

Monday morning, open your last three proposals and search for the word "hours." Every place it appears is a place you've pre-written the client's discount request for them.

Who This Is For, and Who It Isn't

If you run a marketing or PR agency, you've rolled AI into delivery, and you've had the quiet thought that a client is going to bring it up at renewal, this is for you. The conversation is coming. Whether it goes well is almost entirely decided by what's already in the paperwork when it does.

If your agency bills strictly by the hour and you want to keep it that way, I can't help you here, and neither can the AICPA. The pass-through argument is correct about you, and the fix isn't a better comeback, it's a different pricing model. And if you're hoping the answer is to hide the AI and keep the old number, that's the one option everyone on every side of this fight agrees is wrong. The agencies that flourish through this will be the ones that said it first.

Frequently Asked Questions

Do I have to lower my fees because AI made the work faster?

No, unless your fee was built as hours times a rate. If it was, the client can reasonably expect fewer hours to mean a smaller bill, and the honest fix is to change the pricing model rather than keep invoicing the old number. If your fee is for a defined scope and outcome, faster production doesn't change what the client bought, and no discount is owed.

What did the IRS say about AI and billing?

In June 2026 the IRS Office of Professional Responsibility issued introductory guidelines on AI use in federal tax practice. It said practitioners should reflect AI efficiencies in their billing and "fairly credit to the client's account any cost reductions," and it tied that to Circular 230's rule against charging an unconscionable fee. The guidance applies to tax practitioners, not to agencies, but it lays out the same argument a client's procurement team will make.

Why did the AICPA object to the IRS guidance?

The AICPA said the guidance ignores the full cost of adopting AI, including licensing, implementation, governance and training, and that it leaves no room for value pricing. Its leadership also argued that CPAs still carry all the liability for the work regardless of how it was produced, and that fees should be based on the value provided rather than the hours spent.

Should I tell clients my agency uses AI?

Yes, and on your own terms. Disclose it in the proposal, alongside a plain statement that the fee covers scope and outcomes rather than hours, and a commitment that your team reviews and stands behind every deliverable. An agency that discloses first controls the pricing conversation. An agency whose client discovers it later is negotiating from a weaker position.

What should I say when a client asks for an AI discount?

Don't answer with a number. Ask which outcome in the agreement they'd like less of. That moves the conversation from hours back to what they actually bought, and it makes clear that the fee covers judgment and accountability, which AI didn't change. If the fee was already framed that way in the proposal, the question mostly answers itself.

How do I know if AI is actually improving my agency's economics?

Look at three numbers. Gross margin on the work, calculated on agency gross income rather than total billings. Capacity or speed you were able to sell rather than absorb. And a client outcome you can point to. If none of the three moved, the tools are a cost, not leverage, and that's worth knowing before you defend a fee built on them.

The Bottom Line

A federal regulator just told my profession that AI savings belong to the client. My profession answered that the fee was never made of hours, that the liability never moved, and that the work is priced on what it's worth. That answer is going to hold, and it's the same answer you'll need.

You don't owe anyone a discount for getting better at your job. You do owe them a clear statement of what they're paying for, before they have to ask.

If you want to see whether the money you're keeping is actually staying kept, on the tax side as well as the pricing side, book a Free Tax Analysis. Send over your last two filed returns and we'll show you where the opportunities are. And if you just want to talk through how your proposals are built, let's talk.

Book a Free Tax Analysis

Craig S. Cody is a CPA, Certified Tax Coach, and retired NYPD Lieutenant. His firm works with more than 70 marketing and advertising agency owners every month, helping them keep more of what they make through proactive tax planning.

This article is general education, not advice for your specific situation. Confirm your own facts with your advisor before acting.