Advisory is the word firms reach for when the work is not a return or a financial statement, and that vagueness costs money. Four different things get sold as CPA advisory services, and they do not share a rulebook. Tax planning sits inside Circular 230, which also rules out charging for it as a share of the savings. Securities advice sits under a federal statute whose exclusion for accountants is narrower than it sounds, and every one of these lines competes for the same reviewer hours that February to April already claims.
What Separates Advisory From Compliance
The dividing line is not subject matter. It is who sets the deadline and who owns the decision.
Compliance work has a due date set by someone else and a deliverable defined by a form or a standard. Advisory work has a due date you negotiate and a deliverable defined by a decision the client has to make. A cash forecast built in March because the bank's loan agreement requires it is compliance work wearing a different name, since the lender set the date and the covenant set the format. The same forecast built in August, so the owner can decide whether to sign the equipment loan, is advisory.
That test decides staffing before it decides marketing. Filing dates are published a year ahead, so compliance can be scheduled against them. A client decision cannot be, which is why advisory usually loses that scheduling contest to a filing deadline.
The Four Things Firms Sell as CPA Advisory Services
Grouping them by the rulebook each one drags in is more useful than grouping them by client size or fee.
Tax planning and advice. Entity selection, timing of income and deductions, credit and incentive work, and structuring a transaction before it happens. The raw material for it is already on the desk during compliance season, which makes it the cheapest of the four to start. It also carries the heaviest rulebook. The definition that governs how a firm may charge for a matter before the IRS expressly includes tax planning and advice, so this line is not a separate consulting product sitting outside the practice rules (Circular No. 230, section 10.27).
Finance function advice. Close quality, chart of accounts design, monthly reporting packs, budget versus actual, and cash runway. This line is also sold under the label client advisory services, or CAS. The decision it drives is operational, so its value depends entirely on the underlying bookkeeping being right, which makes it the line that fails quietly when the books run late. If that client is also an attest client, independence is a question you settle before scoping, not after.
Event and transaction advice. Buying or selling a business, succession, financing, and exit planning. These engagements are episodic and partner heavy, and they are hard to push down to a junior, so they read as profitable per hour while still capping what the firm can carry.
Investment and wealth advice. Recommending what a client should hold, buy, or sell. This is the one of the four that can pull a firm under a separate federal securities regime rather than under the professional rules it already lives with, and it is the easiest to drift into, since it can start with a single client question rather than a decision to launch a service.
When Tax Advisory Is Written Down, Circular 230 Sets the Content
Once the advisory deliverable is a memo or an email about federal tax, the content requirements are already written down. Section 10.37 of Treasury Department Circular No. 230 sets six of them, and the first five govern how the advice gets built. The practitioner must base the written advice on reasonable factual and legal assumptions, including assumptions as to future events, and must reasonably consider all relevant facts and circumstances the practitioner knows or reasonably should know. The practitioner must use reasonable efforts to identify and ascertain the facts relevant to the matter, and must not rely on representations, statements, findings, or agreements, including projections, financial forecasts, or appraisals, where reliance would be unreasonable. The fifth requirement is to relate applicable law and authorities to facts.
A sixth requirement is the one that changes how advisory work gets written. Under section 10.37(a)(2)(vi), the practitioner must not, in evaluating a federal tax matter, take into account the possibility that a tax return will not be audited or that a matter will not be raised on audit (Circular No. 230, section 10.37). Audit odds are not an input you are permitted to price into the advice, which rules out the whole family of recommendations that only work if nobody looks.
The Fee Model Circular 230 Rules Out
Outside a short list of exceptions, you cannot charge a percentage of the tax you save a client on a federal matter. Section 10.27(b)(1) states that, except as provided in paragraphs (b)(2), (3), and (4), a practitioner may not charge a contingent fee for services rendered in connection with any matter before the Internal Revenue Service, and section 10.27(c)(1) defines a contingent fee to include a fee based on a percentage of the refund reported on a return, a fee based on a percentage of the taxes saved, or a fee that otherwise depends on the specific result attained (Treasury Department Circular No. 230, section 10.27).
The scope is wider than the label suggests. Section 10.27(c)(2) says a matter before the Internal Revenue Service includes tax planning and advice, along with preparing or filing returns and claims for refund (Circular No. 230, section 10.27). Planning sits inside the rule, not outside it.
The exceptions are real but narrow, and two of the four share one stem. A contingent fee is permitted for services rendered in connection with the IRS examination of, or challenge to, an original tax return. The same permission covers an amended return or claim for refund or credit, but only where that amended return or claim was filed within 120 days of the taxpayer receiving a written notice of the examination of, or a written challenge to, the original tax return. Separately, a contingent fee is permitted for a claim for credit or refund filed solely in connection with the determination of statutory interest or penalties assessed by the IRS, and for services rendered in connection with any judicial proceeding arising under the Internal Revenue Code (Circular No. 230, section 10.27).
For a new advisory line, the practical reading is short. Price the engagement against a defined scope, because a fixed fee for a defined scope does not depend on the result attained, and keep any share of the savings out of the fee formula entirely.
Treasury published proposed amendments to these practice rules on December 26, 2024 that would, among other changes, classify the use of certain contingent fee arrangements as disreputable conduct (Federal Register, proposed rule on practice before the IRS). The version the IRS publishes today is still the June 2014 revision (Circular No. 230), so check the currency date on section 10.27 in the Code of Federal Regulations before you build a fee schedule that leans on the exceptions.
When Advisory Work Creates a Conflict You Have to Paper
Advisory pulls a firm toward advising both sides of the same table, and the practice rules address that directly. Section 10.29(a) provides that a practitioner shall not represent a client before the Internal Revenue Service if the representation involves a conflict of interest, which exists if the representation of one client will be directly adverse to another client, or if there is a significant risk that the representation of one or more clients will be materially limited by the practitioner's responsibilities to another client, a former client, or a third person, or by a personal interest of the practitioner (Circular No. 230, section 10.29).
You can still act, on conditions. Section 10.29(b) permits the representation where the practitioner reasonably believes he or she can provide competent and diligent representation to each affected client, the representation is not prohibited by law, and each affected client waives the conflict and gives informed consent at the time the practitioner knows the conflict exists. The written confirmation of that consent may follow within a reasonable period of time, but in no event later than 30 days, and section 10.29(c) requires copies of the written consents to be retained for at least 36 months from the date of the conclusion of the representation of the affected clients (Circular No. 230, section 10.29).
Succession work, buy-sell advice between co-owners, and divorce-related planning for joint clients are where this surfaces first. That timing is why the consent belongs in the scoping conversation rather than in a file you tidy up later.
When Financial Advice Becomes Investment Advice
The exclusion accountants rely on here is narrower than its reputation. The Investment Advisers Act of 1940 defines an investment adviser as any person who, for compensation, engages in the business of advising others as to the value of securities or as to the advisability of investing in, purchasing, or selling securities, and it excludes at 15 U.S.C. 80b-2(a)(11)(B) any lawyer, accountant, engineer, or teacher whose performance of such services is solely incidental to the practice of his profession (U.S. Code, Investment Advisers Act definitions).
Solely incidental is doing the work in that sentence. Once securities advice becomes a separately marketed service with its own fee, the exclusion turns into the question rather than the answer, and the answer comes from securities counsel before the service page goes live. That is also why the wealth-advice line is the one to scope last, not first.
Why Advisory Stalls in Firms That Already Sell It
When advisory stalls in a firm that already sells it, look at capacity before strategy. Advisory needs the same people who review returns, normally the partner and the senior reviewer, and compliance has a deadline set in law while advisory has a client who will wait. Work with a legal due date wins that contest, so advisory drifts into the weeks after the season, which is when the firm is least able to do it well.
You can test this on your own records instead of taking it on faith. Count the advisory hours your reviewers actually billed between February and April last year, then set that against what the plan assumed they would bill. If the gap is wide, the service did not fail. It lost a scheduling fight it was never resourced to win.
Four Checks Before You Add an Advisory Line
Run these in order, because each one can stop the next.
- Name the deliverable and the decision it drives. If you cannot say which decision the client makes with the output, you have a report, not an advisory service.
- Put the rulebook beside it. Federal tax planning brings Circular 230. Securities advice brings the Advisers Act question. An attest client brings independence.
- Price on scope, not on outcome. Write the fee against a defined engagement and keep the result attained out of the arithmetic.
- Free the hours before you sell them. An advisory line that depends on reviewer time you have not yet freed is a promise made in October and broken in March.
When Not to Add Advisory
Three situations make a new advisory line the wrong move for this year.
If compliance work is already going out late, advisory makes both late, and the client notices the late return first. If the only person who can deliver the advice is the partner who is already the constraint, the line is a second job rather than a growth line. And if the client's books are unreliable, the advice inherits that unreliability, so the fix is the close, not the pitch.
Frequently Asked Questions
What are CPA advisory services? Advisory services are the work a firm does to inform a client decision rather than to satisfy a filing or reporting obligation. In practice they group into tax planning and advice, finance function advice, event and transaction advice, and investment advice, and each group carries different professional rules.
Can a CPA charge a percentage of the tax savings? Not for federal tax matters, outside a short list of exceptions. The practice rules define a contingent fee to include a fee based on a percentage of the taxes saved, and they treat tax planning and advice as a matter before the Internal Revenue Service (Circular No. 230, section 10.27).
Does advising on a position carry less exposure than preparing it? No. Section 10.34(a)(1) bars a practitioner from willfully, recklessly, or through gross incompetence doing either of two things, and the second limb, section 10.34(a)(1)(ii), reaches advising a client to take a position on a tax return or claim for refund as squarely as it reaches preparing a portion of a return that contains one (Circular No. 230, section 10.34). In both cases the position is what matters, whether it lacks a reasonable basis, is an unreasonable position as described in section 6694(a)(2) of the Internal Revenue Code, or is a willful attempt by the practitioner to understate the liability for tax. The signature and the final judgment still stay with the firm that signs.
Where the Hours Come From
Advisory is less a new service line than a claim on hours a firm currently spends on returns. So the order matters. Define the deliverable, check which regime it lands in, price it on scope, and free the reviewer time before you sell the first engagement. Every one of those steps is cheap except the last one.
Accountably places trained offshore accountants and tax preparers inside US CPA and EA firms, ramped on your software and SOPs in about 3 to 4 weeks, so compliance stops consuming the hours an advisory line needs. If your reviewers billed fewer advisory hours last season than the plan assumed, don't trust us. Test us on a Free 40-Hour Proof Pilot, a fixed block of your own representative work that your own reviewer grades before a single client file depends on it. Start with the pilot