Practice Management · Brief · Intro level
Pricing specialty tax work without biasing the answer
Value, hourly, and fixed pricing for credit and method-change work in a CPA practice: how to scope before quoting, what each model does to incentives, and the fee structures to avoid.
The fee structure a firm chooses for credit and method work is not just a business decision — it is a positioning of the firm's own incentives relative to a number the firm must professionally judge. Price it like the boutiques do, as a share of the benefit, and the firm has purchased their bias along with their margin. Price it right and the fee is boring, which is the goal.
The scoping conversation comes first
Quoting specialty work off a rate sheet fails in both directions — a flat "R&D credit: $7,500" underprices the client with four entities and no time records, and overprices the clean payroll-offset startup. A 60–90 minute diagnostic (some firms bill it, some fold it into the engagement) should establish: what the activity actually is; documentation quality; a rough benefit range; open years and statute posture; whether a boutique study is warranted or the firm can support the claim from the client's records; and — the piece firms skip — the firm's own role and exposure, since reviewing a specialist's deliverable is real work with real Section 6694 stakes. The scoping output doubles as the engagement-letter scope; see engagement letters for specialty tax work.
What each model does to incentives
Fee models for credit and method work, compared:
| Model | Incentive it creates | Best fit |
|---|---|---|
| Hourly | Thoroughness, at risk of overwork | Novel positions, messy records, exam support |
| Fixed fee after scoping | Efficiency within an agreed scope | Recurring credit computations, deliverable reviews, Form 3115 work |
| Value-priced fixed fee | Rewards expertise if set before the number is known | Complex one-time projects with clear client value |
| Percentage of benefit | Larger claims mean larger fees | Avoid |
| "Free unless we find savings" | File something for every prospect | Avoid |
Hourly is the least biased and the least popular; it suits controversy and true unknowns. Fixed-after-scoping is the workhorse: the client gets certainty, the firm gets margin for process quality, and nobody's compensation moves when the credit number does. Method-change projects — a look-back cost segregation with its Section 481(a) adjustment on Form 3115 — price well this way because the work is process-shaped even when the deduction is large.
The structures that bias judgment
The percentage fee is the obvious one, and for practitioners it is mostly prohibited anyway: Circular 230 §10.27 bars contingent fees for original returns and ordinary refund claims, with narrow exceptions for exam, penalty, and judicial contexts — the full map is in our brief on contingent fees under Circular 230. But subtler designs smuggle in the same tilt: a "value" fee quoted after the benefit is computed (the anchor is the credit, so the fee is a de facto percentage); tiered fixed fees keyed to benefit brackets; and success-fee kickers on amended-return refunds. State accountancy rules and AICPA ethics standards on contingent fees (aicpa-cima.com) frequently reach these arrangements even where Circular 230 arguably does not.
Two honest caveats. First, fixed fees carry their own hazard — scope creep absorbed silently until the reviewer is rushing the one task that protects the firm, the deliverable review; build a change-order habit. Second, hourly work on a small credit can consume the benefit: if the scoping call shows a $10,000 credit behind $8,000 of professional time, the right quote is the advice not to proceed. A pricing system that sometimes prices the engagement at zero is the one that proves the judgment is not for sale.
Frequently asked questions
- Should a CPA firm price R&D credit or cost segregation work as a percentage of the benefit?
- Generally no. Circular 230 §10.27 prohibits practitioners from charging contingent fees for preparing original returns and ordinary refund claims, and even where a percentage fee is technically available it ties the firm's compensation to the size of the number it is supposed to judge. Fixed or hourly pricing, set after a scoping conversation, preserves both compliance and objectivity.
- How should a firm scope a credit engagement before quoting a fee?
- With a short paid or unpaid diagnostic: the client's activities and documentation quality, the approximate benefit range, which years are open, whether a specialist study is needed, and what the firm's own role will be — preparation, review of a boutique's deliverable, or both. Quoting before scoping produces either an unprofitable engagement or pressure to inflate the claim to justify the fee.
- Is value pricing appropriate for tax credit work?
- Yes, if the value being priced is the firm's judgment and process rather than the credit's size. A fixed fee reflecting complexity, risk, and required expertise — set before the number is known — is value pricing done safely. A fee scaled to the dollars claimed is a contingent fee in substance, whatever the invoice calls it.