Accounting FAQs
Written by Aidee Barron
Updated over a week ago


1. Why does the investor’s ending capital balance on their investor statement differ from what is reflected on the investor’s K-1?

Income, as well as Capital Accounts within Box L on K-1s, are reported on tax
basis, not book basis, therefore may not agree with the balance reflected on the
investor statements. For further explanation, please reach out to the entity’s tax
preparer as they should be able to provide information on the differences.

2. What is the tax rate for the investor’s investment, does it change?

Tax rates per investor differ based on individual fact patterns and investment
type. To decipher what the effective tax rate is per any given tax year, the
investor should consult with their personal tax CPA regarding their specific

3. If investors take regular disbursements, are they receiving a 1099-INT and not a K-1?

The forms that an investor receives are based on the type of investment the
investor made in the year. If the investor has an equity investment, they will
receive a K-1 for their share of income, losses, and any distributions, taken as
cash or reinvested, will be included in their K-1. Keep in mind that in an equity
investment in a partnership, the contributions and distributions of cash are tax
free. The taxable event is when income or loss is earned within the partnership.
An investor will receive a 1099-INT if they have a debt investment with the entity
at any point in time during the year (this includes interest earned on a temporary

4. If investors choose to reinvest rather than take distributions, adding earnings to
their capital balance, what form of tax do they pay on those reinvested earnings,
and at which time?

This will depend on the nature of their investment and if they purchased a note(s)
or units from the fund. In an equity investment, the constructive effect of this type
of reinvestment is treated as a cash distribution out then a cash contribution in.
For tax purposes, there is no taxable event in those actions, however the earned
income and loss will still be taxable. As always, we recommend they reach out to
their tax advisor regarding their specific situation.

5. Does my equity investment in the partnership qualify for long term capital gains

The investors will get capital gains treatment on the gain on the sale of the
investment if the investment is held for over a year and 1 day. For example, if a
property holding LLC acquired its asset in 2020 for $10 million, then sold its asset
in 2022 for $15 million, the $5 million in taxable gain will be treated as capital
gains (ignoring all depreciation in this scenario).

6. Why did some investors receive a 1099-INT and others did not?

1099-INTs are only issued to investors that earn interest income on a note during
the year (this includes interest on temporary notes). Any notes that are funded
via exempt recipients, which include but are not limited to corporations, tax-
exempt organizations, and individual retirement arrangements, are not required
to have a 1099-INT filed.

7. Why did an IRA investor not receive a 1099-INT?

1099-INTs are only issued to investors that earn interest income on a note during
the year (this includes interest on temporary notes). Any notes that are funded

via exempt recipients, which include but are not limited to corporations, tax-
exempt organizations, and individual retirement arrangements, are not required
to have a 1099-INT filed.

8. How will investors receive their 1099-INTs?

If Verivest is engaged to prepare the 1099’s, they are electronically issued via
Track1099, an IRS-approved vendor. Investors will receive an email from
Track1099 that will include a direct link to obtain their 1099-INT and will be asked
to enter the last 4 digits of their TIN associated with the investment to access the

Once they have been issued by Verivest or received from the Fund Manager or
the entity’s tax preparer, Verivest will upload the 1099-INT to the investors
account in our portal for them to be able to retrieve.

9. When will my investors receive their K-1?

Verivest provides the financial statements and related information to the entity’s
tax preparer for them to prepare the K-1s. Please reach out to the entity’s tax
preparer to request timing on when the K-1s will be available.

10. How will my investors receive their K-1?

Once the K-1s have been received by the tax preparer, Verivest will upload to the
investor’s account in our portal for investors to retrieve.

11. Why did an investor receive a K-1 when they are set to reinvest?

The constructive effect of this type of reinvestment is treated as a cash
distribution out then a cash contribution in. For tax purposes, there is no taxable
event in those actions, however the investor is allocated income for their
investment in the entity regardless of their distribution election and the earned
income and loss will still be taxable.

Investor Reporting

12. Which email address is used to notify the investors and noteholders that their
statements are ready?

Communication from the investor portal is sent out from

13. Can you provide the statements to review before updating the investor’s account?

At this time, we are not able to provide the investor statements for review before
the activity for the period has been completed in the system. The portal operates
in chronological order and for any income allocations or distributions to appear
on the statement, they will need to be completed in the portal, which
subsequently posts the activity to the investor’s account for them to be able to

14. Does Verivest report investor positions to custodians?

Verivest will provide updated investor positions monthly or quarterly, depending
on the reporting frequency, to custodians via email in the form of our standard
investor statement export on behalf of the entity. Reporting to custodians outside
of this method is out of the scope of services.

15. How do I report investor positions via DTCC?

The manager will need to reach out to DTCC directly to go through the approval
process and become an AIP member. Historically, this takes 60-90 days to be
approved. Once membership has been approved, investor positions and
transactions, such as subscriptions, withdrawals, and distributions, can be
uploaded to DTCC using DTCC’s Excel Macro file to generate the necessary
files. DTCC will provide updated ExcelMacro files via email, and the current

version is 16.0. The links below provide some additional information on how to
use the macro file, but your representative at DTCC can provide you with the
training needed.


16. How are the Returns on my Investor Statement Calculated?

The returns are calculated using a weighted mean of the Net Capital
Contributions during a period, so the duration of a particular balance over the
period matters. If we take the investors who had a static balance throughout the
period as a baseline, we can see that:

  • Returns should be the same for all investors whose balance didn’t

  • Investors whose balance changed in the middle of the period should
    have a return the same as a static balance of the simple average.

  • Investors whose balance changed outside the middle of the period will
    have a smaller return where the smaller balance had more days, and a
    larger return where the larger balance had more days. This is further
    complicated by the way the distributions are calculated each period,
    which is also a weighted method and varies by the amount of the lump

17. What basis is the preferred return calculated on?

Unless specified otherwise in the governing documents, preferred return is
generally calculated on the Paid in Capital (PIC) balance for any equity position.
The PIC consists of initial capital contributions, subsequent capital contributions,
reinvested distributions, less any return of capital, redemptions, or transfers.

18. How are the fund level returns calculated?

Generally, Verivest calculates the returns in the Actual Fund Returns file using
the monthly/quarterly income and the beginning or average investor capital that
was subscribed into equity during the period. There is diversity in how returns
can be calculated, frequency of averaging (monthly, quarterly, weekly, etc),
whether weighted or linear averaging, and the date convention (360-day or 365-
day) used will result in different returns. Governing documents or managers may
prescribe a specific method depending on investor reporting needs.

19. How is the NAV calculated and set for each period?

Verivest receives the asset valuations from the manager at period end for the
markups on the underlying assets in the entity. Once the valuations are received,
that period's unrealized appreciation or depreciation is allocated to the investors
based on the waterfall outlined in the entity's governing documents. The
unrealized appreciation or depreciation is allocated to all active investors in the
period regardless of when they were subscribed. The valuation policy of the
entity is to be determined and set by the manager; Verivest does not calculate or
opine on the valuations provided.

Accounting - Financial Statements

20. Why was income from an underlying asset in the entity recognized prior to the
receipt of the cash distribution?

GAAP requires accrual accounting, which means that revenue is recognized in
the period earned—not necessarily when cash is received.

21. Can we defer income to a different reporting period?

GAAP requires accrual accounting, which means that revenue is recognized in
the period when earned. As long as there is reason to believe the entity will
receive what it is owed from an asset, we will recognize the income in the period
it is earned.

22. Why are there differences in the interest income from the prior period?

The differences are based on the activity that occurred during the period. Were
there a lot of asset sales or asset purchases? Were there any foreclosures?
Were there any loans that Verivest was instructed to stop accruing interest on?
These are some of the key items that can play into changes in income period
over period.

23. What support do I need to provide regarding our investments?

The support needed is dependent on the investment type, but Verivest will need
the monthly/quarterly activity for each investment. A guide has been created that
outlines the documentation required, but may not encompass everything that
Verivest may need. Additional documents may be requested.

24. Do you review underlying financial statements that were not prepared by

Since Verivest is not engaged in providing administration services for those
entities, we would not review those financial statements. We use those financial
statements to determine equity attributable to the investor entity we are engaged
to perform administration services for and reflect attributable equity appropriately.

25. Why do I need to provide support for the transaction, why can't you take my word for it?

Verivest has a fiduciary responsibility to the investors. As Verivest is an
independent administrator, we need to corroborate what managers tell us by
reviewing the support. Examining supporting documentation also enables us to
determine the appropriate accounting treatment. We are expected to perform a
certain level of due diligence to ensure transactions are allowed by the entity’s
governing documents and are in line with best practice.

26. Can I use my loss reserve to boost my returns?

No, loss reserves cannot be used to boost returns. The purpose of a loss reserve
is to set aside funds to cover potential future losses. It is a precautionary
measure taken to ensure there are sufficient funds to absorb losses when they
occur. The loss reserve is not meant to be utilized to smooth the income by
reversing prior period losses.

27. Why can't I treat the Loss Reserve like a bad debt expense?

Loss reserves are general provisions for potential future losses across the
investment portfolio, whereas bad debt expense is a specific recognition of a loss
on a particular investment when there is a default.
Treating the loss reserve as a bad debt expense would overlook the broader
purpose of the reserve, which is to provide a cushion for potential future losses.
Additionally, recording the loss reserve as a bad debt expense could
misrepresent the true financial position.

28. What is the difference between notes receivable and loans receivable?

Loans Receivables are the loans secured by properties whereas Notes
Receivables comprises the loans that are not associated with a property address.

29. When can I expect my deliverables?

Verivest requires 5-10 business days to provide deliverables once all information,
including both cash and non-cash support, has been received. Please refer to the
timeline discussed with your designated Customer Success Manager or
Implementation Project Manager on specific dates.

Accounting - Investor Servicing

30. What happens if we distribute more than the current period income?

The course of action to take will be dependent on the governing docs of the
entity. Generally, with an open-ended structure, if the Entity did not generate
enough income for the period than what was distributed, the excess distributed
over the income would be classified as return of capital, thus reducing the
investor’s units, PIC balance, and their preferred return (if applicable).
With a closed-ended structure, as distributions tend to be separate from income
the entity generated, there will be no difference.

31. An investor has multiple accounts within the same opportunity; shouldn't the
earnings on all of their investments within the same opportunity be proportional?

Total earnings will not be proportional as elements of the earnings are allocated
based on different methodologies. The preferred return is calculated and
allocated to investors based on their capital balance, or their cash contributions
(initial contribution + subsequent contribution + reinvested income – return of
capital distributions – redemptions), using actual days/365 days in the period.
The income available for distribution exceeding the preferred return is calculated
and allocated to investors, if applicable, based on their ownership percentage, as
defined in the governing documents or via their units. When an investor is
subscribed into equity, or their income is reinvested, they are receiving units
based on that current period's unit price, which can fluctuate every period,
depending on the governing documents of the entity. If applicable, the unrealized
appreciation is allocated to investors in the same manner as the income available
for distribution – it is based on their ownership percentage.

32. Can the unit price of a class be determined at any time?

The unit price can only be calculated after the realized income has been
determined and distributions have occurred.

33. What is the unit price that investor distributions are reinvested at?

Distributions are reinvested at the beginning unit price for the period.
Distributions occur at 11:59:59PM on the last day of the reporting period and the
unit price update occurs at 12:00:00AM of the first day of the subsequent period.

34. If an investor chooses to reinvest their distributions in lieu of a cash distribution,
how does that benefit them if they aren’t earning income on the additional units
they receive by reinvesting their dividends?

When a distribution is reinvested, it is added to both their capital account balance
and market value (if applicable), receiving additional units at the quarterly unit
price, and earning additional income on the reinvested balance.

35. When an investor chooses to reinvest their distributions, how does that affect
their account? Do they get new units each quarter for those distributions they’re

The investor receives additional units at the same frequency the distributions
occur. If the preferred return is paid monthly, the investor receives additional
units at month end.

36. How can investors change their distribution preference?

Investors, managers, or Verivest team members are all able to update a
distribution preference. The following support links will provide additional
information on how this can be accomplished in the investor portal via the
investor or the manager. For Verivest to complete the updates, please email your
designated client email address with the change request.

37. How do I communicate investor changes to Verivest?

Investor changes can be communicated in 2 ways: via emailing your designated
client email or by updating the Investor Changes file in the root of the “Client
files” folder for each of your entities.

Examples of these changes include, but are not limited to:

  • Investor distribution preferences

  • Investor transfer requests

  • Investor demographic information

Any request received by the admin team will be tracked in the Investor Changes
file and once the change has been updated in our system, we will indicate
completion in this file. Please review the file for accuracy before any investor
statements and distributions have been completed for that reporting period.


38. Why can I not see the Fund Tracking file in our shared folder?

Verivest’s working papers, in this case the tracking file, are only going to be
accessible to clients once it has been finalized. This is to ensure that what we
have provided has been reviewed internally and has the most complete

39. Why does the accruals file only show values?

The accruals file, Verivest’s working papers, is proprietary information. For
questions regarding specific calculations, please reach out to your designated
fund accountant utilizing your specific client email address.

40. How do I navigate Egnyte?

All fund administration related items, including, but not limited to, the financials
package and distributions, can be accessed via Egnyte. Within Egnyte, go to
Opportunities, select the entity folder, and open the Client files folder.
Within the Client files folder are various folders that Verivest uses to administer
the entity.

Although there might be more folder structures in your opportunity, at
least the following folders will be there:

  • Assets: Houses key asset documents the entity invests in

  • Financials: Structure is broken out by year and period within the year, separate folders for tax and audit requests and deliverables

  1. Banking: Monthly statements and bank reconciliations

  2. Communications: Key communication received that pertains to the completion of the periodic reporting

  3. Distribution: Distribution files including CAR reports, distribution audit report, and NACHA files, as applicable

  4. Documentation: Cash supporting documentation

  5. Non-Cash: Supporting documentation for non-cash transactions, including, but not limited to, accrual support, lender statement of account, and capital account statements

  • Investors: Offline investor subscription agreements, accreditation verification letters, distribution preference details, transfer agreements, etc. can be saved here; most of the investor documents are housed in the portal directly

  • Offering Documents: Includes the governing documents of the entity and entity setup files

    The primary location to find information will be in the Financials folder, where you will be able to access distribution files, financials package, accruals file, etc. A link to the location will be provided during the financials process.

41. What is the cash process?

Verivest uses a third-party software called Uncat to send cash transaction
support requests on a weekly basis. Click the emailed link to access your
dashboard. Add a description of the transaction, upload supporting
documentation, and save it to update. Verivest needs the supporting
documentation for cash transactions to ensure that we are able to book the cash
accurately as well as perform our due diligence as a third-party administrator.

42. What is the non-cash process?

Verivest uses a third-party software called Uncat to send non-cash transaction
support requests. Click the link emailed during cash support requests to access
your dashboard. View the Notes section under the welcome headline to see a list
of the requested reports, commonly including bank statements, loan servicing
statements, and underlying asset reports. Email the requested reports to your
Verivest distribution list address or upload to the Financial Support folder in

43. What is the financials process?

Below is an overview of the financials process.

Non-Accounting related questions

1. Can two holdings be combined that came in at different inception dates?

At this time, multiple holdings cannot be combined.

2. Can an investment made by an LLC be set up as a joint investment?

Currently, there is no field on the signature page for a second investor name. I was
wondering if we can do this post-investment through a memo from the client.

3. Does the LLC have to be jointly owned by the second investor to qualify to be
added to the account?

Only one investor can be listed in the docs for an entity as the owner/signer,
however a secondary user can be added to allow access to the entity’s details
within the investor portal.

Did this answer your question?