Continuing its embracing of electronic communication the IRS has issued Revenue Procedure 2012-17 which allows partnerships to provide K-1s to their partners electronically.
The partnership schedule K-1, Partner’s Share of Current Year Income, is a summary of the partner’s distributive share of the partnership’s income, gains, losses, deductions and credits. The partner uses the information on the K-1 to prepare their own tax return.
Prior to the issue of Revenue Procedure 2012-17 partnerships had to give a physical copy of the K-1 to each partner on or before the due date for filing the partnership tax return. For calendar year partnerships that would normally be April 15, although for 2012 the deadline is April 17.
Now partnerships can issue the K-1s electronically. Although this will have the most benefit for partnerships with a large number of partners it will still help small partnerships who are working towards paperless operations.
To be able to issue K-1s electronically there are some key requirements to follow:-
- Each partner needs to give consent to receive their K-1 electronically. This can be given by paper or electronically. The partner needs to confirm the consent electronically to demonstrate that they will be able to access the electronic K-1. If no consent is given or the consent is withdrawn then a paper K-1 needs to be issued.
- If the way to access the electronic K-1 changes due to changes in hardware or software then notice needs to be given to the partners and a new consent obtained.
- Prior to or at the time consent is given the partnership must make various disclosures about giving the consent.
- The format of the electronic K-1 must contain all the information required for a K-1 and substitute statements or be an exact copy of the official IRS K-1.
- If the electronic K-1 is being made available on a website there are requirements about the format and means of giving notice to the partners to download the K-1. There are also rules on how long the forms need to be made available.
Even for small partnerships there will be benefits to adopting electronic K-1s including easy access for partners to their K-1s wherever they are located, saving paper and mailing costs.
If you decide to issue electronic K-1s make sure you read and follow all the rules in Revenue Procedure 2012-17 or get help from your accountant or tax preparer.
Posted by Mark Smith a tax preparer and accountant with over 28 years tax and accounting experience. He is the owner of Cranmere Accounting and Tax Services LLC and can be contacted on (480) 363-4808 or by email at email@example.com.
Disclaimer – This article does not constitute personal tax advice to the reader and is only offering general information. You should seek professional advice for your own situation as the most appropriate tax planning depends on your personal and unique circumstances.