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Archives for December 2025

The Accounting Platform That Achieves 96.5% Automation Reveals How They Did It

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“No one’s going to be outcompeted by the AI itself. You are going to be outcompeted by firms that really adopt this aggressively,” warns Jeff Seibert, whose company just hit 96.5% accuracy in automated bookkeeping—something that seemed impossible just a few years ago.

In this milestone 100th episode of the Earmark Podcast, Blake Oliver sits down with Jeff Seibert, co-founder and CEO of Digits, to explore how AI is fundamentally changing the architecture of accounting software. Seibert brings fresh eyes to accounting—he previously led consumer product at Twitter and built Crashlytics (now running on six billion smartphones). His frustration was simple: Why could product teams access real-time analytics while business owners waited weeks for black-and-white spreadsheets?

Founded in 2018, Digits set out to reimagine accounting in the age of machine learning. While traditional software treats transactions as meaningless text in rigid databases, Digits achieves near-perfect automation by treating financial data as interconnected objects that learn from patterns across millions of transactions.

The 30-Year-Old Problem Holding Back Accounting

As Seibert sees it, the fundamental issue facing bookkeeping automation is that every major accounting platform—QuickBooks, Xero, and even NetSuite—runs on relational databases designed 20-30 years ago. These systems treat transactions as simple text entries with no understanding of what they mean.

“QuickBooks is just going to see an Uber transaction as “U-b-e-r”. It just sees text,” Seibert explains. “It doesn’t understand the data, it doesn’t know what Uber actually is.”

This limitation explains why Intuit, with all its resources, has yet to deliver meaningful automation. The answer is architectural. Each QuickBooks company exists in its own isolated database, preventing the software from learning patterns across businesses. The constraints run so deep that QuickBooks still can’t handle having a vendor and customer with the same name—it appears they chose “name” as the primary database key decades ago.

Digits takes a completely different approach using what’s called a vector graph data model. Everything becomes an object—Uber is an object, your expense categories are objects, your bank accounts are objects. Transactions become connections between these objects, creating a web of financial relationships the AI can understand.

This mirrors how large language models (LLMs) work, converting transactions into vector embeddings, essentially plotting them in multi-dimensional space where similar items cluster together. When trained on 170 million transactions representing nearly $1 trillion in business activity, patterns emerge that would be obvious to humans but invisible to traditional software.

“When you have that scale of data and you see how everyone has booked Uber before, you start to see patterns,” Seibert notes. “The model starts learning. If it sees Lyft in your accounting for this client, it then knows how to book Uber.”

How AI Agents Actually Work (Hint: Like Clever Interns)

The accounting world is buzzing about “AI agents,” but what are they really? Seibert explains, “An agent is simply an LLM that you run in a loop. You give it a task, it attempts the task, you ask if it completed it. If not, it continues until it’s done.”

Think of them as clever interns who never get tired. Digits has been running these agents in production since January 2024, primarily for researching unfamiliar transactions.

The system uses three layers of intelligence. First, it checks if this specific client has seen this transaction before. If yes, it books the transaction exactly the same way. Second, if the transaction is new to this client but familiar to the platform, it uses its global model trained across all users. Third, for completely novel transactions, the agent literally Googles them.

“What would you do as an accountant? You would probably Google it,” Seibert explains. “What do our agents do? They literally Google it, research the transaction, build a dossier about it.”

As a result, only 4-5% of transactions now require human review, compared to the 20% that typically slip through even well-maintained rule-based systems. Notably, the system maintains strict confidence thresholds. Any transaction it is unsure about gets flagged for human review. It never guesses when uncertain.

The upcoming reconciliation feature shows how sophisticated these agents have become. The system pulls statements directly from banks or extracts them from PDFs, then matches transactions with pixel-level precision. “You can literally click on the transaction and see it on the statement and vice versa,” Seibert says. This builds trust with accountants who need to see exactly where the numbers come from.

What This Means for Your Firm’s Future

As of August, Digits hit 96.5% accuracy, up from 93.5% in spring. Each percentage point represents thousands of transactions that no longer need human touch. But it begs the question: how do you price services when the work happens automatically?

“If you’re charging purely per hour right now, then automation may make that challenging,” Seibert acknowledges. But forward-thinking firms are already adapting. They’re moving to fixed-fee models for routine work like monthly closes, which become increasingly profitable as automation reduces time investment. Many use a hybrid approach, charging fixed fees for the close, and hourly rates for advisory work.

At a flat $100 per month (with volume discounts for accounting partners), Digits offers predictable pricing that contrasts sharply with QuickBooks’ constant increases. The platform even offers specialized SKUs for ledger-only or reporting-only clients, accommodating diverse practice needs.

The staffing implications are real but not apocalyptic. Junior bookkeeping roles focused on data entry will diminish. But Seibert points out this could make the profession more attractive: “You don’t want to just sit there doing data entry all day long. You want to learn how to advise businesses.”

Seibert recommends firms start small when implementing automated bookkeeping. “Pick one client in your firm and see what you can achieve,” Seibert challenges. Choose a simple, digital-native business like consultants, SaaS companies, or agencies with predictable electronic expenses. Build confidence, then expand to complex cases.

Building Trust Through Transparency

With financial data flowing through AI systems, security is crucial. Digits addresses this with architecture developed at Seibert’s previous companies, where they handled crash data from billions of smartphones.

Everything stays within Digits’ systems; they don’t send raw data to OpenAI or other third parties. All data is encrypted at rest using per-object envelope encryption, where each object has its own encryption key. Even if breached, stealing one key wouldn’t compromise the system.

The platform is SOC 2 Type 2 certified, with complete audit trails showing who changed what and when. You can even grant granular access, like giving your marketing manager visibility into only marketing expenses. “They can see marketing, all the transactions booked to marketing, and nothing else,” Seibert explains.

Importantly, when AI does the work, you can trace exactly what happened. Click on any transaction to see the activity log. This solves the common problem of clients making changes in QuickBooks without anyone knowing.

The Competitive Reality Check

Seibert’s warning deserves repeating: “No one’s going to be outcompeted by the AI itself. You are going to be outcompeted by firms that really adopt this aggressively.”

This isn’t hypothetical. Firms using advanced automation already serve more clients with similar-size teams, offer competitive pricing while maintaining margins, and provide real-time insights that clients increasingly expect.

You don’t have to become a tech expert. Set aside time each month after the close to try new tools. Watch YouTube videos about AI agents (though Oliver warns to avoid the hype channels). Most importantly, maintain healthy skepticism. As Seibert notes about AI doing math, “If it’s not 100% correct, what’s the point?”

Remember, AI agents are like clever interns. They’re eager, overconfident, and need supervision. They excel at tedious, repetitive tasks but need human judgment for nuanced decisions. The goal isn’t to replace accountants but to eliminate the work accountants wish they didn’t have to do.

Taking the First Step

Thoughtfully evaluate how these innovations can augment your practice. Start with one simple client. See what 96.5% automation actually feels like. Build confidence, then expand gradually.

Listen to the full episode to hear Seibert’s complete vision and practical guidance on everything from selecting pilot clients to restructuring pricing models. The tools to eliminate tedium while amplifying expertise aren’t coming; they’re here, proven, and improving rapidly. How quickly and thoughtfully can you integrate it?

How One CPA’s Personal Software Solution Became the Answer for Firms of Every Size

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Tim Sines, CPA, has been practicing accounting for 38 years. During that time, he tried “pretty much all” the practice management software platforms available, but nothing worked the way he wanted. So he did what any developer would do: He built his own.

What started as a personal solution evolved into Mango Practice Management, a cloud-based platform that now serves everyone from solo practitioners to firms with over 100 employees. During a recent Earmark Expo demonstration, Sines walked through the system he’s been perfecting since the DOS era, showing how it addresses the core challenge facing most accounting firms: managing multiple disconnected systems.

The Problem with Disconnected Systems

Sines didn’t set out to revolutionize practice management. He just wanted software that actually worked for his practice. After years of frustration with existing tools, he developed his own application. The system has evolved dramatically over the decades, progressing from DOS to Windows desktop to its current cloud-based form, which has been running for over eight years.

Mango Practice Management handles time tracking, invoicing, electronic payments, project management, engagement letters, budgeting, and reporting. “Those are really the core things you’re doing daily within your firm,” Sines explains. The problem wasn’t that these functions were too complex. It was that they existed in separate systems, creating inefficiency at every step.

During his demonstration, Sines shows how Mango handles time entry in a way that connects directly to other functions. Users start typing any part of a client name, and the system automatically brings up relevant engagements. Whether you’re doing tax planning or tax prep, the system handles billing increments and supports multiple concurrent timers. The time flows directly into invoicing without requiring users to switch systems or re-enter data.

The integration is especially valuable when corrections are needed. As Sines notes, staff “notoriously record time to the wrong engagement or wrong client.” Instead of forcing users to exit invoicing, navigate to time tracking, make corrections, and start over, Mango allows these fixes right in the invoicing interface. Users can move time between clients or engagements and see write-ups and write-downs in real time.

Streamlined Client Payments and Communication

The platform extends its integration approach to client interactions, particularly around payments. Traditional practice management often treats payment collection as an afterthought, requiring clients to navigate separate portals or remember login credentials.

Mango embeds payment functionality directly into client communications. When clients receive an invoice, they see a “click to pay” button. “The client does not have to log into a client portal to make a payment,” Sines explains. If they’ve entered payment information before, the system displays the last four digits for easy recognition.

The integration goes deeper with engagement letters. When a client agrees to recurring services and signs electronically, the system automatically sets up the entire payment infrastructure. It creates recurring invoices, establishes payment schedules, and collects payments on agreed-upon dates. Sines calls this “invoicing on autopilot,” noting that some firms have “100 or more of these set up” and “don’t even have to do the invoicing.”

Document management follows the same seamless approach. Using Outlook and Gmail plugins, accountants can send document requests through simple email links. When clients click the link, their uploads automatically route to the correct engagement folder. “You don’t have to log into the portal,” Sines explains. “In that email, there’s a link. Click it, and you’ll be redirected to a screen. You just drag and drop your documents.”

The system also handles collections automatically. It monitors payment terms and sends statement reminders without human intervention. “Mango will go do these statements automatically in the middle of the night” for any client with overdue invoices, with customizable follow-up intervals.

Project Management That Connects Everything

Many practice management tools treat project tracking as a separate feature. Mango makes it central to firm operations. The project management dashboard shows projects due this week, next week, and overdue items, connecting these deadlines to internal workflows and capacity.

A key feature is what Sines calls “complete tasks in order” functionality. This prevents team members from jumping ahead in workflows. “I can’t review the tax return until I’ve done the tax prep,” he explains. This ensures that “staff focus on what is in the batter’s box, not what’s on deck.”

The system addresses a common problem: showing people everything they need to do creates cognitive overload. Instead, Mango shows only tasks that are actually ready to be worked on, helping teams stay focused and productive.

When projects reach completion, the system automatically releases associated time for billing, connecting project milestones directly to revenue. Project notes “live with this project as it rolls forward,” ensuring that when different staff members handle recurring work next year, they have access to context from previous engagements.

The capacity planning feature shows utilization across all projects and allows managers to easily reassign tasks to different team members if somebody is out or leaves the company. Calendar integration with Microsoft Outlook and Google Calendar displays all past, present, and future appointments for any team member who had appointments with that client directly within the client view.

Pricing and Technical Details

Mango offers three pricing tiers. The basic tier includes core features, while the Plus tier adds project management and budgeting. The Pro tier, at $69 per user per month, includes all features plus document management, e-signatures, and capacity planning.

For electronic payments, ACH transactions cost 1% with a $12 cap, while credit cards run approximately 3%. The platform includes a mobile app that allows users to enter time and expenses, look up client contacts, and add notes while away from the office.

One practical feature Sines highlights: if users accidentally close their browser or log out while timers are running, their timers will still be there when they log back in. “You will not lose your timers.”

The system also supports multiple browser instances, allowing users to have “project management tab open” alongside “time tracking” and “billing worksheets” on different screens while maintaining data consistency across all views.

Integration as a Competitive Advantage

Sines’ demonstration reveals why unified platforms are essential for accounting firms. The ability to handle multiple functions in one system eliminates the data re-entry, system switching, and workflow friction that drain efficiency from traditional setups.

The platform includes a master template library that anybody using Mango can access and customize. This allows firms to adopt proven processes quickly rather than building workflows from scratch.

The notification system provides what Sines calls workflow intelligence, sending alerts when specific conditions are met, such as assigning tasks, resolving dependencies, or approaching project deadlines.

For firms evaluating practice management solutions, Sines recommends visiting the Mango website to schedule a demo or attend one of their weekly webinars. “We have two webinars every single week,” he notes, where potential users can ask questions and see the platform in action.

The Move Toward Unified Systems

Firms are moving away from juggling multiple disconnected systems toward unified platforms that treat practice management as an integrated workflow.

The demonstration shows how this integration eliminates friction between core business processes. When time tracking connects directly to invoicing, when project management triggers automated billing, and when client communications embed payment options, the entire operation becomes more efficient and responsive.

As practices grow more complex and client expectations increase, the competitive advantage belongs to firms that operate as unified organizations rather than collections of separate systems. The traditional approach of patching together different solutions for each function isn’t just inefficient; it creates operational bottlenecks that can’t keep pace with modern client demands.

Watch the full demonstration to see how Mango’s unified approach eliminates the inefficiencies that come from managing disconnected systems, and discover why accounting firms are choosing integrated platforms over fragmented tool approaches.

From Burned Out to Built Up: How Workflow Systems Transform Average Accountants into A-Players

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“This is the first year where we didn’t have any crazy day during tax season,” a firm owner told Mary Delaney after 25 years in practice. The secret? They had finally mastered workflow automation, transforming their firm from a chaotic fire-fighting operation into a well-oiled machine where even tax season runs smoothly.

In this episode of the Earmark Podcast, recorded live at the Advisory Amplified conference in Chicago, host Blake Oliver sits down with two workflow transformation experts: Mary Delaney, CEO of Karbon, and Kenji Kuramoto, co-founder of Acuity and a pioneer in remote operations and client accounting services.

The trio discussed how accounting firms can break free from the exhausting cycle of individual heroics and constant firefighting. Forward-thinking practitioners realize documented workflows are the foundation for scaling beyond founder dependence and actually delivering the advisory services clients need.

From Chaos to Control: The Science of Accounting

The accounting profession has long operated as a craft, where success depended on individual practitioners juggling multiple responsibilities. But as Delaney explains, the real revolution comes from “turning it into a science” through systematic documentation and automation.

Oliver knows the old way’s exhausting reality firsthand. “In order to be an A player, you had to be really good at putting out fires, juggling a bunch of things,” he reflects. “You had to be so organized yourself. There was no support system underneath you.” He admits candidly, “I wasn’t an A player. That’s the thing. That’s why I didn’t last.”

Workflows change this equation. Instead of requiring heroic individual effort, firms create systems that support everyone on the team. Delaney’s approach starts with observation, or what she calls “time studies.”

“I’ll take a team of two or three people to our customer’s location and do an on-site for a day, literally sitting and watching our customers work,” she explains. “I’ll watch three people do their tax work for 20 minutes, or three people do advisory. You’ll see they pull up a report. You’ll see they write something down. Why are you writing that down? What are you doing with that?”

These observations reveal areas of waste, automation possibilities, training gaps, and process inconsistencies that might otherwise stay hidden.

From Struggling CFO to Workflow Champion

Kuramoto’s experience demonstrates how workflow can transform careers. Coming from Big Four audit, he founded Acuity but admits he wasn’t naturally gifted at the work. “I was a moderately technical CFO and accountant,” he says with characteristic humor. “Luckily, I have a little bit of a quirky personality and I’m pretty outgoing, so clients liked me. But I was not the most technical.”

His firm’s workflow evolution started with simply moving from paper to Excel spreadsheets. They progressed to digital task management tools, with Kuramoto initially dreaming that someday systems might automatically check off completed tasks.

“I thought for a long time that the epitome of what an ideal workflow would look like would be when you completed some task, somehow the tool just knew it and it checked it off,” he recalls. Today’s reality exceeds even that vision. “Now the workflow tool is actually doing the work. I don’t think I ever even imagined it taking that leap forward.”

Kuramoto found that workflow helped him overcome his limitations. When senior CFOs in his firm documented their processes, he learned from them quickly. “Can I please take a look at your process for how you run a board meeting or raise capital, or how you build a proforma model?” he would ask. “I could learn so much quicker by just looking at a playbook for how they got there.”

This knowledge-sharing transformed Acuity’s recruiting. They began targeting controllers and VPs of finance who aspired to become CFOs. 

Making Workflow Empowering, Not Controlling

The biggest obstacle to workflow implementation isn’t technology; it’s people. Senior professionals, especially in advisory roles, often resist standardization. Kuramoto learned this firsthand when implementing workflows with senior CFOs at Acuity.

“They are sometimes the least receptive to change,” Kuramoto admits. Despite being the founder, when he suggested creating standardized processes, the reception was cool. “To them, initially, it felt like more of an accountability tool. Like I was telling them how to work versus letting them feel like they had ownership of the work.”

Delaney’s solution centers on showing the “what’s in it for me” factor. “If we map it out, we can automate some of it. And the part we automate is the energy-draining low value work,” she explains. “All of a sudden they get to do more of what they love.”

The transformation happens when workflow becomes a knowledge-sharing tool rather than a constraint. With better visibility into how people work, firms can identify real problems. “We could identify where someone was a B or C player, but it started understanding why,” Kuramoto explains. “Were we missing out on training? Were we overwhelming their schedule? Were they stuck on tough clients?”

Delaney emphasizes that workflow reveals patterns. “You can see some people are rock stars, but instead of saying they’re just incredible, you start to study what they do and you can train that to others. All of a sudden you’re lifting your C players to be in your B to A players.”

The 30-Day Transformation Plan

Delaney offers a rapid transformation plan for firms drowning in chaos. If dropped into a small firm as CEO with 30 days to free up capacity, here’s what she’d do:

First, “I would make sure I understood what their job is, how we measure performance, and how they will be compensated and recognized.” This clarity alone can unlock 20-30% more capacity because “if people understand clearly their job and expectations and they have something they’re chasing, you will get 20, 30% more out of them.”

Second, “Look at our customers and see if there’s any we should let go or just increase the price.”

Third, conduct time studies. “Sitting there and watching people work, you can see all the areas of waste. What can we automate? You also see where there are training gaps.”

The results can be dramatic. Remember that firm with their first stress-free tax season in 25 years? “They have the process down, they have capacity planning down, they work ahead,” Delaney explains. “They have all the insights to manage every minute wisely. So it’s not putting out fires.”

Workflow as the Foundation for Growth

This workflow discipline is critical during mergers and acquisitions. Kuramoto’s first acquisition taught him this lesson painfully. “The first firm we acquired was kind of a disaster,” he admits. “We had incredibly dissimilar ways of working. Even though on paper we delivered some of the same services, the way we did it was so different.”

They waited too long to integrate workflows. “We didn’t want to disrupt things, so we waited a long time. It was an awful transaction for us, largely because we didn’t get workflow on the same page.”

This experience changed how Acuity approached their eventual merger with 14 firms. “When we went through due diligence, they looked heavily at our workflow. What were we doing? How are we putting it together? Most acquisitions don’t fail because the deal isn’t good. It’s because the integration doesn’t work.”

For firms ready to transform, Delaney emphasizes investing in dedicated operations resources. “The one thing they never regretted was hiring a non-billable person to start really moving on quality and scaling and operations,” she notes, recommending this when firms reach 10-20 people. “The gift you give yourself is having someone who spends 100% of their time looking at how to make the firm better, versus how to bill dollars today.”

The AI-Powered Future

Looking ahead, AI promises to accelerate this workflow revolution. The Karbon-Aider acquisition, announced that very morning, exemplifies this vision. “Aider is all about automating month end and getting you to insights that you can immediately share back with your customers,” Delaney explains.

But she cautions that AI requires careful implementation. “The challenge with AI is it’s highly imperfect. We’re building agents to do the work, but you have to show all the agent’s work, and give it a step for a human to check it and sign off. Because in accounting, you have to be perfect.”

The future Kuramoto envisioned is becoming reality in ways he never imagined. What started as digitized checklists has evolved into tools that actually perform the work itself.

Your Firm’s Revolution Starts Now

The conversation between Oliver, Delaney, and Kuramoto at Advisory Amplified shows the firms thriving today aren’t necessarily those with the most talented individuals. They’re the ones who’ve systematically documented and optimized how work gets done.

This transformation is about democratizing expertise across teams, creating sustainable careers that don’t require heroic effort, and delivering consistent advisory services that clients need. The stakes keep rising as AI tools mature. Firms with strong workflow foundations will leverage these technologies effectively while others risk being left behind.

The good news? You don’t need years to see results. Delaney’s 30-day plan shows that simple steps can unlock 20-30% more capacity almost immediately. And unlike the old model where success required exceptional individual talent, the workflow revolution means firms can build operations that elevate everyone.

Want to learn more about transforming your firm from chaos to capacity? Listen to the full conversation with Delaney and Kuramoto on the Earmark Podcast, where they share additional insights, implementation strategies, and discuss how AI is reshaping accounting practice. The revolution isn’t coming; it’s already here.

When Insurance Payouts Trigger Unexpected Tax Bills (and How to Avoid Them)

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Jessica watched helplessly as Hurricane Idalia turned her North Florida print shop into rubble. After a decade of building her business, the commercial building she owned was beyond repair. Her insurance company cut a check for $250,000—good news after such devastation. But when she decided to lease a new space rather than buy, she discovered an unwelcome surprise in her tax return: a $50,000 gain she could have avoided.

Her story opens the latest “Tax in Action” episode, the third in host Jeremy Wells, EA, CPA’s series examining what happens when bad things happen. After covering casualty losses and theft losses in previous episodes, Wells now turns to the aftermath: what happens when you need to replace destroyed or stolen property.

While these moments represent some of the most stressful times in anyone’s life, IRC Section 1033 provides opportunities to defer or eliminate taxes on insurance payouts and other compensation. But as Jessica learned, you need to understand the rules to benefit from them.

More Than Just Natural Disasters

Most tax professionals think of hurricanes, fires, and floods when involuntary conversions come up. But as Wells explains, involuntary conversions can include government actions and even credible threats.

The fundamental test centers on control, not catastrophe. “A conversion of property is compulsory or involuntary if the taxpayer’s property, through some outside force or agency beyond her control, is no longer useful or available to her for her purposes,” Wells explains.

While casualties and thefts automatically qualify, including government requisitions, condemnations, and seizures opens up planning opportunities many practitioners miss. When a government agency takes property for public use, such as highway construction or urban redevelopment, the owner faces a true involuntary conversion. The compensation offered might not match market value, but the lack of choice triggers Section 1033 treatment.

The Willis v. Commissioner case from 1964 provides an important limitation. A transport company’s ship ran aground along the Atlantic coast. After getting repair bids, the company decided to sell the vessel and buy a replacement. They tried to claim involuntary conversion treatment. The Tax Court sided with the IRS, which argued that since the ship could have been repaired, the company’s choice to sell instead disqualified it. The property remained useful; it just needed repairs that the owner chose not to make.

This draws a clear line: property damaged beyond reasonable repair qualifies; property that’s merely expensive to fix doesn’t.

Even more surprisingly, just the threat of condemnation can qualify. Revenue Ruling 81-180 offers a perfect example. A taxpayer read a news account quoting a city official who said the city would condemn his property if it couldn’t negotiate a sale. The taxpayer sold to a third party rather than to the government. The IRS ruled this qualified as an involuntary conversion because he acted under a real threat of condemnation.

But the threat must be specific and credible. Revenue Ruling 74-8 clarifies that vague rumors won’t work. Taxpayers must point to a specific government agency and credibly claim they believe condemnation is imminent. This requires concrete evidence like official statements or confirmed news reports.

In an unexpected twist, Revenue Ruling 81-181 says that even if you knowingly buy property already under threat of condemnation, the later forced sale to the government still qualifies as involuntary. The IRS determined that Section 1033 doesn’t require you to acquire property free from condemnation threats.

Understanding these broader definitions transforms Section 1033 from a disaster-response tool into a planning strategy for navigating government actions and credible threats, which are situations far more common than natural disasters.

Choosing Between Nonrecognition and Deferral

The choice between nonrecognition and deferral can dramatically impact your client’s recovery. As Wells explains, the nature of the replacement property dictates which path is available.

Mandatory nonrecognition under Section 1033(a)(1) represents the gold standard. When property converts directly into replacement property that’s “similar or related in service or use,” the tax code mandates complete nonrecognition of any gain. No election required, no gain recognized. The basis simply carries over.

But determining what qualifies as “similar or related” has sparked decades of litigation. The IRS uses a functional use test, examining how taxpayers actually use both properties. If your warehouse is destroyed and you replace it with another warehouse, the use clearly aligns. But what if the replacement serves a different function?

The appellate courts created what Wells calls the “investor exception” in the 1960s, and it’s a crucial opportunity for rental property owners. In cases like Loco Realty v. Commissioner and Lent v. Commissioner, taxpayers owned commercial properties leased to tenants. After involuntary conversions, they bought replacement properties serving different functions. Warehouses became apartment buildings, and commercial spaces became retail shops.

The IRS and Tax Court said these weren’t similar uses. But the appellate courts disagreed. “From the taxpayer’s perspective, it’s still rental property,” Wells explains. Whether tenants operate warehouses or flower shops doesn’t matter when the taxpayer’s function—holding property for rental income—stays the same.

When taxpayers receive cash, which is the more common scenario with insurance payouts, mandatory nonrecognition disappears. Instead, Section 1033(a)(2) offers an election to defer gain, but only with specific requirements and strict timeframes.

Wells offers an example to show how this works. Seth owns rental property with a $100,000 basis. A storm destroys it, triggering $300,000 in insurance proceeds—a $200,000 realized gain. Seth uses $250,000 to buy a replacement rental property within the allowed period, keeping $50,000 cash.

Seth must recognize $50,000 in gain, as that’s the amount he didn’t reinvest. He can elect to defer the remaining $150,000, but his basis in the new property equals only $100,000, or the $250,000 purchase price reduced by the $150,000 deferred gain. When Seth eventually sells, that deferred gain resurfaces. “He hasn’t gotten out of recognizing the gain,” Wells clarifies. “He’s just deferred that gain into the sale of the replacement property.”

Principal residences add complexity through the interaction with Section 121. When a primary home faces involuntary conversion, taxpayers first apply Section 121’s exclusion: up to $250,000 single or $500,000 married filing jointly. Only gains exceeding these amounts are eligible for Section 1033 deferral.

The code also allows taxpayers to acquire controlling stock (at least 80%) in a corporation that owns similar-use property rather than buying property directly. While Wells admits uncertainty about when this would apply, the option exists.

A key limitation is that taxpayers generally must recognize gain if they acquire replacement property from related persons, such as family members or controlled entities. However, if the related party bought the property from an unrelated person during the taxpayer’s replacement period, or if the total gain is less than $100,000, the prohibition doesn’t apply.

Understanding the Critical Timing Rules

Even the best tax strategy fails without proper timing. As Wells explains, the replacement period creates a ticking clock that starts when disaster strikes. Missing these deadlines turns potential tax deferral into immediate gain recognition.

The standard replacement period begins on the date of the casualty or theft, or when the taxpayer first learns of a credible threat of condemnation. From that starting point, taxpayers have until the end of the current tax year, plus two additional years, to buy replacement property.

But Congress recognized that some situations need more time:

  • Three years for business real property taken by condemnation
  • Four years for principal residences destroyed in federally declared disasters
  • Five years for specific disasters (Midwestern floods of 2008, Hurricane Katrina, September 11 attacks)

The IRS may grant a one-year extension, but only for reasonable cause, like unfinished construction. “The taxpayer can make the request before the end of the replacement period and provide a reasonable cause explanation,” Wells notes. But market conditions, such as claims that property is too expensive or scarce, won’t qualify.

Jessica’s case shows the real cost of missing these opportunities. She received $250,000 and had two years from the end of the year to purchase replacement property. Instead, she immediately decided to lease. That decision cost her $50,000 in recognized gain. Had she bought a $250,000 commercial property within the period, she could have deferred the entire gain.

State tax rules add another layer. Wells highlights Oregon’s requirement that taxpayers who buy replacement property outside Oregon must add back the deferred gain when they sell. Oregon may even require annual reporting on out-of-state replacement property.

For tax professionals, mastering these timing requirements transforms crisis response into strategic planning. When clients call after receiving insurance checks, the first question should be about starting the replacement period clock.

Turning Crisis into Opportunity

Jessica’s $50,000 tax surprise could have been avoided entirely, and that fact underscores the power and complexity of involuntary conversion rules. 

The distinction between nonrecognition and deferral reshapes how tax professionals approach these situations. When replacement property is truly similar, mandatory nonrecognition eliminates any current tax impact. But when insurance companies write checks, the deferral election becomes critical. Keep even one dollar of proceeds, and you need to recognize a gain on that dollar.

For tax professionals, mastering these rules means providing exceptional value when clients need it most. The difference between Jessica’s $50,000 recognized gain and complete deferral is capital that could have accelerated her business recovery.

Wells concludes his three-part series with a powerful reminder: “When disaster strikes, the last thing anybody wants to worry about is the tax implications. But with a little knowledge, you can make sure that you or your clients get the best possible tax treatment.”

Listen to Jeremy Wells’ complete “Tax in Action” episode above for his classroom-tested approach to these complex provisions. The episode reveals how to apply the rules strategically when clients face their most challenging moments.

When Professional Jealousy Strengthens Friendships: She Counts Season 2 Kicks Off with Raw Honesty

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“How did she get invited to this? And I didn’t get invited. I’ve been in the industry for over 20 years. Why is she more popular than I am?”

Nancy McClelland’s text to her podcast co-host Questian Telka wasn’t meant to be public. But standing before a live audience at Bridging the Gap conference in Denver, Nancy chose to share this raw moment of professional jealousy. In doing so, she showed exactly why She Counts has struck such a nerve with women in accounting.

This special Season 2 kickoff episode marks a full-circle moment. Nancy and Questian met at Bridging the Gap exactly one year ago, and that meeting sparked their friendship and Nancy’s role as a founding member of Ask a CPA. Now they’re back, recording live with guest moderator Erin Pohan of Upkeeping, LLC, who runs the Women in Accounting Visionaries and Entrepreneurs (WAVE) Conference.

The Hidden Work Behind “Real Talk”

Before sharing this vulnerability, the hosts pulled back the curtain on what it takes to create She Counts. “Mad props to anybody out there who does a podcast. It is so much work,” Nancy admitted, even though Earmark handles production. “I was delusional because Earmark is an amazing podcast production company. And I was like, ‘oh, they’re going to do all the hard work.’”

The reality hit hard. Each episode requires hours of planning, rehearsing, and outlining. It’s “like writing a session to present at Bridging the Gap,” Nancy explained. Then there’s finding sponsors (which Nancy calls “so much work”), plus the constant pressure of social media and marketing. “We feel behind all the time. Literally all the time,” she said, seeing nods from other podcasters in the audience.

So why continue? Questian has an idea: “We’re doing it for all of you and all of ourselves, of course, because this is something that we wanted and we didn’t have.”

The payoff came in unexpected ways. While Questian treasures the hour they spend recording together, Nancy was floored by listener responses. “I did not expect so many people to be coming up and saying, when you said this one thing… it made me feel less alone.”

When Your Best Friend’s Success Triggers Your Insecurities

The conversation turned deeply personal when Erin asked about putting themselves out there publicly. Nancy’s response made the room go quiet.

“I remember the first time you went to Scottsdale,” Nancy said to Questian, her voice shaking. “And I texted you, and I was like, how did you get invited to this and I didn’t get invited.” The hurt went deeper than professional disappointment. “How does she know all the cool kids? I don’t know the cool kids. The cool kids think I’m a nerd.”

These feelings connect to old wounds. Nancy mentioned being “beat up in the locker room” and feeling like everyone was against her in high school. But instead of letting jealousy fester, she took it to therapy.

Her therapist’s response changed everything: “Nancy, do you want what she has?” When Nancy said yes, the therapist explained, “So that’s what envy is. Emotions aren’t inherently positive or negative. It is just a fact to say, I wanted to be invited to Scottsdale. How is that a bad thing?”

The breakthrough came when Nancy texted Questian directly. “I said, hey, what’s this Scottsdale thing? How come I didn’t get invited? Did you not invite me?” Questian’s response dissolved the tension. It was her first invitation, she’d been nervous, and she hadn’t even known what she was being invited to.

“Saying out loud to her, I have envy. It changed everything,” Nancy reflected. “Jealousy doesn’t have to turn into resentment.”

Questian admitted her own jealousy, particularly watching Nancy effortlessly secure sponsorships. “I’m like, how did you do that? Of course I’m jealous.” But she channels it differently: “I just watch her and I’m like, I want to be able to do that.”

Everyone Has “Imposter Syndrome,” Which Means No One’s an Imposter

When Questian mentioned she “suffers” from imposter syndrome, Nancy pounced: “Is it a disease? Are you the only person who has this horrible disease?”

She asked the live audience who experiences imposter syndrome. Nearly every hand went up—the same result Questian got at her Scaling New Heights panel. Nancy’s point was sharp: “If literally everyone in this room raised their hand, then is this a syndrome that we have? Or are these just imposter feelings? The way we feel jealous sometimes, the way we feel happy sometimes?”

Her conclusion: “Nobody needs to be medicated for something that literally everyone in the entire universe has. The weirdos who don’t feel imposter syndrome are the ones who should be medicated for not having any self-awareness whatsoever.”

Both hosts revealed ongoing insecurities that seem absurd given their achievements. Nancy, at 53, regularly speaking on major stages and running successful ventures, confessed: “I am constantly terrified that people will think I’m a rookie. I’m still convinced that I am 17 years old, and this is the first time I’ve ever done anything.”

Questian’s insecurity centers on credentials. “I’m not a CPA. I don’t have my CPA license,” she admitted. People question her expertise: “Oh, so you’re not an accountant? And I’m like, no, I’m an accountant. Like, I know my shit, but I haven’t gotten my license yet.”

The morning of the recording, she received a text about North Carolina potentially removing the master’s degree requirement for CPA licensure. Her colleague’s message: “Go get it, girl.”

Creating Ripple Effects Through Vulnerability

The power of shared struggles became clear through specific stories. Nancy described a friend who recently suffered her second stroke. “She said, driving back and forth to her doctor’s appointments, she listens to She Counts and she feels less alone.”

Erin’s story shows how one genuine interaction can spark movements. Last year at Bridging the Gap, she knew no one. But Nancy “turned her entire body toward me, looked me in the eye with genuine curiosity and said, ‘I want to know you too.’” That interaction inspired Erin to create the WAVE Conference, with the next one scheduled for May 15, 2026.

Body image struggles surfaced when asked directly. Questian, despite being thin, faced childhood bullying about being “anorexic” and having “giant bug eyes.” More disturbing: “I can think of three times where a man in a superior position to me has made comments about my body at work.”

Nancy shared how she helped her friend Brittany Brown overcome fear about keynoting at a major conference because of her weight. “The people who are in that room are not there to judge you,” Nancy told her. “They’re going because they see who’s speaking before they go. They see the name. They see the picture. If they don’t want to be there, they just won’t be there.”

The gratitude comes full circle. After Aileen Gilpin posted about how She Counts made her feel less alone, Nancy found herself drawing strength from that message during her mother’s nursing home transition. “She’s thanking us for doing what we’re doing. But the note she wrote totally changed my week.”

The Permission to Be Human

Nancy shared her biggest fear about the podcast: “I’m terrified that people will listen to this and they’ll be like, who does Nancy think she is? Just grabbing that mic again?” She knows some see her as “too much,” “intimidating,” or “attention seeking.”

“I’ve been in therapy for it because it is hard,” she admitted. But she’s clear about why she continues to show up and speak up. “I needed this when I was younger. I need it today. I need to feel like I’m not alone, and I don’t want anybody else to feel alone.”

Her mantra, from Marianne Williamson, guides her: “When we let our light shine, we unconsciously give other people permission to do the same.”

For anyone in the early stages of starting their own practice, Nancy offers this truth: “Nobody got a rule book. It’s not just you who are making it up as you go along. We are literally all making up what running a practice looks like, we are making up what being an adult looks like.”

Questian’s advice is simpler but equally powerful: “Trust your gut. Always.”

The episode closes with Randy’s updated wisdom from his father: “You can do anything that you set your positive mind to.” But as this conversation proves, a positive mind isn’t one without doubts, jealousy, or fear. It’s one that shares these feelings openly and transforms them into connection.


Listen to the full episode of the She Counts podcast, follow She Counts Podcast’s LinkedIn page, and share underneath this episode what you feel women in accounting most need to hear. But through this raw, unscripted hour, the hosts already provided the answer: Women need to hear that their struggles are normal, their feelings are valid, and they’re not alone.