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Shared Business Activity—not Mere Co-Ownership—Often Determines Partnership Status

Earmark Team · July 20, 2026 ·

Two friends buy a short-term rental together. They split everything, from income and expenses to responsibilities, 50/50. One manages the bookings while the other handles repairs. They never wrote up any agreement, registered an LLC, or created any paperwork at all.

Did these friends accidentally create a partnership with federal filing requirements?

Now make it more complicated. What if those two friends are married? What if they’re flipping houses instead of renting them? What if one spouse does all the work while the other occasionally helps with administrative tasks?

These are real questions that come across the desk of tax professionals every week. While they might seem straightforward, the answers are anything but simple or academic Partnership status affects filing requirements, basis calculations, elections, self-employment tax, audit procedures under the BBA, and the availability of numerous Subchapter K provisions. That’s why correctly identifying whether a partnership exists is the first step in any partnership analysis.

In episode 31 of Tax in Action, Jeremy Wells, EA, CPA, tackles this tough question in small business taxation: When does co-ownership cross the line into a partnership under federal tax law? Drawing from IRC §761(a) and §7701, Treasury regulations, and Supreme Court cases dating back to the 1940s, Jeremy builds a practical framework you can apply to client situations starting today.

Determining whether a co-owned activity is a partnership requires more than checking if someone filed an LLC with the state. You need to analyze the shared profit motive, business activity, and genuine intent. The analysis is shaped by decades of court-tested criteria. You also need to understand the distinct exceptions available to married couples.

Get this analysis right, and you’ll meet reporting requirements while positioning clients for partnership planning opportunities. Get it wrong, and you face unfiled return penalties, missed planning strategies, or both.

The Federal Definition Casts a Wide Net (With Important Limits)

To determine if your client’s co-owned activity is a partnership, you first need to understand how broadly federal tax law defines the term and where it draws the line.

IRC §761(a) defines “partnership” to include syndicates, groups, pools, joint ventures, and other unincorporated organizations (excluding corporations, trusts, and estates). That’s remarkably broad. As Jeremy explains, essentially any business-like activity with more than one participant could qualify. Add the companion definition in IRC §7701(a)(2) and Treasury regulations, and you have a framework that captures far more arrangements than most people realize.

There’s also the familiar default rule: Under Reg. §301.7701-3(b), a domestic eligible entity with two or more members that hasn’t filed a corporate election is treated as a partnership. This is where we get “multi-member LLC equals partnership.” For foreign entities, you need to check whether any member lacks limited liability, but the domestic rule is straightforward.

Despite this broad sweep, the regulations carve out two important exceptions that do not create a separate entity for federal tax purposes:

A joint undertaking merely to share expenses
Mere co-ownership of property (even income-producing property)

That second exception matters most in everyday practice. Two unrelated people can buy a rental property together, split the income and expenses, and that alone doesn’t necessarily create a partnership.

Jeremy shares an example from Laura and Noel Cunningham’s textbook, The Logic of Subchapter K. Two people co-own a taxi cab. Each drives it 12 hours a day, tracking their own fares and expenses separately. No partnership exists because there’s no joint profit motive. What you earn during your shift has nothing to do with what I earn during mine.

But change the facts and lease that cab to a third party who pays both owners. Now you’ve introduced a collective profit motive, and it looks like a partnership.

The Cunninghams identify two key features: business activity and sharing of profit. When both exist, you likely have a partnership. When either is missing, you probably have mere co-ownership.

This is where things get tricky. A single rental property split between two friends is probably mere co-ownership. But if they offer concierge services for an extra fee or they’re building a portfolio of rentals and managing them like a business, each additional fact pushes the activity toward partnership territory.

As Jeremy emphasizes repeatedly, federal tax law, not state law, controls this determination. You can register an LLC, file articles and get a certificate of formation, but none of these facts, standing alone,

determines whether a partnership exists for federal tax purposes. As the Supreme Court established 75 years ago, states can create entities on their books, but they can’t dictate federal tax consequences.

When Partnerships Actually Form

Knowing a partnership can exist is one thing. Knowing when it forms and triggers filing obligations is another matter entirely. It has nothing to do with filing paperwork at the Secretary of State’s office.

A partnership forms for federal tax purposes when participants join capital or services together with the intent to conduct an enterprise or business. Courts generally look for both genuine intent to carry on a business together and some actual contribution of capital or services.

Plans, discussions, and handshake agreements don’t count. Something tangible must go into the pot.

This framework comes from two landmark Supreme Court decisions every practitioner should know.

Tower v. Commissioner (1946) laid the foundation. The Supreme Court held that a partnership forms when people join “their money, goods, labor, or skill for the purpose of carrying on a trade, profession, or business” with a “community of interest in the profits and losses.” The critical question: whether the partners “really and truly intended to join together for the purpose of carrying on business and sharing in the profits or losses.”

Tower also drew a bright line between state and federal authority. As the Court stated, a state “cannot, by its decisions and laws governing questions over which it has final say, also decide issues of federal tax law.”

Culbertson v. Commissioner (1949) clarified what Tower meant. Lower courts misread Tower as requiring some minimum threshold of capital or services. The Supreme Court corrected this, saying, “The question is not whether the services or capital contributed by a partner are of sufficient importance to meet some objective standard,” but whether “considering all the facts, the parties in good faith and acting with a business purpose intended to join together in the present conduct of the enterprise.”

Culbertson produced the factors courts use to assess intent, and practitioners should memorize these criteria:

The agreement and the parties’ conduct in executing it
Whether each participant genuinely participates or is just a name on paper
Testimony of disinterested persons (would vendors or advisors see this as a partnership?)
The relationship of the parties
Their abilities and capital contributions
Actual control of income and how it’s used
Any other facts showing true intent

Jeremy notes that family partnership cases of the 1940s-1960s drove much of this development. Families were forming partnerships primarily for tax benefits. Courts had to determine whether these were genuine business partnerships or just tax avoidance vehicles. When the intent was purely to dodge taxes rather than to operate an enterprise, courts rejected partnership status.

Sparks v. Commissioner (1986) adds practical guidance. The Tax Court held that startup discussions, soliciting contributions, negotiating with third parties, and even incurring expenses were “pre-operating activities,” not partnership formation. The partnership didn’t form until members’ capital interests vested, meaning contributions were made and ownership interests received.

The practical takeaway is to document everything. Jeremy emphasizes that small business owners are terrible at this, and tax advisors must encourage better practices. A partnership or operating agreement that records when contributions were made and the ownership interests received establishes the formation date, not the LLC filing, planning meeting, or domain registration.

Three Ways to Avoid Partnership Treatment

Once you’ve determined a partnership exists, the next question is whether an exception allows the parties to sidestep partnership reporting. Three pathways exist, and practitioners regularly confuse them.

Electing Out of Subchapter K

Under IRC §761(a), members of an unincorporated organization can elect out of Subchapter K treatment if they can determine their incomes individually and the activity involves:

Investment purposes only
Production, extraction, or use (but not sale) of joint property
Securities underwriting over a short period

But the catch is that this election only removes Subchapter K rules. It doesn’t exempt the activity from any other IRC provision.

Jeremy highlights Cokes v. Commissioner (1988) as the cautionary tale. A widow inherited her husband’s interest in an oil venture that had elected out of Subchapter K. She never attended meetings, voted, drilled wells, or supervised operations. Her involvement was zero beyond holding an interest. Still, the Tax Court held her income was from a trade or business, subject to self-employment tax under IRC §§1401 and 1402. The partnership remained a partnership, just not subject to Subchapter K.

Qualified Joint Venture for Married Couples

The first spousal exception is available only to couples filing jointly who meet all three requirements:

The spouses are the only members
Both materially participate under IRC §469(h)
Each reports their share as if operating as a sole proprietor (separate Schedules C (or F) and separate Schedules SE)

This splits what would be a partnership into two sole proprietorships for reporting, eliminating Form 1065.

A critical limitation to be aware of is the qualified joint venture is NOT available if spouses operate through an LLC. If they registered an LLC, this door is closed.

There’s no form to file. Spouses simply submit separate schedules with their joint return. The election continues while requirements are met. Revocation needs IRS permission.

Community Property LLCs

The second spousal exception applies when there IS an LLC, exactly where the qualified joint venture fails. But it only works in nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.

To be eligible, the LLC must be wholly owned by spouses as community property with no corporate election filed. When met, Rev. Proc. 2002-69 lets spouses report the activity as either a partnership or a disregarded entity.

This isn’t an election, so there’s no form, statement, or revocation. It’s simply a choice the IRS respects. Spouses can theoretically change annually (though Jeremy says they probably shouldn’t).

Your Two-Step Framework for Partnership Determination

Jeremy distills everything into a practical framework you can apply immediately.

Step 1: Does a partnership exist?

Ask these questions in order:

Are there two or more distinct owners? (Not an individual and their disregarded entity. They have to be two separate taxpayers)
Are they merely co-owning property, or operating a business together?
Is there a shared profit motive? Do they act like business co-owners or like investors holding the same asset?

The more parties look like business owners running an enterprise together, the more likely a partnership exists.

Step 2: Does an exception apply?

Check for:

§761(a) election out of Subchapter K
Qualified Joint Venture under §761(f) (spouses, joint return, no LLC)
Community Property LLC under Rev. Proc. 2002-69 (spouses, community property state, LLC)

Key Takeaways for Tax Professionals

Shared property doesn’t create a partnership. Shared business activity does. One rental is probably co-ownership. A portfolio with services looks different.
State entity formation doesn’t control federal partnership status. The Supreme Court settled this in 1946.
Partnerships form when participants contribute capital or services in exchange for ownership interests, not when they form an LLC or buy a domain. Document that moment.
Push clients toward written agreements. Small business owners resist this. Partnership or operating agreements that record contributions and formation dates are essential.
Don’t confuse the spousal exceptions. Qualified joint ventures and community property LLC rules are completely separate regimes for different situations.
Electing out of Subchapter K doesn’t avoid self-employment tax or any other IRC provision.

These determinations have real consequences. Get it right, and you’ve met reporting requirements while positioning clients for planning opportunities. Get it wrong, and you face unfiled returns, unexpected self-employment tax, or missed savings.

If you’re ready to dive deeper, listen to the full episode of Tax in Action for all the case law details, regulatory citations, and Jeremy’s complete analytical framework. In the next episode, Jeremy examines who qualifies as a partner and tackles the increasingly important question of which partners face self-employment tax.

What Women in Accounting Gain From Conferences Has Little to Do With CPE Credits

Earmark Team · July 10, 2026 ·

Picture standing in a crowded expo hall, trying to reach a single vendor booth, but you can’t make it more than a few steps without someone pulling you into a hug. The problem gets so bad that a colleague appoints himself your personal handler, physically steering you through the crowd like a celebrity bodyguard.

That’s what conferences become when you’ve invested in relationships over the years, and it’s exactly what happened to Nancy McClelland at a recent conference when Tony Proctor had to escort her through the expo hall. On the other end of the spectrum, her She Counts podcast co-host Questian Telka once attended Intuit Connect with the goal of walking up to just one person and introducing herself without having a panic attack.

In their latest episode, Nancy and Questian dig into why professional conferences matter so much more than the CPE credits they offer, especially for women in accounting, tax, and bookkeeping. They’re even taking their own advice. She Counts recorded live at WAVESeattle this year, moderated by conference organizer Erin Pohan.

Why Conferences Matter Beyond the CPE Credits

Yes, you can earn CPE credits online. Yes, conferences are expensive. And yes, if you’re an introvert who works happily from home for days without seeing another human, the idea of walking into a ballroom full of strangers might sound terrifying.

But as Questian puts it, CPE is just “the baseline reason to be there.” Nancy earns more than double her required CPE every year, so that’s not why she keeps going back to conference after conference.

For Questian, an admitted introvert who can work alone for days, conferences offer conversations with people who truly understand what she’s all about. “It’s not like when you’re talking to your spouse or significant other, your family member, where it just completely goes over their head,” she explains.

Nancy frames the conference experience through a story from a favorite childhood book, Hail, Hail Camp Timberwood by Ellen Conford. A girl arrives at summer camp feeling completely out of place while everyone else runs around hugging old friends. Then a stranger runs up and hugs her – confiding, “Look, I know we don’t know each other. It’s okay. I was just feeling so left out.” The two start hugging other lost-looking kids, and soon the entire camp is connected.

“Conferences kind of remind me of that,” Nancy says. “I can’t necessarily promise somebody’s going to run up and hug you and pretend like they’re a long lost friend, but it’s a little bit like that.”

These relationships are professionally transformative. Questian met nonprofit expert Greg Bossen at her second Intuit Connect simply by walking up and saying, “Hi, I work with nonprofits. I heard you work with nonprofits.” She had no idea who he was. It still took her five minutes to work up the nerve. That conversation turned into shared clients, co-teaching opportunities, and an ongoing professional partnership.

Nancy met Katie Helle through a community post about the Digital CPA conference. Katie is now helping Nancy navigate her first season with ProConnect Tax. “You’ll meet people you’ll be friends with forever,” she says.

Why Women Need These Spaces Even More

Nancy believes strongly that building these relationships is “two, three, ten, twenty times more important for women than men.”

For women in accounting, conferences offer personal validation and visibility. You can watch another woman take the stage and think, ”I could do that too.”

“Confidence gets built in real time,” Nancy explains. “We get visible, we take up space. We imagine bigger possibilities for ourselves when we see other women.”

The relationships you build become your safety net when life gets complicated. When you’ve invested in real conference relationships, you have people to call when everything falls apart. That’s something a webinar simply can’t deliver.

Questian’s favorite conference moment captures this perfectly. At WAVE-Seattle last year, Jen Posner mentioned listening to a podcast by two women in accounting on her drive up. “Is it called She Counts?” Questian asked. It was. “That’s my and Nancy’s podcast.” Early in the show’s life, that moment proved their work was reaching people in meaningful ways.

Choosing the Right Conference for Your Goals

“The best conference isn’t universal,” Nancy emphasizes. What works brilliantly for one person might leave another feeling completely out of place.

Before registering for anything, ask yourself what you’re actually looking for:

Technical learning? Deep dives on tax approaches or software implementation
Networking? Meeting potential collaborators and referral partners
Inspiration? Keynotes that help you dream bigger
Visibility? Opportunities to speak and take up space
Tool discovery? Hands-on software evaluation in expo halls
Community connection? Women-focused events or niche gatherings

Nancy once sent her senior accountant to a conference with one mission: find the best project management software for their team. That trip led them to Double (formerly Keeper), which Nancy calls “transformational” for their organization.

Size and Format Matter

Not every conference needs to be massive. Local pop-ups and touring events offer accessible starting points. Erin created WAVE-Seattle because she was tired of traveling around the country and wanted something for women in the Pacific Northwest. Jason Staats takes his On Firms events on tour. The Bridging the Gap Road Show and Advisory Amplified travel city to city, offering lower-cost options.

For larger conferences, each has its own personality:

Scaling New Heights: Heavy on accounting technology with a massive expo hall
Intuit Connect: Essential for QBO-specific firms
Digital CPA: Carefully curated vendors in shared social spaces for deeper conversations
Bridging the Gap: Focus on sustainable firms with an inclusive, come-as-you-are culture

Don’t overlook industry conferences outside accounting, either. If you specialize in construction or dental practices, you might find your next clients at those events.

Budget Solutions

If cost is the barrier, check out the Accounting Cornerstone Foundation. This nonprofit covers airfare, hotel, and admission for first-time attendees who can’t afford it. Multiple members of Nancy’s Ask a CPA community have already received scholarships and describe the experience as unparalleled. And if you understand the impact conferences make, consider paying it forward and becoming a donor.

Making the Most of Your Conference Experience

You’ve picked your conference. You’ve registered. Now what?

Set concrete goals. Come with one to three specific objectives. Maybe it’s meeting five people, evaluating two tools, or attending three sessions. Nancy brings a notebook listing client issues to resolve and vendors to meet.
Connect beforehand. Check whether your online communities, such as Bookkeeping Buds or Ask a CPA, are organizing meetups. Having familiar faces changes everything, especially for introverts.
Don’t overpack your schedule. Nancy admits she’s a “maximizer” who spends 2.5 hours planning for each session slot. “Don’t be me,” she cautions. It’s okay to sleep in, take a nap, or skip sessions for hallway conversations.
Branch out from familiar faces. Nancy and a friend deliberately arrive early and stay late at conferences to have quality time together. This frees them to meet new people during the event itself.
The hallways matter. Relationships form in the informal moments, like meetups, dinners, and wandering at expos. When Tony had to physically steer Nancy through the expo hall because she kept getting pulled into conversations, it proved how deep conference relationships can become.
Start small if you’re introverted. A few years ago, Questian’s goal was simply to introduce herself to one person without panicking. That single step catalyzed speaking engagements, teaching opportunities, and eventually co-hosting a podcast.

Your Next Conference Could Change Everything

Sometimes the most valuable part of a conference isn’t what you learn, but who you become after being in that room.

CPE is the floor, not the ceiling. The real value comes from relationships, visibility, confidence, and belonging you can’t build behind a desk. Choose strategically based on what you need right now. Go in with goals. Connect with your community. Give yourself grace. Push yourself to meet one new person, even if it takes five minutes to work up the nerve.

These spaces are incredibly valuable for women in accounting. Seeing other women lead, share vulnerably, and succeed gives you permission to imagine bigger possibilities. The relationships become collaborations, partnerships, and the safety net you need when life gets complicated.

This profession can be isolating, especially if you’re running your own firm or navigating spaces where you’re one of only a few women. Conferences are an investment in who you’re becoming.

Your Camp Timberwood moment might be one introduction away.

Listen to the full episode for Nancy and Questian’s complete conference recommendations.

Private Equity, Proprietary AI, and the Self-Reinforcing Cycle Coming for Independent Firms

Earmark Team · July 9, 2026 ·

In 2025, there were roughly 900 roll-up transactions in the accounting profession. Only a handful were mega-deals that made Accounting Today headlines. Most were small firms merging, tax-only shops joining advisory practices, and everything in between. Of those transactions, 200 were directly linked to private equity investments. Meanwhile, half of the top 30 accounting firms have now taken private equity money or adopted alternative ownership structures.

And while all that was happening, AI tools started being built exclusively for certain platforms, and locked behind walls independent firms can’t access.

Marcus Dillon, CPA, sees these forces clearly. As co-host of the Who’s Really the BOSS? podcast and leader of Dillon Business Advisors (DBA) and Collective by DBA, an advisory community for firm owners, he spent five consecutive weeks this past May traveling to industry events. His journey took him from the Collective Recharge conference in Mexico to Intuit’s council in California, ADP’s council in Nashville, meetings in Katy, Texas, and finally the Firm Growth Forum in San Diego. Across all those rooms, the same interconnected forces kept surfacing.

Firm owners need to understand that private equity timelines drive centralization. Centralization enables AI deployment at scale. And proprietary AI makes consolidated firms increasingly competitive against independent practices. It’s a single, self-reinforcing cycle that redraws the competitive map for firms of every size.

In Season 5, Episode 13, Marcus and Rachel Dillon unpack what he learned across those five weeks on the road, and what it means for your firm right now.

The M&A Wave Moving Downmarket

The numbers tell only part of the story. What makes this personal for most firm owners is where this M&A activity is heading.

MBA graduates from Harvard, the University of Chicago Booth School of Business, and similar institutions enter the market armed with a concept called “entrepreneurship through acquisition.” Their professors specifically identified accounting as ripe for a roll-up. Now you have freshly minted MBAs, search funds, and pooled investor groups actively hunting for accounting firms ranging from $2 million to $20 million in revenue.

“Private equity gets a bad rap,” Marcus explains in the episode. “All it is is pooled money. There are great people to work with. Some people aren’t so great to work with. And some people have a great investment thesis and culture and treat team members well. And some people don’t.”

In practice, evaluating a capital partner is no different from vetting a new hire or vendor. The label doesn’t automatically make it good or bad.

Marcus and Rachel speak from experience. DBA completed two acquisitions in 2025. When Marcus mentioned firms that acquired eight companies in a single year, Rachel’s response was, “After acquiring two firms in one year, I think you need an award if you acquire eight firms in one year, whether good or bad, it’s not the easy way out.”

Three distinct models emerged among the firms being celebrated at these conferences:

Fully centralized firms like Aprio and Armanino that integrate acquisitions completely from day one
Decentralized platforms that preserve autonomy for acquired firms while sharing ownership
Hybrid models that centralize certain functions while leaving others independent

All three were celebrating wins. But something unexpected happens beneath the surface.

The Rush Toward Centralization

“Since I’ve been back in town, there’s been a big movement with people stating they’ll remain fully autonomous and fully decentralized,” Marcus observed. “They’re now moving towards centralizing.”

Two forces drive this reversal.

First, you can’t deploy AI effectively across disconnected data. Picture a platform with 20 firms operating independently, with their own tech stacks, databases, and processes. If that platform discovers a breakthrough AI automation, they’d have to install it 20 separate times. As Marcus puts it, the data is “so much more valuable when it’s all together, and you can deploy those efficiencies at scale .”

Second, the next buyer doesn’t want a project. Private equity funds typically hold investments for three to five years before seeking a larger capital partner. When platforms go to market, that next investor “doesn’t want to own 20 different brands on a loosely connected platform,” Marcus explains. “That doesn’t make sense to them. It doesn’t make sense to pay a premium for that.”

We see this play out in real time. Springline is rebranding acquired firms under a single brand. Crete Professionals Alliance just rebranded to Current. These are structural changes designed to make the combined entity more valuable and competitive.

Rachel offers practical wisdom for those watching these shifts. “You always want to level up to your top firm. It would be a little naive to think you can keep doing exactly what you’ve always done with the same tools.”

Marcus validates this from DBA’s own experience. When they integrated their two acquisitions, they immediately moved them onto DBA’s tech stack and systems. If they’d left everything separate, “it would have been a nightmare,” he says.

The AI Divide Takes Shape

Current counts Thrive as its biggest investor. Thrive is also connected to OpenAI. Together, they’ve built AI software available exclusively to firms on that platform, and the software won’t be available on the open market.

“When you have big technology companies like OpenAI or Anthropic partnering with firms and creating proprietary software, you have to question who’s going to win the technology battle at the end of the day,” Marcus says.

These AI-powered platforms are competing with smaller firms. You don’t have to join a platform to be affected. You just have to compete against firms that did.

Meanwhile, the broader AI landscape is chaotic. New AI products launch daily. Every platform is embedding AI. Canopy released Co-work, Carbon is building AI features, and Intuit Intelligence is rolling out within QuickBooks. “Everything we open up on a daily basis has some form of AI or agent now being built into it,” Marcus notes.

DBA takes a practical approach. Currently, they deploy Microsoft Copilot across the entire team because it integrates with their Microsoft ecosystem. Select team members also have Claude Enterprise for testing advanced solutions. Once something works in Claude, Angel Sabino, DBA’s Director of Technology and AI, productionizes it in Copilot for broader deployment.

“It’s hard right now to understand what’s real, what’s conceptual, what’s just a great video that somebody put together, or what is actually a true demo of a useful product,” Marcus admits about the current AI landscape.

“Be really aware and ready to start experimenting with it so when you do have a change in the firm, you can immediately solve for it and not try to figure it out when it’s too late,” Rachel counsels.

Your Window for Action

The accounting profession is facing an interconnected dynamic in which M&A drives centralization, centralization enables AI deployment, and AI makes consolidated firms more competitive. Each force feeds the next, and the cycle is accelerating.

But understanding these dynamics gives you power to act with intention. Here’s where to start:

Review your software spend now. Vendors push price increases in the summer. As Marcus advises, if you turned on software to experiment six months ago but only have one client using it, turn it off. DBA specifically moved clients to consolidated platforms like Ramp for bill pay.
Start experimenting with AI before you need it. Set aside a budget and designate a small group to test tools in a controlled environment. Don’t wait for a crisis.
Know your non-negotiables. Whether it’s a PE-backed buyer, a platform acquisition, or succession planning, understand what matters most before negotiations begin.
Take control with your dollars. “You can be a very reactive player in this market, or you can actually be proactive,” Marcus says. “And the best way to be proactive is with your dollars.”

At the San Diego conference, Marcus overheard a woman celebrating finding a session that didn’t mention M&A or AI. She called it “refreshing.” Her instinct isn’t wrong; good business fundamentals still matter. But ignoring these forces won’t make them disappear.

If you want to dive deeper into these dynamics and learn more about navigating this inflection point, join Marcus, Rachel, and other firm leaders at Gather this October in Grapevine, Texas. Visit collective.cpa for details while tickets remain available.

Listen to the full episode of Who’s Really the BOSS? to hear more of Marcus and Rachel’s discussion about preparing your firm for what’s ahead.

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.

AI Models Now Outperform Human Bookkeepers and One Controller Proves a Finance Team of One Actually Works

Earmark Team · July 8, 2026 ·

A controller at a SaaS company that processes $50 million a month through its marketplace went on a two-week vacation. When he returned, his AI agents had already coded, categorized, approved, and synced 2,000 transactions. He reviewed just 67 (about 3%) by hand, and the entire cleanup took 30 minutes.

James Agius, Financial Controller at Skool, described his actual workflow on a recent episode of The Accounting Podcast. And it landed alongside benchmark data proving that, for the first time, off-the-shelf AI models from OpenAI, Anthropic, and Google are outperforming human accountants at basic bookkeeping tasks.

Hosts Blake Oliver and David Leary unpacked a series of developments that signal a genuine turning point for accounting. New studies from Digits and Ramp put hard numbers on AI’s bookkeeping abilities. A venture-backed startup led by a former PCAOB board member is building an AI-first audit firm. And KPMG’s entire US management committee flies to Silicon Valley every five to six weeks to meet with startups it views as potential threats.

But AI isn’t arriving to replace a surplus of accountants. It’s showing up amid a talent crisis that has more than tripled the number of unfilled accounting roles in a single year.

The Numbers Don’t Lie: AI Now Matches Human Bookkeepers

For years, the accounting profession has heard promises about AI. Now there’s data to back them up.

Digits just released the fourth version of its benchmark study, and CEO Jeff Seibert shared the results in an interview with David, which is featured on the episode. The test included categorizing over 2,000 transactions across multiple businesses into the correct chart of accounts. They tested all the major AI models (OpenAI’s ChatGPT, Anthropic’s Claude, and Google’s Gemini) against outsourced human accountants.

“All of the major model providers have, for the first time, beaten real, outsourced human accountants at bookkeeping tasks,” Jeff told David. The humans scored about 79% accuracy. The AI models came in between 79.4% and 80.7%. The margin is small (about 1.6%), but the direction is clear.

Before anyone dismisses 79% as a low bar, Jeff offered important context. That’s actually typical for outsourced accountants who understand general accounting principles but don’t know the specific business. “They don’t know anything about that business or its industry, supply chain, geography, or customer base,” he explained. That missing context accounts for the 20% error rate.

What’s striking is how similar all the models performed. They’re all within three percentage points of each other. As David put it, basic transaction categorization “is kind of a commodity now.” It’s something everyone will essentially get for free from these models right out of the box.

But purpose-built systems go much further. Digits’ own AI, which learns from each business’s transaction history and can’t hallucinate by design, hits 97.8% accuracy. “Digits mimics the knowledge of a dedicated accountant who you’ve worked with for a number of years,” Jeff said.

The picture changes when you look at more complex work. Ramp tested its new Stack platform on 237 accounting tasks across eight synthetic businesses for categorization and financial close work. Its system scored 65.8%, beating the raw models but well short of perfect. This matches what most accountants experience. AI is great at pattern recognition but still struggles with judgment-heavy tasks.

AI still falls short in complex accruals, according to Jeff. Journal entries, fixed asset schedules, and prepaid expenses are the remaining frontier. Digits responded by launching automated accrual schedules where the AI identifies potential prepaids or fixed assets, drafts the schedule, and the accountant approves it.

Jeff drew an interesting parallel. At his tech company, engineers went from zero AI use to 100% in a single quarter. Jeff himself hasn’t written code since December, despite coding being his passion since age 12. “We have not fired our software engineers,” he said. “They are still critical, but the day to day has changed completely. Instead of them writing the code, they’re guiding the agents.”

One Controller, Zero Staff, $50 Million in Monthly Transactions

James Agius proves what these benchmarks mean in practice. He’s the financial controller at Skool, a SaaS company running online educational communities. The company handles over $5 million in monthly spend with nearly $50 million flowing through its marketplace each month.

James is also the company’s entire finance department. The company doesn’t have any staff accountants, AP clerks, or analysts. It’s just him and seven specialized AI agents, plus an eighth admin agent that checks the others’ work and enforces controls.

When Agius took two weeks off, those 2,000 transactions piled up. His automations handled almost everything, from coding, categorizing and approving to syncing to the ERP. When he returned, just 67 transactions needed human judgment. The cleanup took 30 minutes.

“His job changed from doing the work to reviewing the work,” Blake explained on the podcast. That shift freed Agius for forecasting, cash management, and strategy. It’s the work finance leaders always say they want to do but rarely have time for.

The timing couldn’t be more ironic. Just as AI enables one person to run an entire finance function, the profession can’t find enough people to fill open roles.

A Personiv study cited in Accounting Today found that the number of unfilled accounting and finance positions per company jumped from 5 to 17 in a single year, more than tripling. Eighty-four percent of finance and accounting leaders say there’s a talent shortage. The hardest role to fill is the senior accountant role, cited by 43% of respondents.

The drivers aren’t mysterious. The profession has talked for years about how 75% of CPAs were approaching retirement. “Well, now they’re doing it,” Blake said. And the pipeline is thin because staff accountants have been leaving after just a few years.

As David pointed out, senior accountants are exactly the people who would manage AI agents, so the talent shortage and the AI transition are colliding at the worst possible moment.

Firms are responding by racing to adopt AI. Sixty-three percent of leaders use AI to ease hiring pressure, up from 23% last year. For example, Bennett Thrasher moved talent acquisition from HR to the growth function, treating recruiting as strategically as business development. “The human labor becomes more valuable because it’s augmented,” Blake noted.

The Race to Reinvent

The competitive landscape is shifting as fast as technology. New entrants and incumbents alike are making moves that suggest they see this transformation as irreversible.

Christina Ho, former PCAOB board member and past podcast guest, joined Oath, a venture-backed firm building an AI-native audit practice from scratch. No legacy systems or technical debt. It’s AI-first from day one. They raised $6.6 million in seed funding and aim to automate 80% of audit work by 2030.

Oath plans to connect directly to clients’ accounting systems for continuous verification rather than year-end evidence gathering. CEO Lucas Ward emphasized audit remains “a human accountability function” even as machines handle verification. They’re recruiting “accounting engineers,” hybrid roles combining accounting expertise with computer science skills.

The Big Four are taking notice. KPMG’s US CEO now takes the entire management committee to Silicon Valley every five to six weeks, meeting with venture firms like Andreessen Horowitz and Bessemer to identify potential disruptors. They’re open to partnerships or investments, anything to avoid being blindsided.

On the platform side, Ramp’s new Stack product shows where AI agents might actually live in the workflow. Stack connects to existing tools like QuickBooks and accepts plain-language instructions, like “This client allocates revenue by location, not department. Split it across six cost centers.”

As Blake observed, “The GL is not the best place for agents to live. You want the agents at the point of the transaction.” Ramp already sits at the point of spend, giving its agents rich context about each business. The market agrees. Ramp just raised $750 million at a $44 billion valuation.

Not every AI adoption strategy works, though. KPMG rolled out a dashboard requiring employees to use AI for roughly 75% of their working time. Predictably, employees immediately gamed it. They had AI summarize emails they’d already read or generate random drawings — anything to hit targets. Blake called it “token maxxing,” comparing it to padding billable hours. Amazon shut down a similar program after seeing the same behavior.

What Humans Still Own

Where does human value go when AI handles the routine work? Jeff identified three things AI can’t replace.

Judgment. “AI goes off in weird directions,” he said. Experienced professionals must guide it through ambiguous calls.
Trust. “The AI will tell you anything you want. You can never trust AI.”
Accountability. “It’s never going to be liable for the numbers it gives you. What are you going to do, sue your AI?”

These are the differentiators for accountants who want to stay relevant as machines take over the rest.

All of the evidence from this episode points to AI crossing the competence threshold for basic bookkeeping and advancing toward complex tasks. One controller already runs a $50 million operation solo. Yet unfilled roles have tripled. Senior accountants are impossible to find. The retirement wave is here, and the pipeline is thin.

To thrive, you need to bring what AI can’t: judgment, trust, and accountability. The transition is here.

Listen to the full episode for the rest of Jeff’s interview, details on KPMG Australia’s whistleblower scandal fallout, and a discussion of the IRS leadership vacuum.

Intuit Laid Off 17% of Its Workforce — But the Real Story Is What It’s Building With the Other 83%

Earmark Team · July 7, 2026 ·

When 3,000 Intuit employees opened their inboxes at the end of May, the internet had already written the narrative for them: AI is coming for your job. But the three hosts of The Unofficial QuickBooks Accountants Podcast, one of whom survived two rounds of Intuit layoffs during his 18-year tenure at the company, have a different story to tell about what’s actually happening and what it means for every accounting professional who builds their practice on QuickBooks.

In Episode 146, host Alicia Katz Pollock joins Dan DeLong of School of Bookkeeping and Matthew “Spot” Fulton of Parkway Business Solutions to dissect CEO Sasan Goodarzi’s announcement that Intuit cut 17% of its workforce. As Alicia explains, “All three of us came on because we were like, oh, man, how are we going to talk about this?”

They concluded that this is a cyclical restructuring that reveals where Intuit is placing its biggest bets. Accounting professionals who understand the strategy behind the cuts will be better positioned to anticipate which tools, integrations, and support channels are evolving or disappearing.

Intuit’s Cyclical Restructuring Culture

To understand what these layoffs mean for your practice, you need to understand this pattern.

Dan lived through it twice during his 18 years at Intuit, and he watched restructuring cycles come and go with predictable regularity. The timing is practically baked into Intuit’s fiscal calendar.

“Intuit’s fiscal year starts on August 1st,” Dan explains. “The fourth quarter is when decisions like this get made, and the third quarter, which was the result of what occurred and why this happened, is typically a reflection of how well or how poorly TurboTax did, because the third quarter includes the tax filing season.”

When those Q3 numbers come in, they might be better than expected or “less than desirable.” Then the fourth quarter becomes adjustment season. Since payroll is a massive line item, restructuring follows. The previous round was two years ago. Before that, four years.

“Intuit is a very eco-friendly company because they recycle employees,” Dan joked.

When Dan got caught in the 2008 restructuring, he was on vacation, driving through Arizona on the way to Mexico. His phone rang in a town called Why, Arizona. He looked up and saw a giant fork in the road: turn left for Mexico, right for California.

“It was so fitting,” he recalls. “Why is this happening? And here I am in Why, Arizona.”

But Dan didn’t lose his job. He lost that job. Intuit opened new positions as part of the restructuring. Dan applied, and he never turned in his badge. The total headcount during Dan’s tenure stayed consistent at around 8,000 employees. As Dan points out, “Intuit hired more people than they let go” doesn’t make for a compelling headline.

While 17% of the workforce received letters, Dan emphasizes it affects everyone: “Even though it’s 17% of the workforce, it affects 100% of the employees.” The people who remain have to reorganize and absorb responsibilities. He remembers the person sitting next to him in 2018 asking, “Why are they letting you go? I just started here.” That same colleague was impacted in this latest round.

Taking Care of Their People

The hosts want to make one thing clear: Intuit takes care of the people it lets go. The severance package is substantial:

16 weeks of base pay, plus two additional weeks for every year at Intuit
Continued payroll through July during the transition
Bonuses and stock vesting honored
Six months of healthcare coverage
Mental health support during transition and 60 days after
Career coaching, resume help, and job placement assistance
Immigration support for visa holders

Dan maxed out the severance formula after 18 years. “I would have volunteered at that point,” he admits. But then he catches himself, remembering a young couple behind him at the announcement meeting, sobbing. What felt like a golden parachute to a veteran felt like a catastrophe to someone just starting out.

The hosts also challenge the stigma around layoffs. Matthew shares how a friend spent 15 years moving between companies, a pattern Matthew initially warned against. But each transition expanded her knowledge and increased her income.

“There’s only so much you can do with the annual merit increase,” Dan notes. “You’re going to give yourself a raise by having a period of time with this company and then moving on.”

Reading Between the Lines of Goodarzi’s Letter

Sasan Goodarzi’s restructuring letter is a strategic roadmap. Every rationale for cuts signals a shift that will affect the tools you rely on.

The priority was reducing management layers that were “slowing the flow of information.” They’re empowering teams closer to customers to make decisions without sending everything up the chain.

Dan experienced this firsthand. He was one of the few frontline employees authorized to approve his own data service escalations. “I could either bring the knowledge to the conversation, or I could skip the line,” he explains. That’s the streamlined decision-making Intuit wants more of.

The letter also talks about focusing on “high-impact work” and reducing “coordination-heavy roles” to focus on “mission-critical work that directly impacts our customers’ prosperity.”

Matthew raises the concern many are thinking: “I’m having this challenge or that challenge within the software. And now I’m hearing that you’re laying people off. Is it going to take longer to see things getting fixed?”

The hosts interpret this as potentially more investment in programming and support, though Dan admits, “We can hope, right?”

Strategic Signals in the Closures

Intuit shut down offices in Woodland Hills, California, and Reno, Nevada. But these weren’t random real estate decisions.

“Woodland Hills is pretty close to where I live, and that’s always been the merchant processing area,” Spot confirms. Dan adds that when Intuit acquired IMS, its payment processor, it opened operations there.

Reno housed payroll operations, assisted payroll, risk, and underwriting. Dan notes you can no longer purchase assisted payroll for desktop, so these closures are product-line signals.

Meanwhile, Intuit is opening a new facility in India, where they’ve maintained a significant development presence for years. The layoff numbers are global, not just U.S.-based. That detail often gets lost in media coverage.

The Three Big Bets (and One They’re Folding)

Intuit used to have five big bets. Now they have three:

Scale their AI-native platform for “done for you” experiences. This covers QuickBooks Live and TurboTax’s assisted services. But Matthew heard unsubstantiated claims that some layoffs hit QuickBooks Live directly. Alicia adds that Live was reportedly underperforming.
Be the center of money for consumers and businesses. Between QuickBooks Payments, Bill Pay, the QuickBooks Money app, a new credit card, short-term lending, and buy-now-pay-later features, Intuit wants to be the financial system businesses never leave. “Create a platform that people live in as much as humanly possible,” Matthew explains, “and they never want to leave it because once you’re really ingrained in it, it becomes that much harder to leave.”
Accelerate their authority in the mid-market. QBO Advanced and Enterprise Suite get the investment.

“Does that mean they feel they fully won the small market?” Matthew asks. The hosts think maybe. As Alicia notes, one Enterprise client is worth a dozen Simple Starts in revenue.

The MailChimp Question

This is where things got heated. Intuit’s Q3 earnings call described MailChimp as “a drag on growth.” The company “seems open to a potential divestiture.”

“If this is saying we are reducing MailChimp, I have a problem,” Alicia says. “I have an operational problem in my business because we literally have email workflows that have been in place for ten years.”

She argues the real failure isn’t MailChimp. It’s that Intuit never properly leveraged the QBO integration. You can build email segments from purchase data, but most people don’t know that.

“Quicken is still around, right?” Dan says, offering some perspective. “They sold it off. Another company bought it, but that brand is still around.”

The earnings call also revealed acknowledged churn in the SMB segment. Customers are trying QuickBooks and leaving, though mid-market growth currently offsets those losses.

The ProAdvisor Shift

Buried in the discussion is perhaps the most important development. Alicia shares intelligence from an internal Intuit meeting indicating that the company is rethinking ProAdvisors as customers rather than just a marketing channel.

“They’re realizing we are their customer because ProAdvisors right now are looking at alternatives,” Alicia explains. “And if they don’t actually treat us like we have value, then we’re gone.”

For years, Intuit viewed ProAdvisors as a channel. For example, one ProAdvisor brings 20 clients. Now they recognize ProAdvisors have inherent value. If this shift holds, it could reshape how Intuit prioritizes support, product development, and communication with the accounting community.

What This Means for Your Practice

The headline says 17% layoffs. The reality is closer to 83% reorganization. For accounting professionals, the practical takeaways are:

Watch your MailChimp dependencies. If your practice relies heavily on MailChimp’s QBO integration, start planning. A divestiture doesn’t mean the product disappears tomorrow, but having a contingency plan is smart business.
Lean into the mid-market. With resources pouring into QBO Advanced and Enterprise Suite, this is where the platform will evolve fastest. One Enterprise client generates more revenue than a dozen Simple Starts, and Intuit is building accordingly.
Hold them to the ProAdvisor promise. If Intuit genuinely sees ProAdvisors as customers, not just a marketing channel, it’s your moment to push for better support and tools. They know you have alternatives, so make sure they hear what you need.

As Alicia concludes, “Intuit is responsible for all of us pursuing our passions and building careers that we love. We want to continue to survive and thrive together as a team.”

For the complete conversation, including Dan’s unforgettable story about getting the call at a literal fork in the road in Why, Arizona, listen to episode 146 of The Unofficial QuickBooks Accountants Podcast.

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!