For alternative investment funds, tax season can be an onerous and distracting chore. With an experienced outsourced fund accounting team, it doesn’t have to be. With a stricter-than-ever regulatory environment, everything from federal, state, local and foreign tax filings as well as sales and use tax, property tax, income tax, 1065 e-filing, 1099s and K-1s must be prepared not only with precision but according to an efficient and proven process that only a professional fund accounting team can deliver.

The importance of accuracy and promptness in tax document production cannot be overstated. No investor should have to extend the filing of their personal tax returns because a fund’s tax team was not able to deliver K-1s or 1099s on time. Nevertheless, rather than leverage an expert fund accounting organization to professionalize this function, many fund sponsors handle their tax reporting in-house. At the same time, many institutional investors will disqualify funds that do not have professional fund accounting and tax document production considering them subject to unacceptable operational risk.

A fund accounting firm in action

The Problem of Tax Season Without Fund Accounting Support

Fund managers are often reluctant to outsource their tax document processing to a third-party fund accounting team. This is due to a misunderstanding of the true costs involved. A typical approach for many funds is to hire an outside CPA to work in conjunction with in-house employees. This can be far more difficult, expensive and risky than it seems.

To conduct its own internal tax document preparation, a fund must hire one or more outside CPAs and also dedicate in-house operations personnel tasked with producing, auditing and processing the massive amounts of necessary data using internal systems not specialized for the task, one that is easily within the capabilities of a third-party fund accounting firm. This approach leaves a lot of room for human error and can take months to complete. Even after tax form data is produced, finished documents still need to be printed and mailed and/or filed online, which is a time-consuming function in itself, coming at additional expense to the firm.

How Outsourced Fund Accounting Streamlines the Process

The true costs of in-house tax document processing, considering the costs of outside CPAs, in-house staff, printing, mailing, filing and the overall distraction from core fund operations can be astronomical. In real terms, outsourcing fund accounting and tax processing to a third-party firm is far more affordable, accurate, faster and less disruptive to fund operations. There is also the elimination of compliance risk, key-person risk and reputational risk as investors are promptly and professionally served. A fund should enter tax season with a detailed plan of action designed by a fund accounting partner that will ensure accuracy and promptness. Investors forced to submit a tax filing extensions because of a late K-1 are far less likely to reinvest with the responsible fund.

Specialized and integrated systems that reconcile fund accounting and investor data for tax document production streamline and simplify the preparation of K-1s and 1099s as well as for any filing or reporting requirement.

Tax Document DeliveryTax Mail production in the process.

The high-speed printing facility of a well-equipped fund accounting provider will be able to produce tax documents in any volume for prompt delivery well ahead of deadlines. Fully integrated fund accounting, investor record keeping and printing systems will maximize data-flow and economy of effort while ensuring data security. An integrated web portal enables fund accounting to make tax documents available to investors and their financial advisors in a secure and dynamic interface eliminating risks related to mail or email delivery. Investor satisfaction with a successful tax season is essential to a fund’s reputation.

Peace of Mind

The systems, procedures and experience of outsourced fund accounting for tax document preparation and tax filing requirements will give fund managers peace of mind come tax season and allow their staff to concentrate on the sales and investments that drive their success.