IRS Requirements for Substitute K-1s

The IRS issues annually format and content requirements for substitute schedule K-1s. While the IRS explicitly states that one doesn't need prior IRS approval to use a substitute K-1, the substitute K-1 does need to meet all of the requirements described below.

The latest requirements are provided in Rev. Proc. 2002-60.

IRS requirements for Subsitute K-1s accompanying fund tax forms
Substitute K-1s that accompany forms 1041, 1065, 1065-B, and 1120S (pooled income funds file a fund 1041 with the IRS) must meet the following requirements:

The Schedule K-1 must contain the name, address, and SSN or EIN of both the entity (estate, trust, partnership, or S corporation) and the recipient (beneficiary, partner, or shareholder).
The Schedule K-1 must contain the tax year, the OMB number, the schedule number (K-1), the related form number (1041, 1065, 1065-B, or 1120S), and the official schedule name in substantially the same position and format as shown on the official IRS schedule.
The Schedule K-1 must contain all the items required for use by the recipient.
The line items that are used must be in the same order and arrangement as those on the official form.
Each recipient's information must be on a separate sheet of paper. Therefore, all continuously-printed substitutes must be separated, by recipient, before filing with the IRS.
The amount of each recipient's share of each line item must be shown. Furnishing a total amount of each line item and a percentage (or decimal equivalent) to be applied to such total amount by the recipient does not satisfy the law and the specifications of this revenue procedure.
State or local tax-related information may not be included on the Schedules K-1 filed with the IRS.
The legend "Important Tax Return Document Enclosed" must appear in a bold and conspicuous manner on the outside of the envelope that contains the substitute recipient copy of Schedule K-1.
The entity may have to pay a penalty if substitute Schedules K-1 are filed that do not conform to the above specifications. In addition, the IRS may consider the Schedules K-1 as not processable and return Form 1041, 1065, 1065-B, or 11205 to the entity to be filed correctly.

IRS requirements for fund participant copies of substitute K-1s

The Schedule K-1 must contain the name, address, and SSN or EIN of both the entity and recipient.
The Schedule K-1 must contain the tax year, the OMB number, the schedule number (K-1), the related form number (1041, 1065, 1065-B, or 11205), and the official schedule name in substantially the same position and format as shown on the official IRS schedule.
All applicable amounts and information required to be reported must be titled and numbered in the same manner as shown on the official IRS schedule. Line numbers are to be shown in the same order as those on the official schedule.
The Schedule K-1 must contain all items required for use by the recipient, but line items that are not required for the particular recipient may be omitted. If line items are omitted or skipped, the remaining line items must be labeled in the same manner and shown in the same order as they are on the official IRS schedule. The instructions to the schedule must clearly indicate that the number and order of the items relate to the official IRS schedule.
The amount of each recipient's share of each line item must be shown. Furnishing a total amount of each line item and a percentage (or decimal equivalent) to be applied to such total amount by the recipient does not satisfy the law and the specifications of this revenue procedure.
Instructions to the recipient that are substantially similar to those on the official IRS schedule must be provided to aid in the proper reporting of the items on the recipient's income tax return. Where items have been omitted because they are not required for use by a recipient, the related instructions may also be omitted.
The quality of the ink or other material used to generate recipients' schedules must produce clearly legible documents. In general, black chemical transfer inks are preferred.
In order to assure uniformity of substitute Schedules K-1, the paper size must fall within the following dimensions:
- Minimum dimensions: 8.5" x 3.67"
- Maximum dimensions: 8.5" x 11" (The international standard (A4) of 8.27" x 11.69" may be substituted for the maximum dimensions.)
The paper weight, paper color, font type, font size, font color, and page layout must be such that the average recipient can easily decipher the information on each page.
Entity logos are permitted on substitute Schedules K-1 provided the placement of the logos does not interfere with the purpose of the schedules.
State or local tax-related information may be included on a substitute Schedule K-1. All non-tax-related information should be separated from the tax information on the substitute schedule to avoid confusion for the recipient.
The entity may have to pay a penalty if a substitute Schedule K-1 furnished to any recipient does not conform to the specifications of this revenue procedure.