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From the Courtroom to the Classroom: How a Former Prosecutor Views White-Collar Crime

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When Bernie Madoff received his 150-year prison sentence for a massive Ponzi scheme, it seemed like justice had been served. Yet after the 2008 financial crisis, which devastated millions of Americans, virtually no high-level Wall Street executives faced criminal charges. Why not?

In this episode of the “Oh My Fraud” podcast, Miriam Baer—a former prosecutor with the prestigious Southern District of New York, corporate compliance professional, and former Vice Dean at Brooklyn Law School and currently Dean and President of California Western School of Law—shares insights from her unique career journey that help explain this paradox.

From Princeton to the Prosecutor’s Office

Baer’s journey through the world of white-collar crime began far from where she expected. After attending Princeton (where, yes, she knew Ted Cruz) and Harvard Law School, she initially had no intention of becoming a prosecutor.

Her path changed after working at a law firm on securities fraud cases, which gave her a crash course in understanding how companies manipulate their books. From there, she joined the prestigious U.S. Attorney’s Office for the Southern District of New York under then-U.S. Attorney Mary Jo White.

At the prosecutor’s office, Baer handled everything from mail and wire fraud to bank fraud and money laundering, learning the intricacies of federal criminal prosecution. This experience gave her first-hand knowledge of how prosecutors decide which cases to pursue—knowledge that helps explain why some financial criminals face justice while others seem to escape it.

Why Some Cases Get Prosecuted While Others Don’t

When massive financial scandals don’t result in criminal charges, public frustration often follows. “Why aren’t these people in jail?” becomes a common refrain. But Baer identifies a more nuanced reality than simple theories about wealthy people being above the law.

“There’s a tendency to look at the scope of the harm,” Baer explains. “Someone says, ‘Well, he caused all that horrible harm. Why aren’t you prosecuting him?’ The answer is, well, I’m bound by the statute.”

Baer identifies two distinct thresholds prosecutors consider:

  1. The “threshold of liability” – Whether a crime technically occurred under statute
  2. The “threshold of viability” – Whether prosecutors believe they can win the case

This second threshold is crucial but often overlooked in public discussions. Based on past wins, prosecutors develop mental “prototypes” of successful cases that shape how they evaluate new evidence.

“When someone says, ‘Is this a fraud case? Is it a viable fraud case?’ [prosecutors] think in their minds about what most recently was viable,” Baer notes.

During the 2008 financial crisis, prosecutors’ mental prototype of fraud was based on early 2000s accounting scandals that featured whistleblowers, clear paper trails, and cooperating witnesses—elements largely absent in the financial crisis cases.

“My whole theory is that especially what happened with the financial crisis is, yeah, there were folks who had passed the threshold of liability, but the prosecutors weren’t sure they were over the threshold of viability,” Baer explains.

This framework helps explain why more recent cases like Elizabeth Holmes and Sam Bankman-Fried resulted in prosecution. Both featured the crucial elements prosecutors recognize from successful cases: cooperating witnesses and defendants who “constantly talk all the time” and eventually contradict themselves.

The Problems with White-Collar Criminal Statutes

Beyond prosecutorial decision-making, Baer identifies fundamental flaws in the design of white-collar criminal statutes. Her book, “Myths and Misunderstandings in White Collar Crime,” explores these issues in depth.

“The statutes themselves are confusing us,” Baer explains. She identifies three primary problems:

1. “Flat” statutes that lack gradation

Unlike homicide laws that distinguish between first-degree murder, second-degree murder, and manslaughter, fraud statutes don’t meaningfully differentiate between degrees of severity.

“If I look up fraud, it’s just all falling under the fraud umbrella of mail fraud or wire fraud. And it really doesn’t matter that you were charged with mail fraud and I was charged with wire fraud from a moral valence,” Baer notes. “It just means you use the mails and I use the wires.”

2. “Bundled” statutes that combine vastly different crimes

Baer points to the Hobbs Act as a prime example—a single statute that criminalizes both robbery affecting interstate commerce and bribery by public officials.

“That’s very different from robbery…it’s all under the same statute,” she explains.

3. Statutes that fail to generate useful information

Perhaps most importantly, these flaws create a system that doesn’t effectively track patterns or provide clear information about white-collar crime.

“The system itself should produce information because we are the ones in charge,” Baer argues. “We can’t do that job if the system doesn’t give us information or information that we could get at.”

These structural issues create an “insider/outsider” divide in criminal justice. Those working within the system understand its peculiarities, while the public is left confused and suspicious.

“It leads to this level of people feeling estranged from the system and feeling like this system is rigged,” Baer says.

Case Studies: Timing, Complexity, and Expertise Gaps

Several practical challenges further complicate white-collar crime prosecution. One is simple timing—evidence of sophisticated fraud often emerges years after the fact, sometimes through academic research long after the statute of limitations has expired.

Baer references a paper published in 2015 that uncovered significant misrepresentations in mortgage-backed securities markets from the 2008 crisis. “Little late,” she observes wryly.

Another challenge involves proving intent at the highest corporate levels, where decisions flow through layers of management.

“The public hungers for the very top person to fall,” Baer explains. “They don’t want to hear that you got Mister mid-level dude.” Yet proving that a CEO directed fraudulent activities is often nearly impossible without direct evidence.

A third challenge stems from expertise gaps. As Baer candidly acknowledges: “I think people don’t realize the degree to which lawyers in particular are generalists… after three years of law school, I absolutely did not have forensic accounting skills.”

This knowledge gap means prosecutors must learn sophisticated financial concepts while simultaneously building cases against defendants represented by specialists in these areas.

To illustrate how criminal law sometimes misses the mark, Baer points to the “Varsity Blues” college admissions scandal. While the fraudulent behavior was clear, she questions whether criminal prosecution addressed the deeper issues.

“Whatever way you should deal with this type of behavior, which of course is terrible…it wasn’t clear to me that criminal law was doing anything to really fix it,” Baer reflects.

Implications for Accounting Professionals

For accounting professionals, Baer’s insights offer a valuable perspective. Understanding the gap between technical violations and “viable” criminal cases is crucial for effective compliance work.

“Being a world-class jerk is not the same thing as violating the mail fraud statute,” Baer points out, highlighting the gap between unethical behavior and criminal conduct.

The expertise gap between legal and financial professionals creates both challenges and opportunities. Accounting professionals who can effectively translate complex transactions for non-specialists provide immense value in both preventing and addressing potential misconduct.

Baer’s solutions include creating gradations within fraud statutes, unbundling combined statutes, and designing systems that generate better information about financial misconduct patterns. These changes would not only improve enforcement but potentially rebuild public trust.

Moving Beyond Simple Narratives

The paradox of white-collar crime enforcement shapes how our financial system operates and who faces consequences when it fails. As Baer’s analysis reveals, the seemingly contradictory patterns of prosecution stem not primarily from corruption, but from structural challenges built into our legal framework.

“If you want to have a better understanding of where the problems are and how you fix them, you need better information,” Baer emphasizes.

Baer’s book “Myths and Misunderstandings in White Collar Crime” explores these themes in greater depth. For those interested in hearing more of her insights, the whole conversation on the Oh My Fraud podcast offers a fascinating look into the world of financial crime prosecution from someone who’s seen it from multiple perspectives.

Admitting You Don’t Know Everything Became This Young CPA’s Secret Weapon

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Picture this: You’re 26 years old with a newborn baby, eating rice and beans from a bulk bag because your accounting firm is three months away from bankruptcy. Your Excel budget calculation was catastrophically wrong, and you’re facing the reality that your entrepreneurial dream might be over before it really began.

That’s exactly where Nate Goodman found himself in 2022. He was staring at his wife across their kitchen table in Black Mountain, North Carolina, wondering if they’d bitten off more than they could chew. “I told my wife, ‘We tried it, I failed. We’re gonna have to eat rice and beans,’” Goodman recalls.

Fast-forward to today, and Goodman’s firm, Goodman CPAs, just closed 2024 with $1.7 million in annual revenue. His team of 12 professionals serves clients across the country, and he’s building toward a $2 million run rate.

His transformation from struggling bookkeeper to successful CPA firm owner didn’t happen because he suddenly became a better accountant. It happened because he discovered something many of us resist: admitting you don’t know everything can be your greatest competitive advantage.

In the latest episode of the Who’s Really the Boss? podcast, Goodman shares the raw details of his journey, including the pivotal moments when crisis became his catalyst for growth.

From Churches to CPAs: The Humble Beginning

Goodman’s story doesn’t start with grand business plans or venture capital. It starts with chickens, three young boys (ages 5, 4, and 2), and a simple desire to help churches with their bookkeeping while maintaining work-life balance.

In December 2019, fresh out of his MBA program, Goodman launched what he thought would be a small bookkeeping practice focused on churches. “I have some mentors doing this and only working  20 or 30 hours a week,” he explains.

But a conversation with Jim, an experienced CPA firm owner, changed everything. When Goodman pitched his church bookkeeping idea, Jim asked the hard question: “What are your credentials? Do you have any experience? Do you have any education?”

Goodman had an MBA but admitted to a limited accounting background. Jim’s response was direct: “Well, no one’s going to trust you if you don’t either have education or experience.”

Instead of getting defensive, Goodman chose to be teachable. Within a week, he re-enrolled in school for his accounting certificate so he could sit for the CPA exam. Jim sweetened the deal: complete a tax course, and he’d bring Goodman on as an intern for the 2020 tax season.

The Crisis That Changed Everything

By 2022, things looked promising on the surface. Goodman had purchased Jim’s practice (Jim was 85 at the time) and another practice through owner financing. But underneath, the numbers weren’t adding up.

The problem was embarrassingly simple and devastatingly expensive. Goodman had built his budget in Excel, but made a critical error. “I got the calculation wrong. My shareholder distributions were being added back to the cash,” he explains. “When I figured it out, I was like, oh, we only have like three months left, and we’re not going to make it to next tax season.”

The timing couldn’t have been worse. The CPA he’d hired was asking for more money than the firm simply couldn’t afford. “That was my first time terminating somebody. And that went very poorly,” Goodman admits.

That’s when the rice and beans period began. “We bought the big bulk bag of rice and did that whole thing to make it work,” he says. They were literally living on the most basic provisions while trying to save their struggling business.

But this rock-bottom moment became Goodman’s turning point. Instead of giving up, he finally discovered something that would transform his business: CPA communities and coaching groups.

“I did not even know that CPA communities existed, that there were other CPA owners out there that would share common knowledge. And so I was just going blind through 2022. And that was a very dark year for the business,” he reflects.

The transformation began in August 2022 when he found coaching groups that taught him proper pricing strategies and service delivery models. “I could price a 1040, but to price a CFO engagement or a bookkeeping engagement, I was just shooting from the hip and hoping for the best.”

The Systematic Turnaround

The results were immediate and dramatic. After implementing the new models and pricing strategies, Goodman’s firm grew from roughly $300,000 to $1.2 million in revenue in 2023—a nearly 300% increase in a single year.

Part of this growth came from strategic acquisitions. The acquired practices brought about $150,000 in revenue, and a third acquisition added $275,000. But the real growth came from transforming how they served existing clients.

“We were able to present to them, hey, instead of getting your financials once a year, what if we did your bookkeeping once a month, and you could make some more decisions? And what if we could save you $30,000 in taxes next year, and it’ll cost you a fraction of that, but it’s more than you’re paying now?” Goodman explains.

The firm also benefited from being the only CPA practice in Black Mountain. “We’re the only people here that can provide this service now,” Goodman notes, which helped with client retention during the transition.

Building Systems That Weather Storms (Literally)

By 2024, the firm had grown to 12 team members working in a hybrid model. Some work in the office, others are fully remote, and they even have team members in the Philippines. But their systems faced the ultimate test in September 2024 when Hurricane Helene hit.

“The eye of the storm went through our town,” Goodman explains. “About a 10th of a mile down from our house turned into a lake.” While their community was devastated, with power lines down and infrastructure destroyed, Goodman made a crucial decision.

“We’re like, well, we could take the server, take the networking equipment so people can VPN to the office, and we can set it up at my parents’ house in Roanoke, Virginia,” he recalls. “So we drove to Roanoke, plugged in the server, hooked it up to their internet, and then our team could work from my parents’ living room.”

This wasn’t just crisis management—it showed how the firm’s systems had evolved to handle unexpected challenges. The team maintained operations while their entire region struggled with basic utilities.

The Power of Peer Networks

Goodman’s discovery of peer communities happened almost by accident, but it became a game-changer for his business. During summer 2024, while mowing his lawn and trying to complete CPE requirements, he discovered he could listen to accounting podcasts instead of sitting through webinars.

“A friend of mine told me about Earmark to earn CPE with podcasts. I was like, ‘This is great. Now I don’t have to sit down for like a webinar or something,’” he explains.

That’s when he found the “Who’s Really the Boss?” podcast and heard discussions about fractional CFO services and team structures, and listening to the podcast helped him discover the team structure the firm needed to move toward. 

The remarkable part? His firm had just overhauled its structure two months earlier. But instead of sticking with something that wasn’t working, Goodman brought the new model to his leadership team with complete honesty. A willingness to abandon recent work in favor of proven systems accelerated their growth significantly.

Current Focus and Future Goals

Today, Goodman’s firm operates with metrics and systems that would impress much larger practices. Team members earn performance bonuses based on four specific metrics: maintaining accuracy above 90%, achieving client satisfaction scores of 90% or above, keeping client retention at 90% or above, and completing month-end closes by the 15th.

The firm also specializes in serving direct primary care practices—doctors who’ve left the traditional healthcare system for a subscription-based model. “We really believe in what they’re doing and the model they’re building. So we’re trying to be the great back office so they can focus on patient care,” Goodman explains.

They’ve even hired a dedicated salesperson with a compensation structure of $50,000 base plus 8% on collected revenue and 4% on first-year residuals. It’s a sophisticated operation for a firm that’s only five years old.

The firm’s current focus is on process optimization and AI implementation to help their team work more efficiently. Their goal? A 36-hour workweek with half-day Fridays while maintaining their growth trajectory toward $2.5 million in revenue.

The Lessons That Matter

Looking back, Goodman’s transformation offers clear lessons for other firm owners:

  • Be willing to admit what you don’t know. “I’ve been surprised at how many people are relatively open with what they’re doing and willing and wanting to help you and your development,” he reflects. “And so just asking the question, asking for a virtual coffee has been extremely helpful.”
  • Find your community. The isolation of trying to figure everything out alone nearly destroyed Goodman’s business. Once he found coaching groups and peer networks, his growth accelerated dramatically.
  • Implement proven systems rather than reinventing them. Goodman’s breakthrough came when he stopped trying to create everything from scratch and started following blueprints that other successful firms had already tested.
  • Stay teachable. When Goodman discovered the team-of-three structure just months after reorganizing his firm, he didn’t let pride prevent him from making another change. That flexibility to adapt has been crucial to his success.

At 29 years old, Goodman is quick to acknowledge he still has much to learn. “I love to learn from people who have been here and done that,” he says.

His advice to other young firm owners facing similar challenges is simple: “Don’t stress out so much. It will work out.” But pair that with action: seek mentorship, join communities, and be willing to admit when you need help.

Your Next Step

Goodman’s story offers insights into pricing strategies, team structures, acquisition approaches, and the systems that enabled his dramatic growth. If you’re ready to move beyond struggling alone and start leveraging the collective wisdom of successful practitioners, listen to his full interview on “Who’s Really the Boss?

Sometimes the difference between eating rice and beans and building a multi-million dollar firm isn’t what you know; it’s your willingness to learn from those who’ve already walked the path.

The crisis that could have ended Goodman’s entrepreneurial dreams became the foundation for extraordinary growth. Your current challenges might be setting the stage for your own breakthrough if you’re willing to be teachable enough to find it.

Rachel and Marcus Dillon, CPA, own a Texas-based, remote client accounting and advisory services firm, Dillon Business Advisors, with a team of 15 professionals. Their latest organization, Collective by DBA, supports and guides accounting firm owners and leaders with firm resources, education, and operational strategy through community, groups, and one-on-one advisory.

When Your Time-Blocking Superpower Becomes Your Kryptonite

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“I’m proud of my time-blocking superpower,” Nancy McClelland admitted during a recent episode of She Counts. Co-host Questian Telka nodded in recognition. They both lived by elaborate color-coded calendars that managed every minute of their days.

But their guest, burnout coach and CPA Lynnette Oss Connell, was about to challenge everything they thought they knew about professional efficiency. What followed was one of the most honest conversations about burnout you’ll hear in the accounting profession.

Nancy and Questian were upfront about why they brought in an expert. “This is something where we both feel completely lost,” McClelland explained. “We don’t have advice for others because we’re both struggling with burnout ourselves, at times sort of teetering on the edge.”

Lynnette, known as “the Burnout Bestie,” built and sold her own successful CAS practice before becoming a coach for accountants struggling with chronic stress. Her story reveals why our greatest professional strengths often become our biggest vulnerabilities (and what we can do about it).

The Efficiency Trap: Engineering Your Own Over-functioning

Lynnette’s story starts exactly where many of us find ourselves. She had what looked like the perfect setup: a thriving firm, organized systems, and the ability to juggle multiple roles with precision.

“I had engineered a life of my own over-functioning,” she explains. Her elaborate time-blocked calendar enabled her to serve as a firm owner, CFO of several companies, and soccer team manager for her kids. When other parents marveled at her ability to manage it all, she’d think, “I just time block—it’s a superpower, right?”

But here’s the problem she discovered: despite all her backup plans and support systems, everything still required her to function as the central hub. “I thought I had done all the right things,” she recalls. “My mom is my backup with the kids, I have a neighbor who’s a backup, and I have employees with tasks. But at the end of the day, all of those systems relied on me to keep them going.”

The most deceptive part? By traditional metrics, Lynnette had achieved work-life balance. She worked only 3.5 hours per day running her successful firm. But those remaining hours weren’t filled with rest. They were packed with equally demanding caregiving responsibilities.

“I’m working the rest of the time, too,” she explains. “Your family work is work, too.”

This led to her biggest realization: she had trained herself to override her feelings “like a light switch.” Whenever she felt resistance or exhaustion, she would do what she calls an “analytical assessment” by asking herself, ”Does this feeling serve my goals?” If not, she would simply shut it off and continue with her perfectly planned schedule.

Energy Auditing: The Game-Changer You Haven’t Tried

This is where Lynnette introduced the concept of energy-blocking.

While we’ve mastered scheduling when we do things, we’ve completely ignored whether those things give us life or drain it. The energy audit reveals what’s really happening within each role we play.

“Within your role, are you balanced?” Lynnette asks. “There needs to beintentionality around what gives you life. Am I pouring out and receiving in?”

This isn’t about achieving a perfect 50-50 balance in every task. It’s about recognizing that some aspects of our work energize us while others deplete us, and being deliberate about maintaining that balance over time.

The efficiency trap is particularly seductive for women in accounting because our profession rewards exactness and the ability to manage complex systems. But what we’re actually doing is creating increasingly sophisticated ways to make ourselves indispensable and irreplaceable when everything falls apart.

Community vs. Connection: The Support System You Truly Need

Lynnette’s next revelation cuts deeper. “I have community,” she explains. I have friends, I have work friends, and I have family who cares about me deeply. But what I didn’t have was conversations around what happens when life gets lifey.”

The problem isn’t a lack of people in our lives. It’s that we prioritize efficiency over intimacy in relationships. We collect connections like productivity tools: broadly and systematically, but without the deep investment required for them to support us when our systems fail.

This lesson became crystal clear during Lynnette’s son’s medical emergency. After spending all night in the hospital, she found herself at 8 a.m. in the parking lot, calling a client to explain why she couldn’t make their regular appointment.

When her client—a father himself—learned what was happening, his response stunned her: “Get off the phone right now. I don’t want to hear from you for a week. Why did you even call me?”

He wasn’t upset at her absence. He was upset that she even thought she needed to work while her child was in the hospital.

“I was living in this tunnel where I was holding myself to these impossibly high standards,” Lynnette reflects. By failing to give people credit for basic human decency, she created a world where no one was allowed to show up for her.

The solution requires what Lynnette calls “controlled vulnerability”—sharing appropriately about where you’re struggling and observing how people respond. This creates a sense of “who your community really is, who you can go to, and who has the capacity for it.”

Why Women Burn Out Differently: The Biology Behind the Breakdown

When Nancy mentioned that many of her high-performing female friends have been diagnosed with anxiety, depression, and panic disorders, Lynnette’s response was both validating and alarming: “The research shows that those are all symptoms of burnout.”

The biological differences in how women and men respond to stress explain why traditional burnout advice often fails us. While men typically experience “fight-or-flight” responses dominated by testosterone and cortisol, women’s stress responses are dominated by oxytocin, creating “tend-and-befriend” behaviors.

“Women feel threatened, and so we nurture,” Lynnette explains, referencing research from “Burnout: The Secret to Unlocking the Stress Cycle” by sisters Emily Nagoski, PhD, and Amelia Nagoski, DMA. When accounting deadlines loom or client crises emerge, instead of getting forceful as male colleagues might, we internalize the pressure and respond by taking on more responsibility.

“Women don’t tend to get forceful or demonstrative in our stress until several more notches down the burnout journey,” Lynnette notes. “We instead internalize.”

By the time anyone recognizes we’re in trouble, we’ve already done significant damage to our nervous systems. The three warning signs to watch for are:

  1. Emotional exhaustion. Bone-deep depletion from constantly nurturing others while your own needs go unmet.
  2. Depersonalization. Suddenly resenting work you once loved because you’re running on fumes.
  3. Lack of accomplishment. Feeling like no matter how efficiently you work, you’re always behind.

“I could be hugely efficient for hours on end and leave the day and be like, darn it, I feel like I didn’t get ahead,” Lynnette recalls.

Building Prevention and Recovery Plans That Actually Work

The solution isn’t just better time management; it’s creating systems that work with women’s biology, not against it.

“I want everyone to respond to the stressors in their life, instead of reacting to the stressors in their life,” Lynnette explains. When you’re reacting, you’re putting out fires with a heightened stress response. When you’re responding, you’re coming from a grounded state, approaching challenges as a capable person with options.

Prevention strategies include:

  • Energy audits to balance life-giving and life-draining activities
  • Deep community relationships that provide practical support
  • Regular exercise that metabolizes stress hormones and adrenaline
  • Quiet practices that help you reconnect with what actually serves you

But equally important is having a recovery plan. “You don’t just take a break and go back to ground zero,” Lynnette warns. “You need to heal from burnout, because it’s a whole body experience.”

Recovery means knowing exactly who to call for different types of support, having scripts prepared for difficult conversations, and allowing yourself to scale back without shame.

The most profound insight is reframing resilience. Instead of viewing recovery as returning to who you were before, Lynnette challenges us to see it as “traveling through change in a way that honors who you’re becoming.”

The Bottom Line: Sustainable Success Starts with Honest Assessment

If you recognize yourself in this conversation—the proud efficiency expert, the person everyone counts on, the one who’s engineered elaborate systems of over-functioning—you’re not alone.

The question isn’t whether you’ll eventually hit the wall. It’s whether you’ll recognize the warning signs soon enough to choose your own path forward.

Start with an energy audit of your current roles. Which activities energize you? Which drain you? Begin shifting that balance deliberately. Practice giving people credit for their capacity to show up for you. Build movement into your routine as essential medicine for your nervous system.

Most importantly, challenge the metrics by which you measure success. The goal isn’t to eliminate efficiency—it’s to become efficiently sustainable and build systems that preserve the system builder.

Listen to the full episode to hear more of Lynnette’s story, including the difficult decision to sell her firm and her husband’s role in recognizing their diverging paths. You’ll also get practical scripts for difficult conversations and deeper insights into building the kind of community that can actually support you through crisis.

What does burnout look like to you? Share your experiences in the comments on the She Counts LinkedIn page. Your story might be exactly what another woman in accounting needs to hear.

Find Lynnette Oss Connell at burnoutbestie.com and follow her on LinkedIn and Instagram for practical burnout prevention tips.

Why Two Identical 1031 Exchanges Had Opposite Outcomes in Tax Court

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Two real estate investors. Two 1031 exchanges. Two family members moving into replacement properties. One investor successfully deferred taxes, while the other faced a costly audit that wiped out their claimed benefits entirely.

The difference wasn’t timing, family relationships, or even rental income. It was something far more subtle: the ability to prove genuine investment intent through documented business behavior that could withstand IRS scrutiny.

In Click v. Commissioner, the taxpayer’s relatives moved into the replacement properties the day after the exchange closed. Seven months later, she gifted both properties to those families. The Tax Court saw through what it called a sham transaction.

But in Adams v. Commissioner, when the taxpayer’s son moved into the replacement property and paid below-market rent, the court sided with the taxpayer. The exchange qualified despite the family connection and reduced rental income.

In a recent episode of the Tax in Action podcast, host Jeremy Wells broke down the 1031 fundamentals to explain why the transaction worked out for one taxpayer and not another. While Section 1031 exchanges offer real estate investors a powerful tool to defer capital gains taxes, success depends on more than following the rules. It requires proving genuine business intent through careful documentation.

Understanding the 1031 Exchange Foundation

Here’s what Section 1031 does: it allows you to exchange property held for productive use in a trade, business, or investment for like-kind property with the same intended use. But there’s a crucial point many miss: Section 1031 defers gain; it doesn’t eliminate it.

Wells explains, “There is a misconception out there among taxpayers who could use or want to use section 1031 exchanges that 1031 just eliminates the gain from a like-kind exchange.”

When you exchange one property for another, you don’t avoid taxes; you postpone them. The deferred gain carries forward, and the replacement property takes the same basis as the original property. Eventually, when you sell the replacement property in a taxable transaction, you’ll pay tax on both the original deferred gain and any subsequent appreciation.

Since the Tax Cuts and Jobs Act took effect in 2018, 1031 exchanges only work for real estate. But within that category, the definition of “like kind” is remarkably broad. You can exchange an apartment building for raw land, a commercial office building for a single-family rental, or developed property for agricultural land.

The key requirement is that both properties must be held for productive use in trade, business, or investment. You can’t use a 1031 exchange for your personal residence or vacation home that you use strictly for personal purposes.

The Intent Test That Trips Up Investors

The biggest challenge with 1031 exchanges isn’t the technical requirements; it’s proving you genuinely intended to hold the replacement property for investment or business use. Wells points out that this has become “a question of facts and circumstances that has to be determined at the time of the exchange itself.”

The courts have seen numerous attempts by taxpayers to use 1031 exchanges to defer gain on what were essentially personal property acquisitions disguised as investments. This leads to intensive scrutiny of taxpayer motivation, regardless of whether they follow all the mechanical rules correctly.

Consider the Moore v. Commissioner case. The taxpayers exchanged one vacation property for another, using both properties personally without any rental activity. When audited, they argued they held the properties for “investment,” meaning they expected the properties to appreciate in value.

The Tax Court disagreed. “Just the mere expectation of an increase in value is not sufficient to establish that investment intent,” Wells notes. Simply hoping property values will rise doesn’t qualify as holding property for investment under Section 1031.

This reveals how enforcement has evolved. Technical compliance with timing rules and intermediary requirements won’t protect you if your behavior contradicts your stated investment intent. The IRS looks at the complete picture surrounding each exchange.

What the Court Cases Reveal About Documentation

The contrast between successful and failed exchanges often comes down to documentation quality, not transaction structure. Let’s examine what separated the winners from the losers.

The Click Failure

The taxpayer exchanged her farm for two residential properties. Her children moved into those houses the day after the exchange closed. Seven months later, she gifted both properties to the families. Her defense crumbled because she couldn’t demonstrate any genuine rental activity during those seven months. The court saw this as a sham transaction designed to defer gain on personal property transfers.

The Adams Success

This taxpayer exchanged a rental property for a fixer-upper. His son moved in and began extensive renovations, living there during a three-month repair period in exchange for renovation work. After that, the father began charging rent. Yes, the rent was below market rate, and the son missed one payment. But the court saw a consistent pattern of business-like behavior: formal rental arrangements, regular cash payments, and documented property improvements.

The Goolsbee Disaster

 These taxpayers placed a single advertisement in a neighborhood newsletter and moved into the replacement property within two months. When questioned during the audit, they couldn’t even answer whether rentals were allowed in their community. Their minimal marketing effort and inadequate preparation convinced the court that their investment intent was fabricated.

The Reesink Victory

Even though these taxpayers moved into their replacement property after eight months, they had a compelling record of genuine rental attempts: multiple flyers distributed around town, documented property showings to prospective tenants, and one potential renter who actually testified in court on their behalf.

Wells emphasizes the key insight: “It’s not necessarily a matter of waiting a certain number of months. It’s not a matter of whether you advertised that property for rent or not. It’s the culmination of all of these different facts and circumstances.”

The Technical Requirements You Must Follow

Beyond proving intent, you need to navigate specific compliance requirements that can make or break your exchange.

Timing Rules for Deferred Exchanges

Most 1031 exchanges today are deferred exchanges, where the sale and purchase don’t happen simultaneously. You have two critical deadlines:

  • 45-day identification rule. You must identify replacement property within 45 days after closing on the sale of your original property. This identification must be in writing, signed, and sent to someone involved in the exchange.
  • 180-day completion rule. You must receive the replacement property within 180 days of transferring the original property, or by the due date (including extensions) of your tax return for that year, whichever comes first.

Safe Harbor Requirements

The most common approach uses a qualified intermediary who holds the proceeds from your property sale and facilitates the replacement property purchase. The key is that you never have control of the funds from the original property sale.

Disqualified Persons

You can’t do exchanges with certain people, including your employees, attorneys, accountants, investment brokers, bankers, or real estate agents, if they’ve worked for you within the past two years. You also can’t exchange with close family members or entities where you own more than 10% of the stock or partnership interest.

Geographic Restrictions

You cannot exchange U.S. real estate for foreign real estate, or vice versa. Wells notes he’s “had to advise clients on this before because they want to start dabbling in rental markets outside the U.S.” or dispose of foreign properties to build their U.S. portfolio.

Reporting and Ongoing Obligations

Taxpayers must report successful 1031 exchanges on Form 8824, which has three main parts: property descriptions with key dates, related party disclosures (if applicable), and calculation of deferred gain and basis in the replacement property.

If your exchange involves related parties, you must file Form 8824 for two years after the exchange, and neither party can sell their received property during that two-year period without potentially disqualifying the exchange.

The replacement property continues the depreciation schedule from the original property. “Wherever we’re at in the depreciable life, the number of years of depreciation, the accumulated depreciation of the relinquished asset, we’re going to carry that over generally into the new asset,” Wells explains.

Building Your Defense Strategy

Enforcement of 1031 exchange rules has fundamentally shifted from checking compliance boxes to evaluating business narratives. Every marketing effort, tenant interaction, and business decision becomes part of a story that auditors may scrutinize for evidence of authentic business purpose.

When helping clients with 1031 exchanges, focus on creating documentation that demonstrates genuine investment intent:

  • Document all rental marketing efforts thoroughly
  • Maintain records of tenant interactions and property showings
  • Keep evidence of rental income and expenses
  • Avoid personal use that could undermine investment intent
  • Create a paper trail that supports your business purpose

A failed 1031 exchange can trigger penalties and interest that devastate investment returns. But when properly structured and documented, these exchanges provide real estate investors with a powerful tool for building wealth through tax-efficient property portfolios.

Wells’ comprehensive exploration provides the technical foundation every practitioner needs, but your ability to tell a compelling business story through consistent, credible evidence often matters more than perfect technical compliance.

For the complete technical framework and additional insights that can help you guide real estate investor clients through successful exchanges, listen to Wells’ full Tax in Action episode.

When Personal Crisis Collides With Tax Deadlines

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Picture this: You’re standing in a hospital room, staring at a laptop screen that won’t stop wobbling before your eyes. You haven’t been able to sit down or lie down for weeks—not for a single moment—because every time you try, your body erupts in seizures. Your mind is foggy from pain and exhaustion, yet you’re desperately trying to work because you run your own accounting firm, and clients are depending on you.

This isn’t fiction. This was Nancy McClelland’s reality for 107 consecutive days in 2017.

This stark image opens a raw conversation from the She Counts podcast episode “How to Make Business Happen When Life Happens,” in which hosts Nancy McClelland and Questian Telka strip away the professional veneer to reveal what really happens when personal crises collide with accounting deadlines. Their stories shed light on circumstances many women in our profession face but rarely discuss openly.

Nancy’s medical crisis began in July 2017 when her lifelong spinal condition suddenly worsened. “I ended up having seizures on my left leg every time I would sit down or lie down. It was absolutely horrible. I wanted to die,” she recalls. Standing became her only option for work, eating, and even during sleepless nights for over three months.

Telka’s story is equally harrowing. Her son, who has a rare chromosomal abnormality, was hospitalized for a month last year and nearly died from complications unrelated to his syndrome. “It just nearly broke me,” she admits. 

Why We Suffer in Silence

The numbers tell a sobering story about how women in accounting handle personal crises. According to Accounting Today’s 2022 survey, 41% of female CPAs who experienced personal loss delayed taking time off because they didn’t want to appear weak. Even more telling? A staggering 76% later regretted not stepping back sooner.

This reluctance to seek help stems from several deeply ingrained patterns in our profession. First is what Telka calls the “suck it up” mentality. “I always had the mindset—I’m actually kind of ashamed to admit it—but I always had the mindset that we have to suck it up,” she reflects. “When something’s hard, you have to push through and keep going.”

But this approach has its limits. When her son was fighting for his life, Telka reached a breaking point: “I was like, you know what? There is no more suck it up. I cannot suck it up.”

The perfectionism that drives professional success can be particularly toxic during personal crises. Research from the International Journal of Accounting and Finance found that 68% of female accountants feel they’re expected never to make mistakes. This creates what experts call “socially prescribed perfectionism,” a known predictor of burnout.

As McClelland points out, “We have that expectation of ourselves without having it of others.”

Adding to the isolation is the fact that many struggles remain imperceptible. McClelland looked completely normal to observers—she was standing, after all. “You never know what someone is going through,” she realized. “My horrible situation was actually invisible to many people.”

McClelland’s therapist offered a reframe that changed everything about how she approaches difficult times: “Doing your best doesn’t mean the platonic ideal of your best. It means the best you can do under the circumstances.” Now she communicates this directly: “I let people know that I really am doing the best I can. I’m simply not in a situation to do more, but when I am, they’ll get that version of my best.”

The Power of Community Support

The most resilient accounting professionals understand that the path through personal crises isn’t paved with increased isolation but with strategic vulnerability and authentic community connections.

Communication becomes your lifeline, but it requires balance. “Communicate clearly. Communicate honestly,” McClelland emphasizes. You don’t need to share every detail, but transparency about facing challenges builds trust rather than eroding it. “Transparency sets realistic expectations for your availability or temporary performance shifts,” she explains. “And it lets them know this isn’t forever.”

McClelland offers a helpful script she learned from burnout expert Lynnette Oss Connell, for those tentative to divulge details: “That’s all I’m comfortable sharing at the moment. But if you’re open to it, I may want to share more later.” This approach shows trust while gently establishing boundaries.

The fear that sharing struggles will damage professional relationships often proves unfounded. As Oss Connell told McClelland, “We underestimate how much our work family cares about us.” When Telka’s son was hospitalized, she witnessed this firsthand: “So many people came forward and sent gift cards to us.”

McClelland experienced this support through a local colleague who took over her tax clients during her medical crisis. Even more touching was Mindy Luebke from Bookkeeping Buds, who immediately offered to take any work off McClelland’s plate with no questions asked. “She was just like: ‘What do you need right now? Give it to me. I will do it. I will figure it out. We’ll deal with the specifics later,’” McClelland remembers. “It still sticks in my mind as the number-one kindest moment in my entire life.”

The most effective support comes from taking initiative rather than asking “What can I do?” As Telka explains, “When you’re going through something like that, it is so difficult to tell people what you need, and everyone’s asking.” Instead, think about what you would need and simply do it—send DoorDash gift cards, take over upcoming deliverables, or handle routine tasks.

McClelland beautifully illustrates this through a Jewish tradition of praying when hearing ambulance sirens. “If you were that person inside the ambulance and you knew that everyone within the sound of your siren, even strangers, were wishing you well, how much strength would that give you to hold on until you got to the hospital?”

Practical Crisis Management Strategies

When trauma strikes and decision-making becomes nearly impossible, having systems in place can mean the difference between business survival and collapse. The key is building these systems before you need them.

Start with triage thinking, borrowing from emergency medicine to categorize every task. First, identify your “stop the bleeding” priorities: payroll, critical tax deadlines, and regulatory filings. These need to happen regardless of personal circumstances.

Next, distinguish between what truly matters and what feels urgent. “I keep saying, ‘Oh, I’ve got to put together my speaker kit,’” McClelland reflects. “No, I don’t have to. I don’t have to do that today. It can wait.”

The choice becomes simple for everything else: delegate it or drop it. Nancy’s crisis forced her to give away clients who weren’t ideal fits anyway, including ministerial tax work she’d taken on early in her career but wasn’t passionate about. What felt like a loss became strategic clarity.

The challenge is what McClelland calls the “will problem.” A will is a document that, the moment you need it… is exactly when it’s too late to make it. That’s why building systems during normal times is crucial. Lean hard on standard operating procedures, task management tools, saved email templates, and automated processes like invoice reminders.

Decision fatigue compounds every crisis. When you’re already making countless decisions about medical care or family logistics, having to decide how to respond to each client email becomes overwhelming. But with systems in place, you can operate on autopilot when needed.

McClelland learned this lesson the hard way in 2017, but was better prepared when facing another family medical emergency earlier this year. Having her husband added as a bank signatory, documenting processes her team could follow, and automated client communications meant she could focus on family without watching her business crumble.

Resources and Next Steps

For those wanting to explore crisis preparation more deeply, McClelland and Telka recommend Dawn Brolin’s new book,”The Elevation of Empathy. ” This book explores how empathy and compassion—often seen as weaknesses in male-dominated business environments—actually create healthier company cultures and stronger leadership. Oss Connell also shares resources for crisis prevention and recovery on Instagram. And Jennifer Dymond and Karen McConomy have developed a “Business Backup Plan Bootcamp” that walks attendees step-by-step through the creation of an actionable contingency plan.

The hosts want to continue this conversation with real stories from listeners. They’re asking women in accounting to share on the She Counts LinkedIn page about times when they had to keep working through rough personal periods. What helped most? What do you wish someone had said or done during that time?

Your Permission to Be Human

Perhaps the most important message from Nancy and Questian’s conversation is this: you have permission to break, to ask for help, and to admit when circumstances exceed your capacity. As McClelland puts it, “The good and the bad coexist. They do not cancel each other out.” You can appreciate moments of joy and success even more deeply because you understand the contrast.

True professional strength is about building authentic relationships, implementing smart systems, and having the courage to be your real, imperfect, resilient human self.

The future of accounting isn’t about creating invulnerable professionals. It’s about building communities where no one has to face their worst moments alone.

Listen to the complete She Counts episode to hear every detail of McClelland and Telka’s journeys, including specific communication scripts and concrete strategies for building support networks before you need them.