Electronic Delivery of Schedules K-1
Overview of guidance
On February 13, 2012, the Internal Revenue Service ("IRS") issued Rev. Proc. 2012-17, which, for the first time, specifically outlines when and how a partnership may use electronic media as the sole mechanism for delivering Schedules K-1 ("K-1s") to its partners. The new rules apply to K-1s provided to partners on or after February 13, 2012. Complying with this guidance requires careful planning and the right process and technology. Read an overview of the guidance, important process and technology considerations, and how Deloitte can use Deloitte's Partner DataLink in conjunction with tax compliance services to assist your organization in complying with this guidance.
Many partnerships have used electronic delivery in the past as a means to satisfy their obligation to furnish statements to partners and some partnerships received rulings from the IRS approving their approach. Rev. Proc. 2012-17 provides the approach going forward for delivering required information. The new rules apply to K-1s provided to partners on or after February 13, 2012.
The Rev. Proc. provides that electronic means may include email and/or access through a secure Web site and outlines seven key criteria that must be met in order to satisfy a partnership's obligation to provide federal K-1s. These criteria are summarized as follows:
- Consent — Recipients must consent to electronic delivery. Consent may be accomplished electronically or in a paper document if it is later confirmed electronically by the recipient. There are also specific procedures for withdrawal of consent by the recipient and for addressing changes to hardware and software required for K-1 access.
- Disclosures — Seven disclosures must be made on or before the date the recipients consent to electronic delivery. These disclosures include the following:
- Notice that recipients will receive paper K-1s if consent for electronic delivery is not given
- The scope and nature of consent
- How to request paper K-1s after consent for electronic delivery is provided
- How to withdraw consent
- Conditions under which electronic delivery may be terminated by the provider.
- Procedures for updating contact information and a required communication back to the recipient of any such changes.
- A description of the hardware and software requirements for accessing, printing and storing the K-1s, as well as the duration of accessibility to the K-1s if the delivery mechanism is a secure Web site.
Format — The electronically provided K-1s must otherwise meet all previously issued guidance relating to substitute K-1 issuance.
Notice — The provider must notify recipients when K-1s are posted on a Web site, including instructions on how to access and print the statements.
Amended K-1s — The provider must electronically deliver any amended K-1s within 30 days of such amendment.
Access Period — K-1s posted to a Web site must be retained and be accessible for the later of twelve  months after the partnership's year end, or six  months after issuance of the K-1s.
Paper Statements after Withdrawal of Consent — If withdrawal of consent occurs before electronic delivery of a K-1, a paper statement must be furnished.
Process & Technology considerations
The Rev. Proc. provides that IRS approval will not be required for substitute K-1s that are an exact copy of the official Schedule K-1.
Rev. Proc. 2012-17 introduces a number of new procedural requirements in the evolving area of electronic delivery of K-1s. There are two main electronic delivery mechanisms: via the internet (e.g. a Web portal) or via email. The following are some important considerations for the selection of a delivery mechanism:
- Ease to Access
- Ability to Track, Report and Handle Various Data Types, etc.
- Interaction with Other Systems
In combination with providing tax compliance preparation services, Deloitte can assist organizations in complying with Rev. Proc. 2012-17 using Deloitte's Partner DataLink. Partner DataLink is a software application module that enables the electronic delivery of federal and state K-1s. Learn more about Deloitte's Partner DataLink onDeloitte.com.
For additional information or questions, please contact:
National Managing Partner, Asset Management Tax
Deloitte Tax LLP
+1 212 436 2165