Asking Permission is Mandatory Says the IRS
By Ben Mazza, COO of InvestorFlow
You need to ask for permission before sending K-1s online. Here's the text you can use.
In my 20 years of offering investor portals to alternative asset firms such as private equity, real estate, venture capital and hedge funds; fund managers never needed to ask investors if there should be an online portal to share information. Going online was more than a trend, it was needed in order to communicate with more investors and offer more financial products. Plus, investors didn't want to keep requesting information over the phone or via email. They too had more investments to manage with more managers. Asking was not needed.
But in 2012 the IRS stepped in and said managers need to ask. They need to ask for the investor's permission before disseminating K-1s online. Failure to do so comes with consequences according to the IRS.
Today, when we migrate a client from another investor portal that doesn't have the ability to ask, I often advise on best practices. Getting this right is so important, and so easy, that I thought I'd share my advice with the rest of the alternative asset community.
I'm providing two links for this blog post. The first link contains a white paper on the IRS rules around asking for permission. The second link contains the actual text you can use to ask.
For our clients, the InvestorFlow portal contains the ability to display legal text before delivering any document and logs the user's acceptance of the policy or disclaimer. You can edit the included text with your name or fund, and freely use it to satisfy the IRS ruling.
New IRS Requirements Regarding Tax Return Delivery
Electronic Document Delivery of Schedule K-1s under IRS Revenue Procedure 2012-17
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