MG Stover & Co. | K1 Electronic Delivery
Delivering boutique fund administration and accounting services to the alternative investment industry including: hedge funds, venture capital funds, private equity funds, real estate funds, and family offices.
Fund Administration, Fund Accounting, Hedge Fund, Private Equity, Venture Capital, Family Office, Trust Accounting, Partnership Accounting, Portfolio Aggregation
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K1 Electronic Delivery

K1 Electronic Delivery

  |   Regulation Update

INSIGHTS

Want to send your investors their K-1s via email or web portal instead of snail mail?

 

Most investment managers, investors (and of course fund admins) prefer electronic delivery due to its efficiency, audit trail and significant reduction of human error — stuffing Investor A’s K-1 into Investor B’s envelope or relying on the USPS to get this very important envelope into the right mail box….

If you didn’t know, now you know…

The IRS Revenue Procedure 2012-17 defines rules to ensure that K-1 recipients consent to electronic delivery, have a manner to remove consent, have appropriate software & access to receive electronic delivery, receive appropriate notice of delivery and finally have an appropriate access period.

What does this mean and what do Investors need to do?

The IRS has identified requirements (effective Feb. 2013) related to electronic consent & delivery that must be followed to ensure that the registered investor receives and can access their K-1.

 

MG Stover works with its clients to ensure that each investor’s K-1 is delivered in a timely and secure manner that follow the IRS’ Revenue Procedure 2012-17. The IRS can penalize managers for not appropriately receiving, storing and using the appropriate method of delivery. Below is a summary of the Sections 4-9 of the IRS Revenue Procedure 2012-17. The full IRS rules related to K-1 electronic consent and delivery can be found here.

  • Affirmative consent in a manner that shows the recipient will be able to access the Schedule K-1.

  • Withdrawal of consent takes effect immediately.

  • Additional consent required if material change in hardware or software needed to access K-1.

  • The K-1 will be mailed if the recipient does not consent to receive it electronically.

  • Scope and duration of consent.

  • The process to request physical a copy in addition to electronic delivery.

  • The process to request physical a copy only and withdraw consent.

  • Hardware and software requirements to access, print, and retain the K-1 will be detailed.

  • Must provide notice of delivery including “IMPORTANT TAX RETURN DOCUMENT AVAILABLE.”

  • Must deliver via mail if electronic delivery is undeliverable and cannot be corrected.

  • If delivered via a website access must be available for 12 months.

Steps to take now to comply with IRS rules: 

Amend your subscription document to include electronic consent and define how K-1s will be delivered (email, encrypted email, or secure web portal) to appropriately capture consent.

Analyze your investor base to identify those that have not consented and request consent (via email, encrypted email, or secure web portal) in advance of March/April so that K-1s can be delivered in an efficient manner.

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Delivery best practice: 

Whenever possible, we prefer to deliver K-1s in a secure manner, either via a secure web portal (if established for the client) or via encrypted email. We use Outlook Message Encryption (OME) which makes it very easy for an investor to open the encrypted message via their existing Microsoft Outlook password or one-time passcode that can be delivered with the click of a button. We can also efficiently deliver hard copies to those investors that prefer mail delivery or if the client prefers to send all K-1s via mail.