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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.

The Shadow Economy of Stolen Points That Nobody Talks About

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While you carefully track every penny in your bank account, there’s $100 billion sitting unprotected in forgotten loyalty accounts worldwide. That eye-opening number comes from Kim Sutherland, global head of fraud and identity at LexisNexis Risk Solutions, who recently joined host Caleb Newquist on the Oh My Fraud podcast to discuss the growing threat of rewards and loyalty fraud.

This episode is a perfect companion to the show’s previous exploration of reward program fraud cases, with insights from someone whose team analyzes 120 billion transactions annually. Sutherland pulls back the curtain on how loyalty programs—those everyday rewards we collect at coffee shops and airlines—are a prime target for sophisticated fraud operations.

The $13 Billion Digital Currency You’re Ignoring

The global loyalty management market now exceeds $13 billion, and it’s everywhere you look. As Sutherland explains, “Almost every type of company you interact with has some type of a program to reward their existing customers.” From airlines and credit cards to restaurants, hair salons, auto mechanics, and even schools, businesses use these programs to strengthen customer relationships.

The average person belongs to anywhere from 16 to 20 loyalty programs, but they actively monitor only a fraction of them. This gap creates a perfect opportunity for fraudsters. “They understand the value of each of those rewards points, and they pay more attention to the ones you’re not paying attention to,” Sutherland warns.

These aren’t just marketing gimmicks anymore. “Loyalty points are a form of digital currency,” Sutherland says. People treat them like savings accounts, letting balances grow and planning vacations around accumulated miles. However, your bank account has federal protection and robust security. Your coffee shop points? Not so much.

When Newquist mentions his Starbucks app, calling it “a mini bank within that company,” he highlights a crucial point. These companies handle customer funds and issue digital currency but operate without the strict oversight required of traditional financial institutions.

The dark web has turned these points into a tradable commodity. Sutherland says stolen points have specific dollar values attached and are bought and sold alongside other illegal goods. It’s not just individual criminals either. Fraud has become a business with specialized roles, training programs, and sophisticated operations.

How Criminals Harvest Your Digital Rewards

Account takeover leads the fraud playbook, and it’s devastatingly simple. While you legitimately earn points through purchases, criminals break into your dormant accounts. They either transfer your points to accounts they control or drain them for purchases before you notice.

Because loyalty accounts lack the security of traditional financial accounts, “there is more opportunity for someone to do an account takeover,” Sutherland explains.

The numbers are alarming. Sutherland reports nearly 100% year-over-year growth in loyalty-based fraud across different industries and regions. On the dark web, these stolen points trade like currency. And fraudsters operate like niche service lines—some steal data, others monetize it, and still others provide technical infrastructure.

Synthetic identity fraud takes things to another level. Criminals combine pieces of real information, such as your name, someone else’s address, another person’s phone number, to create fake identities. These synthetic identities can operate for years, building credit and accumulating points across dozens of programs.

“The real problem with synthetic identity fraud is, even if your name had been used, you may never know you were part of the creation,” Sutherland warns. There’s no real victim to report the crime, making detection extremely difficult. These fake identities might start with a jewelry store loyalty program, build credibility, then work up to valuable airline or credit card rewards.

Insider threats add another layer of risk. Travel agents booking trips might divert clients’ points to personal accounts. Employees with system access could redistribute points. Third-party agents in real estate or auto sales can siphon off points customers never knew existed.

The technical sophistication is striking. Fraudsters use device farms—racks of phones running automated scripts—to manage thousands of fake accounts. They employ burner phones, throwaway email addresses, and test security responses by making small account changes before executing major thefts.

The Impossible Balance Between Security and Convenience

“The best form of authentication is one a consumer uses,” Sutherland observes, highlighting the core challenge facing businesses. Companies must balance three competing priorities: privacy, security, and convenience. For consumers, convenience almost always wins.

Unlike employees who follow whatever security protocols their employers require, consumers simply abandon programs that make redemption difficult. As a result, even if businesses implement bank-level security, doing so could destroy the convenience that makes these programs attractive.

The solution Sutherland recommends is passive security measures that work in the background. Companies embed sophisticated tools in mobile apps that analyze device behavior without disrupting user experience. Is the device jailbroken? Has it been associated with previous fraud? Is it moving naturally, or is it part of a static device farm?

Despite technological advances including biometric authentication, AI fraud models, and emerging digital credentials, Sutherland says, “The biggest challenge is still identity verification.” After 20 years of trying, verifying that someone is who they claim to be remains unsolved.

Fighting Back Through Collaboration

Forward-thinking companies now treat loyalty fraud as a brand reputation issue rather than a compliance checkbox. “It is truly trying to ensure that consumers can trust what they’re doing,” Sutherland explains, noting that customers immediately take to social media when something goes wrong.

The response has become increasingly collaborative. Organizations create “fusion centers” where fraud, cybersecurity, and anti-money laundering teams work together. Through LexisNexis’s proprietary network, businesses share fraud intelligence across industries and borders. For example, banks in Singapore share patterns with UK retailers and major financial institutions collaborate on emerging threats.

This cooperation is essential because, as Sutherland notes, “Fraud does not stay within any country. We see the same fraudsters transacting in the US and in France and in South Africa.”

Companies focus on key vulnerability points, particularly when customers change account details. Something as simple as updating an email address or phone number can trigger an account takeover if proper verification isn’t in place. Yet each additional security step risks losing customers to competitors.

What This Means for Accounting Professionals

With $100 billion in unused points, nearly 100% annual growth in loyalty fraud, and criminals operating sophisticated international networks, this is an emerging category of financial crime that could impact your clients.

For businesses, a major loyalty breach can lead to financial loss and potential brand devastation in an era of instant social media backlash. For individuals, compromised loyalty accounts often serve as gateways to broader identity theft, especially through synthetic identity techniques.

Most concerning is that companies can’t simply apply traditional banking security models to loyalty programs. The convenience consumers demand conflicts with the security these digital assets require. As programs expand into every corner of commerce and younger generations treat points as legitimate currency, the attacks will continue.

Accounting professionals should recognize loyalty programs for what they’ve become: an unregulated digital currency that criminals actively exploit. While we’ve been protecting traditional accounts, fraudsters have built infrastructure to harvest value from the rewards programs we ignore.

Listen to the full Oh My Fraud episode with Kim Sutherland to learn specific red flags for loyalty fraud, discover emerging authentication technologies that could protect clients, and understand why those forgotten rewards programs might be your clients’ biggest vulnerability. Because in a world where your morning coffee purchase contributes to a $13 billion shadow economy, treating digital rewards with the same seriousness as traditional currency is just professional prudence.

How This Accounting Pro Earns $1,000 Monthly from Software She Already Recommends

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When Carrie Kahn stumbled upon an obscure Intuit program in 2008 while trying to upgrade from QuickBooks Premier, she discovered something that would transform her business model. Today, one of her partners generates nearly $1,000 monthly in passive income—all from pennies on merchant processing fees.

“I found the program by accident,” Kahn recalls. “I was like, wait a minute, Premier doesn’t give me more room. It just gives me more users and a couple more options.” That discovery led her into the world of QuickBooks Solution Providers (QSPs), where she’s now spent 17 years building partnerships that extend far beyond simple software sales.

In episode 108 of The Unofficial QuickBooks Accountants Podcast, host Alicia Katz Pollock brings together veteran QSPs to explain this often-confusing program. The panel includes Kahn of Complete Business Group, Jeff Siegel of Siegel Solutions, and Dan DeLong from School of Bookkeeping. Together, they unpack how QSPs have evolved from software resellers into bridges between accounting professionals and the expanding ecosystem of business technology.

Understanding the QSP Program’s Evolution

The QSP program has been around for nearly two decades, although it’s gone through multiple name changes during that time. As Siegel, who joined around 2006, explains, “It used to be the IRP—Intuit Reseller Program. Then ISP, which people got confused with that acronym.”

Today’s QSPs operate differently than ProAdvisors. While ProAdvisors focus on bookkeeping, accounting, and tax services, QSPs work in what Siegel calls “the solutions business.” They help clients build comprehensive business systems with QuickBooks as the foundation, incorporating the entire ecosystem of add-ons and integrations.

The program requires commitment. QSPs must hit $18,000 in sales every six months—recently increased from lower thresholds. “We’re seeing a big consolidation in the QSP program,” Siegel notes. Shops that can’t meet these benchmarks lose their status and residuals on merchant services and Enterprise renewals they may have built over several years.

However, those who make the cut gain extraordinary access. When a client faces a payroll crisis, Siegel doesn’t wait in phone queues. “I went right to my rep and he looked it up and said, ‘Oh, I see the case. Let me escalate this. I’m on top of it.'”

Perhaps most importantly, QSPs maintain access to hidden Intuit products. “I’m unaware of any other place where you can still purchase Enterprise,” Kahn points out. “It’s hidden from the website. It’s alive and well. We have been promised that until all the features are showing up in Intuit Enterprise Suite, it’s not going anywhere.”

Building Revenue Through Strategic Partnerships

The traditional wholesale billing model has given way to something more sophisticated. Katz Pollock describes the old way: managing monthly invoices, adjusting for payroll employee changes, and dealing with sales tax complications. “I literally have to go in every single month and adjust their next invoice for the number of employees,” she explains about her remaining wholesale clients.

The QSP model offers a better path. The crown jewel? Merchant services residuals. “It’s mailbox money,” Kahn emphasizes—revenue that arrives without additional work. While ProAdvisors can now access these commissions, QSPs earn 40% of net profit for the account’s lifetime, while ProAdvisors get 20% for only three years.

Katz Pollock shares her experience: “I actually get a check from Complete Business Group every single month. That’s, honestly, almost $1,000 a month.” This comes from “pennies on the dollar from their merchant services” accumulated over ten years of partnership.

Complete Business Group has built its partner program over ten years, now including 800 partners. They’ve negotiated with “gold vendors”—carefully vetted solutions that handle everything from sales to support. “With vendors like Lightspeed,” Kahn explains, “you send the lead in and they do the sales call, the demo, the assist, the onboarding, the training, and the support forever.”

This pooled approach unlocks commission tiers that individuals could never reach. “We pool our sales and then we’re able to unlock higher tiers, higher payouts that someone just doing one order a year wouldn’t even be able to touch,” Kahn notes.

The collaborative spirit extends even to competing QSPs. Siegel works with other QSPs specializing in migrations. Kahn will soon partner with Siegel for his Acumatica expertise—an enterprise resource planning system for companies outgrowing QuickBooks. “It’s crazy that the QSPs are partners with each other over their expertise,” Kahn observes.

Matching Solutions in a Marketing-Driven World

The tension between Intuit’s aggressive marketing and actual client needs creates daily challenges. “The marketing efforts from Intuit are very strong,” Kahn acknowledges. But clients click through email campaigns and purchase wrong solutions, leading to expensive fixes.

Siegel identifies critical warning signs, “inventory, job costing…, or sales orders, those are the three red flags” that signal when QuickBooks Online won’t work. Yet these nuances disappear in Intuit’s cloud-first messaging.

QSPs counter with proactive strategies. Siegel puts client files into QBO trials. “Here’s your data in QBO. You got 30 days to play with it.” This reveals limitations like missing custom fields, and unchangeable formats before clients make a commitment. “We want to test it first,” he emphasizes.

The solution-matching extends beyond QuickBooks. For clients with “five or ten connected apps and using Excel to track stuff,” Siegel offers Acumatica. He notes that “40% of their new businesses come out of QuickBooks,” with some paying $3,000 to $5,000 monthly for comprehensive ERP functionality.

Within QuickBooks itself, navigation requires expertise. The confusion between QuickBooks Enterprise (desktop) and Intuit Enterprise Suite (cloud) offers a perfect example. “I don’t think it’s a mistake. They use the word enterprise in it to be confusing,” Kahn suggests.

When passing Intuit Enterprise Suite leads to Intuit, Kahn warns, “I always recommend staying on the call with them, because Intuit has a powerful notion of a sales team. It’s heavy, heavy sales. You know, we’ve got to close by this date or we need you to order by tomorrow or this discount will disappear.”

The Power of Collaborative Competition

The QSP community practices what Kahn calls “co-opetition”—friendly competition where everyone benefits. “I may not be a big e-commerce person, but I might know someone who is,” Siegel explains. The network means no individual needs expertise in all 2,000 apps.

This collaboration solves real problems. When Brad Smith launched QuickBooks Online’s app ecosystem, Kahn recalls, “There were 1,000 apps and it took me forever to get fully acclimated with QB desktop, Enterprise, Point of Sale, and online payroll.”

DeLong captures the philosophy: “If you want to go fast, go alone. If you want to go far, go together.”

The financial advantages extend to clients, too. Direct QuickBooks sign-ups pay unlimited ACH fees, while QSP clients pay a maximum of $15. “I have some clients that process hundreds of thousands of dollars,” Alicia explains. “Instead of paying $200 in ACH fees, they can pay $15.”

Your Path Forward with QSPs

The QSP model shows how accounting professionals can evolve from hourly service providers to strategic technology advisors earning recurring revenue.

The numbers tell the story: 40% residuals versus 20%, lifetime earnings versus three-year caps, direct Intuit rep access versus general support queues. But beyond financial incentives, there’s a collaborative community where competitors share expertise and no one needs to master 2,000 apps alone.

Whether you’re a solo practitioner seeking passive income, a growing firm standardizing tech recommendations, or an established practice countering Intuit’s direct marketing, understanding the QSP ecosystem could transform your service delivery and revenue model.

For those interested in exploring QSP partnerships, the Intuit website maintains a QSP directory where you can research different providers and their specialties. Kahn’s Complete Business Group offers landing pages and a 800-partner network, while Siegel’s Siegel Solutions specializes in complex implementations and enterprise solutions.

Listen to the full episode for specific vendor recommendations, detailed commission structures, and candid predictions about QuickBooks Enterprise versus Intuit Enterprise Suite. 

Alicia Katz Pollock’s Royalwise OWLS (On-Demand Web-based Learning Solutions) is the industry’s premier portal for top-notch QuickBooks Online training with CPE for accounting firms, bookkeepers, and small business owners. Visit Royalwise OWLS, where learning QBO is a HOOT!

Your Crypto Loss Might Not Be Deductible (Even Though Your Neighbor’s Is)

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When someone loses $100,000 to a cryptocurrency scammer, the financial blow is devastating. But finding out whether that loss is tax-deductible means navigating rules written decades before anyone imagined digital theft.

In this episode of Tax in Action, host Jeremy Wells, EA, CPA, tackles a confusing area of tax practice: theft losses. While theft has existed forever, the digital age creates entirely new ways for criminals to steal—from “pig butchering” scams to romance frauds—that challenge how we apply old tax laws to new crimes.

The Three Categories That Determine Everything

Before helping clients who’ve been scammed, tax professionals need to understand which of three categories their loss falls into. This distinction can mean the difference between a valuable deduction and no tax relief at all.

Under IRC Section 165, losses fall into three buckets. Losses from a trade or business and losses from transactions entered into for profit—even outside a business—are generally deductible. However, personal losses not connected to business or profit-seeking are the problem area.

The Tax Cuts and Jobs Act eliminated personal casualty and theft losses for 2018 through 2025. The only exception is losses from federally declared disasters. As Wells explains, this even includes theft during disasters, like the looting that happened after Hurricane Katrina when “there was just a general lack of any sort of law enforcement.”

This means two neighbors could lose the same amount to the same scammer, but only the one who was investing for profit gets a deduction. The retiree who sent money for personal reasons? They’re out of luck.

The Three-Part Test Every Practitioner Must Know

Beyond figuring out the category of the loss, Wells explains that courts have developed three essential criteria for any theft loss claim.

First, the theft must have occurred under state law where the loss happened. This requirement isn’t in the tax code or regulations; it comes from court cases trying to define “theft” when the IRS never did. The 1956 Edwards v. Bromberg case said federal courts must look to state law, but as Wells notes, that creates “probably about 50 different definitions, one for each state.”

Second, you must be able to determine the amount lost. For cash or stocks, this is straightforward. But for jewelry or collectibles? You’ll need insurance records, appraisals, or reasonable estimates. Proving value becomes nearly impossible without documentation from before the theft..

Third, you need to know when the taxpayer discovered the loss. This is crucial because it’s not when the theft happened, but when the victim realized it. Wells emphasizes: “That could be the same day, maybe a few hours later. It could be a few days later. It could be weeks, months, or even years later.”

The courts are clear about one thing: simple disappearance isn’t theft. Wells shares the Allen v. Commissioner case, where someone lost jewelry in a museum. Despite searching everywhere, publishing newspaper ads, and filing police reports, the court denied the deduction. Why? The taxpayer couldn’t prove someone actually stole it rather than it just being lost.

Timing Is Everything (And It’s Complicated)

The timing of theft losses works differently than most people expect, especially with digital assets and cryptocurrency.

A theft loss is deductible in the year you discover it; not when it actually happened. But Wells stresses a major catch: if you have a “reasonable prospect of recovery” through insurance or lawsuits, you can’t claim the loss yet. You must wait until you know with “reasonable certainty” whether you’ll be reimbursed.

“It’s not that you go ahead and claim it, and then wait until you receive the reimbursement,” Wells clarifies. “You have to wait until the outcome of that process is actually either known or within a reasonable certainty.”

With cryptocurrency scams, you might have three different dates spread over years: when the theft occurred, when you discovered it, and when you know recovery is impossible. Each delay pushes your potential deduction further into the future.

When Corporate Fraud Doesn’t Count as Theft

Surprisingly, even massive corporate fraud doesn’t create theft losses for shareholders. Wells uses Enron as an example. Investors lost everything due to “fraudulent and illegal activity,” but for tax purposes, these remain capital losses, not theft losses.

The 1975 Payne v. Commissioner case established this rule. Corporate executives don’t have “specific intent to deprive that particular shareholder” of their money. Even when executives commit crimes that destroy your portfolio, you haven’t been “robbed” in the tax law sense.

This distinction matters enormously for crypto investors. When an exchange halts withdrawals or a platform gets “hacked,” you need to determine whether it’s actual theft (potentially deductible if for profit) or platform failure (capital loss at best).

Five Modern Scams and the Profit Motive Test

In 2025, the IRS Chief Counsel addressed five common scams that don’t fit the traditional Ponzi scheme mold. The key factor? Whether victims had a profit motive.

Deductible scams (entered into for profit) include:

  • Pig butchering scams work by “fattening up” victims. Scammers start with small investments that show big returns. Victims invest more and more until the scammer disappears with everything. Because victims expected investment returns, the loss is deductible.
  • Compromised account scams involve criminals convincing victims their accounts need securing. Since victims move investment funds expecting to preserve them, the profit motive remains intact.
  • Phishing scams use fake websites to steal login credentials for investment accounts. Again, the investment nature preserves deductibility.

Non-deductible scams (personal losses) include:

  • Romance scams create fake relationships before asking for funds, often for medical emergencies. There’s no profit expectation; just personal generosity. As Wells emphasizes, “There’s no expectation of profit here. So that makes the theft loss nondeductible.”
  • Kidnapping scams involve fake ransom or bail demands. These are fear-motivated, not profit-motivated, making them personal and nondeductible.

The cruel irony? Two victims could withdraw the same amount from identical IRAs and send it to the same overseas account. But only the one expecting investment returns gets a deduction. The one motivated by love or fear gets nothing—plus they owe tax on the IRA withdrawal.

Lessons from the Experts Who Got It Wrong

Wells ends with a humbling case: Booth v. Commissioner. The taxpayer bought Civil War-era land rights that turned out to be invalid, then got sued after selling them to someone else.

Eighteen Tax Court judges split 10-8 on whether this was theft loss or capital loss. The Ninth Circuit reversed them, saying it was both. When Wells polled tax professionals, only 13% got it right.

“There are a lot of smart tax people out there and they can disagree and they can even be wrong,” Wells reflects. “The important part is that we keep thinking about these issues.”

What This Means for Your Practice

For tax professionals dealing with theft losses, three things matter most:

  1. Document profit motive upfront—not after the loss. The client’s intention when entering the transaction determines deductibility.
  1. Track timing carefully. Discovery dates and recovery efforts affect when (or if) clients can claim losses. This might mean waiting years.
  1. Know the current guidance. The IRS issues new interpretations as scams evolve. What wasn’t deductible yesterday might be tomorrow.

The collision between 1950s legal precedents and 2020s digital crimes creates daily challenges. While the basic rules haven’t changed in 70 years, applying them to cryptocurrency scams and online fraud requires both historical knowledge and modern insight.

For clients devastated by digital-age theft, understanding these rules helps you identify opportunities where they exist and provide clarity where they don’t.

Ready to master these distinctions? Listen to Jeremy Wells’ complete analysis in this episode of Tax in Action, where he breaks down additional examples, Form 4684 reporting details, and why even seasoned professionals struggle with these issues.