Many partnerships choose to distribute K-1s electronically, either in lieu of or in addition to distributing paper K-1s each year. In 2012, the Internal Revenue Service issued Revenue Procedure 2012-17, which provides specific procedures that must be followed if K-1s are distributed in electronic format only. If your partnership does not issue paper K-1s, and you do not comply with these guidelines, you may be subject to penalties (up to the greater of $520 (inflation adjusted) per partner or 10% of the aggregate amount of items required to be reported, with no maximum) for failure to distribute K-1s.
The specific procedures are summarized below:
- Section 4. The recipient (the partner) must affirmatively consent to receive K-1s in electronic format.
- Section 5. Prior to, or at the time of, a recipient’s consent, you must provide to the recipient a clear and conspicuous statement containing each of the following disclosures:
a. That paper K-1s will be issued if consent is not received.
b. The scope and duration of consent. If an extended duration (e.g., “until withdrawn”) is not stated, consent must be obtained annually.
c. Procedures for obtaining paper copies after consent has been given.
d. Procedures for, and ramifications of, withdrawal of consent.
e. Conditions under which electronic delivery will cease.
f. Procedures for updating recipient contact information.
g. Hardware and software requirements.
The above disclosures are described further in Section 5.02 through 5.08 of Revenue Procedure 2012-17.
- Section 7. You must give notice to recipients when K-1s are available. The notice must include the following statement in capital letters: IMPORTANT TAX RETURN DOCUMENT AVAILABLE.
- Section 9. If K-1s are posted on a web site, they must remain available for 12 months after the end of the partnership’s tax year, or 6 months after the date of issuance, whichever is later.
- Section 10. If consent is withdrawn, a paper K-1 must be provided.
Click here to view an AICPA Tax News article on the required procedures.
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