K1x Is Betting $175 Million on It.
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By Seth Fineberg
For CPA Trendlines
K1x is putting $175 million in new investment behind an expansion of its K-1 technology platform, with plans to accelerate product development, broaden its offerings and build a more standardized system for managing partnership tax data.
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CEO John LaMancuso says the company is pushing beyond automating individual K-1 tasks. K1x wants to connect K-1 creation and aggregation into a unified platform that can move tax data among CPA firms, investment funds and investors with less manual handling.
“Start with the bottleneck, not the technology,” LaMancuso says.
The ambition is substantial for a problem that tax professionals know well. Partnership reporting can arrive in sprawling, inconsistent packages that require practitioners to extract information manually before moving it into tax returns. LaMancuso says one K-1 package he received during the most recent filing season ran more than 1,200 pages.
K1x sees artificial intelligence as part of the solution, but LaMancuso argues that firms should judge AI by the operational problem it solves rather than the technology itself.
LaMancuso says plans are moving along to help accelerate development of the company’s K-1 technology platform, broaden its product portfolio and support an industrywide approach to managing partnership tax information.
The 1,200-page K-1
For its part, K1x develops software that automates the preparation, extraction and management of Schedule K-1 information used in partnership taxation. The company offers K1 Aggregator, K1 Creator and a Form 990 solution serving CPA firms, family offices, corporations, investment funds and other organizations with complex pass-through tax reporting requirements.
LaMancuso says K1x currently serves approximately half of the nation’s top 400 CPA firms, along with private equity firms, venture capital funds, hedge funds, REITs, insurance companies and major banks. In his words: “We are a technology service provider,” LaMancuso says. “Our software is dedicated towards making a market that automates the nefarious K-1 document.”
He describes K-1 processing as fundamentally different from the standardized reporting associated with publicly traded securities. While Forms 1099 typically arrive in a consistent format, partnership tax reporting often includes hundreds of pages of narrative schedules and supporting documentation that vary widely from issuer to issuer. LaMancuso says one K-1 package he received exceeded 1,200 pages.
Source of truth
Those differences create significant manual work for tax professionals, who often extract information into spreadsheets before incorporating it into tax returns, he says. The company’s longer-term objectives extend well beyond automating individual tasks.
LaMancuso says K1x plans to connect its existing applications into a unified platform that links K-1 creation and aggregation, ultimately evolving into infrastructure that serves the broader partnership tax ecosystem.
“I think about the single source of truth for data associated with a K-1,” he says. “How does K1x become the organization that drives standards between CPA firms, the general partners that are creating K-1s through their alternative investments, and then the LPs that invest in those GP funds?”
Three-step framework
Artificial intelligence is central to that strategy, but LaMancuso says firms should approach AI as an operational tool rather than simply adopting new technology.
“The question really should be, ‘Does this AI solve a real operational problem while meeting the important areas of accuracy and transparency and security and scalability?'” he says.
He outlines a three-step framework for firms evaluating AI technologies: identify workflow bottlenecks, test solutions within real production environments, and ensure that new systems integrate with existing workflows while maintaining traceability back to original source data.
“Start with the bottleneck, not the technology,” LaMancuso says. AI applications should support existing compliance responsibilities while preserving professional judgment. “Firms are responsible for the filing, not AI,” LaMancuso says.
As automation reduces the time spent gathering, organizing and transferring tax data, LaMancuso expects practitioners to devote more attention to client planning, tax strategy and advisory services.
Transcript
Seth Fineberg
For those who don’t know K1x, probably a good opportunity to just like let’s level set because I know, particularly with with K-1s, when when a when a tax pro hears that, they automatically think, “Yeah, this is gonna be a lot of work. I don’t know that I’ve gone through or covered a tax year where it wasn’t an issue for for for practitioners. You know, just oh, I got this done, this done, this done, but I still have X amount of K-1s that I have to do. So, please introduce yourself and your company.
John LaMancuso
Yeah, thank you. First and foremost, thank you for having me, Seth. It’s a pleasure to be here speaking with you. Yeah, I’m John LaMancuso, CEO of K1x. We are a tech technology service provider. Our softwares are dedicated towards making a market actually that automates the nefarious K-1 document. Right. So as as you mentioned, these documents are arduous. They’re analog. They’re really really Challenging, they’re untimely, and man, it really takes a heck of a lot of effort to get through a K-1 in terms of creating a K-1, as well as as ingesting, reading a K-1, aggregating multiple K-1s together, and then moving that data into a tax return, and so K1x was founded on this whole problem and the premise of solving this problem, and we have over the last four plus years now we’ve actually made this market whereby we’ve used a web native AI. AI-native platform to actually solve this problem, and so our our flagship products, K-1 Aggregator and K-1 Creator, use our own proprietary large language model data science to actually read and extract data to help the tax practitioner save countless hours, miles of mistakes and inefficiencies in reading and extracting K-1 data off of a K-1, K-2, K-3, and then moving that data into our software where it could be managed, aggregated, approved, reviewed, analyzed, reported on, and then finally moved that data into a tax return. So K1x started over four years ago with the premise of solving this problem, and we’ve had we have we now handle 200 of the top 400 CPA firms. We serve the family office network, foundations, corporations that are in the alternative investment space, such as insurance companies and major banks. And then finally, the funds are a utilization are utilized. our technology as well. So think of private equity, venture capital, REITs, and hedge funds. They use our technology to solve this problem. So that’s that’s us. That’s the mission that we’re on. That’s the problem that we’re solving, and we love helping tax professionals with this nasty, nasty problem.
Seth Fineberg
Yeah, tell me a little bit about that. Just, just for you know, for for the folks at home, what, in your view, tends to be the callouts that make you know filing K-1 so and twos and threes. so arduous, you know. That’s something I think that because that that hits at the heart of why you why you exist.
John LaMancuso
Yeah, it’s a it’s a great question, you know. So let’s one of the ways to think about this is to break down the tax reporting that culminates with an investment in the public markets, right? So think about all the folks listening to us that invest in you know stocks, bonds, mutual funds. If you think about that investment, you think about that industry. Man, that industry runs like a Swiss watch that investment runs perfectly somewhere between january 15 and february 15. Those that invest in the private markets get a 1099 or dividend or interest statement exactly. Time with a beautiful 1099 statement, and all the data is in these beautiful boxes, and it comes just just like the ticking of a Swiss watch. It’s on time, it’s accurate, and it’s almost near perfect. That whole ecosystem. Now let’s compare and contrast that to alternative investments, right? Alternative and non-public investments such as private equity, venture capital, hedge funds, REITs. The the culmination of that investment and the actual tax reconciliation is is the K-1 document, and while the first page is very similar to a 1099 beautiful numbered boxes, data flows through into those boxes perfectly. Page number one is great. Page number two through potentially 1200 pages. I actually get a K-1 from a private equity firm that I used to work for that reached the 1200 page mile mark this past filing season. 1200 pages of unstructured
Speaker 1
data,
Speaker 2
and it and that data is very very important because it describes to the the tax recipient from the investor, how that fund and how that alternative investment was structured, how how it’s how the data inside of that return and the tax logic is being allocated to that particular investor, and all the nuances associated with the federal, state, and international data, and unfortunately, there’s no standardization. The K-1 document is an unstructured document because there are no rules around how to describe these investments and these assets, and so our great tax professionals are burdened with understanding that legal entity, that pass-through entity, in in describing that K-1 investment in an unstructured manner, and so the recipient of the K-1, both the investor and their tax professional, who has to read this data today, is in a manual
Seth Fineberg
analog approach to reading, extracting, and putting that data into an Excel file, bringing multiple K1s together, and then having to interpret that for a tax return, so that’s that’s the big problem here. The alternative tax reconciliation space is very very different. It’s unstructured. It’s analog, and compared to the public market investing, very very challenging. So now we’ve entered the age of AI. AI is obviously built into into your your platform, and investors are taking notice as they have with your company. So tell me, you know, you you had a recent round of financing. So let’s touch base on that, and maybe some of the plans to, you know, where where it’s it’s ultimately going to take the platform. You know, we can go from everything from, you know, these are things that we’re noticing that need improvement or, you know, market expansion. I’ll let you sort of elaborate on on that.
John LaMancuso
Yeah, I love the word platform that you used, and so our recent C round investment that we partner with Sumeru Equity Partners recently the round was closed in April. We raised 175 million dollars to really do a lot of things that you said. One is is is the expansion of our product line, and I’ll talk about that in a second. Yeah. Thirdly, market expansion. One of the things that’s going to be super critical to the industry, is that we have standardization? You know, as I mentioned in describing the K-1, that the document is nefarious and analog and challenging because there are no standards, right? And so, when we think, when I think about our future, and I think about how do we help tax professionals in the in the in the best way humanly possible? It’s to take our our point solutions today, and this is where the investment is going. Take our point solutions today, our K-1 aggregator product, our K-1 creation product, and our. Tax exempt 990 product. Today, they’re they’re they are point solutions. They are used at the highest level by large, medium, super large, large, medium, and small size organizations. But they’re used in a in a point solution type effect. And so, when I think about solving this problem for tax professionals, I think about a a point solution software and how that those point solutions should migrate to the word that you use, and that’s a platform. So the invested invested capital in K1x will be designed to help us grow our product strategy from just the point solutions to a platform and then to infrastructure. So, what do I mean by that? Point solutions today are used by individuals or by a team to get work done. I think of the future as we migrate to a platform where we’re actually bringing our technologies together, and it becomes an ecosystem in which there is a closed loop. So think about K-1 creation and K-1 aggregation. You can almost see a world in which those two products work together to create a closed loop environment for our tax professional clients. Then, when I think about a couple, you know, 18 more, 18 months to 24 months down the road, I think about how does that technology become the core infrastructure for the whole K-1 ecosystem, and when I when I think about infrastructure, I think about the single source of truth for data associated with a K-1, and how does K1x become the organization that drives standards between CPA firms, the general partners that are creating K-1s through their alternative investments, and then the LPs that invest in those GP funds. And so, when I think about creating infrastructure technology, it’s more than just closing that loop. It’s actually providing the single source of truth, the single point of data, the single point of record for a K-1. So that’s where you’re going to see us head here, and I think it’s a it’s a really exciting future for not just K1x but for the industry, Seth.
Seth Fineberg
Yeah, for sure. I mean, it’s covering you know tech as long as I have. You know, you you see things you know evolve, and in the accounting profession, it doesn’t always go in lockstep. You have a lot of sort of mistrust of technology. A lot of you have to create a very compelling reason. Cloud as a platform took a comparatively long time to be accepted, adopted. I’m not quite seeing that with AI because of the very nature of people wanting to kind of dive in and and see what it can do safely. So what I’m wondering from you, John, is I’d love to touch on where you see most practitioners either kind of running into issues with AI or, moreover, where they kind of maybe tend to to get it wrong. I mean, you’re you know a growing player in this space, so you have to get that kind of feedback.
John LaMancuso
Yeah, really excellent point, Seth. You know, I think it I think it really boils down to the the energy that’s in the marketplace today around AI, right? It’s it’s super cool. It’s super trendy, and there’s this rush, really a rush to adopt an AI application before establishing a strategy. So where I see firms tending to get it wrong is that they, you know, they’re they’re just enamored with hey I need to start using AI I got to use it everywhere before they truly establish a strategy or any type of govern governance framework or even have clear evaluation criterion right they they just sort of rush into it, and so you know everyone’s asking the wrong question. If you ask my opinion,
Seth Fineberg
yeah, the
John LaMancuso
question that they’re asking is, “Hey, where do I use AI? The question really should be, “Does this AI solve a real?” Operational problem, while meeting you know the important areas of accuracy and transparency and security and scalability. Right, those are the standards that are super super critical that tax professionals uphold, and so AI should be evaluated with like that same rigor that any firm looks at their compliance and their compliance infrastructure, so it’s kind of like a rush right now, and firms need to just evaluate and and put that governance framework to to governance framework into practice.
Seth Fineberg
Could you give me and I was great answer there. I would love to know if you’re if you’re feeling you know somewhat prescriptive. If you had three sort of basic steps for a tax pro to kind of get going with you know kind of current AI tools. You know, like you said, it you know they often kind of go about it you know wrong. They’re not sort of looking at it through the right lens, and that’s kind of how think about it. That’s kind of how we got the tech stack today. You know, on the positive side, the tech stack. It’s like okay, great. You know, you have all these things that address you know both internal and external issues-the kind of the kind of work that you do-that’s usually your base layer. You know, whether it’s tax or or books, and then you build on top of that. But it can get somewhat untenable because you’re just kind of using these sort of, for lack of a better term, band-aids, if you will, you’re you’re kind of you know solving for different things, and so that practitioners maybe don’t run down that same path with AI. Give me three steps for tax pros to kind of get going with current AI tools.
John LaMancuso
Yeah, I think that question goes back to the question that I shared earlier, you know, where do I use AI? That’s the wrong question, as I mentioned earlier. And I said that could be step
Seth Fineberg
one, like asking why you’re using it, right? Right.
John LaMancuso
But does this solve a real operational problem? That’s the question, right? And so, if I think about three steps, it revolves around that question: Does this AI tool solve a real operational problem? So when I think about you know steps that should be taken, I think about the identification of where work is actually slowing down inside of a practice, where is work slowing down, and so before looking at any AI solution, start with the bottleneck, not the technology. Technology is only a solution. The problem is actually the diagnosis of where the bottlenecks are in the workflow. So that’s that’s like step number one. Identify where the bottlenecks are. Where is the slowdown? And before you make any decision, get that get that whole workflow mapped out. Make sure that there’s consensus. Drive drive that evaluation and diagnostic through the the department and then the organization. So first and foremost, you actually have to know where the operational breakdown is. That’s one. Two. Then you start evaluating and testing that AI technology inside of you know what I’d refer to as the real world element of work. So many times we we we look at technology like you mentioned, whether it was cool cloud technology of yesteryear, now AI technology, and we look at it in in a compartmental view, and we we don’t have this broader lens of bringing that technology into our production environment. We have to look at AI. You have to look at AI technology in a real world environment, not just a sexy vendor demo. But you have to bring that new AI tool into your production flow and actually watch it work. Watch where it fails because it will. Watch where it just blows the sacks off your expectations because it will. And then you have to think about where do I go next with this and how do I start deploying? And that’s step three. You evaluate that that solution, that AI solution, in that workflow that you’ve identified where there’s bottlenecks, and then you put on your integration cap on. Okay, it’s working, but great. Where does that data? Where does that out? Quick go. Where is the information moving to in the organization? It can’t be just solving a simple solution. It has to integrate into different components inside the tax professional’s life. You have to be able to take your existing workflow, including security, including transparency, including how do I scale it? How do I look at where the current tax technology is that I’m using today, and how does this new AI solution augment, implement, and most importantly, here’s the the critical word traceability. How does this new AI solution allow me to trace back to the source and origin of the data, and make sure that I, as the tax professional, feel great that the data from the origin is now into the workflow environment and it’s traceable, and it’s accurate, and it’s it’s highly transparent. So those are the the three three steps that I I see are most successful firms are using today, Seth.
Seth Fineberg
So John, thank you, and this has been very very insightful, and and I appreciate your perspective. Got a couple more questions before we wrap for the day. One is, what’s the most common sort of question that you get from you know firms that you’re working with, practitioners, individuals who you know come to you or or have heard about the platform, they’ve heard about technology. You know, what’s what’s sort of the the most common thing that you get, if there is one, I imagine there’s a few, but
John LaMancuso
yeah, yeah, everyone’s obviously curious about how the AI works. That’s certainly one, and you just explained
Seth Fineberg
one of them too, like about seeing this the tie back.
John LaMancuso
That’s correct. Yeah, that’s correct. That’s a big
Seth Fineberg
one.
John LaMancuso
Yeah, a lot of the questions are revolve revolve around hey where where will this take us in the future and where will it not take us in the future, and so I think that AI is not going to certainly take over the role in the the life of the tax professional by no stretch of the imagination. What it will do is enhance the work of that tax professional. It’s never going to replace the professional judgment or the compliance and accounting, the compliance that’s required in tax preparation. You know, so certain things like assessing correct tax logic, reviewing, signing, understanding how to move data to the next stage of workflow-it’s-it’s not going to do that.
Seth Fineberg
The human things,
John LaMancuso
correct, exactly. Yeah, and so those those questions come to us all the time. Hey, is this going to take over my department? Absolutely not. You still need your next.
Seth Fineberg
I mean, that’s the other angle on it too. Like, do you do you want it to do these things?
John LaMancuso
Right, right, exactly. Firms firms are responsible for the filing, not AI.
Seth Fineberg
Well, thank you so much, John. I wanted to get some of your final thoughts, and you know clearly you’re you’re you’re in a space where you know you’re you’re solving a pretty big pain point, and that’s really what you want technology to do effectively. You know solve for pain points and maybe even allow you to kind of get creative and think what haven’t we thought of? You know where where could we go now that we’re able to do this? Sometimes it’s productivity you know based, and you know when you reduce the time it takes to do some things, it opens up doors for other things to you know to be done. Not putting words in your mouth, but so your final thoughts on the kind of work you see tax pros maybe doing over the next three years? You know, we we you mentioned about you know this isn’t going to replace you know the the human, but you know, it is very likely going to cause some reimagining.
John LaMancuso
Yeah, no doubt, and I think there’s been a lot written about this, and my perspectives. Actually, watching tax professionals use our our tech is where some of these ideas come from, Seth. So here’s what I here’s what I see, and this was I’m I’m thinking, and and this one is you know is is music to my ears, and and I think the first thing that tax professionals in the future are going to be really focused on, and that’s the advisory work for their clients. You know, when you think about the countless tax deadlines that occur throughout. The year, it’s it’s almost incredible to think about how tax professionals today find an ounce of time, a minute of time to be able to do the advisory work. And as we all know, our client, the clients of our clients, the clients of our tax professionals are really, really looking for that type of support, guidance, counsel, and so when I think about AI and I think about what tax professionals are doing years from now, it’s they are going to be spending a heck of a lot more time advising their clients, advising them on what about how to pay less tax? Think about that for a minute. You know, we we all pay taxes, and I know that taxes actually run our our economy, our country. But do we all really want to pay the amount that we’re paying today, and are there ways that we should be looking at ways of of limiting and modifying the taxes that we pay according to the tax laws? And so I see advising clients as a as a as a really really big opportunity. And oh by the way, it’s an opportunity from a revenue generation at the practitioner level level as well, right? I mean, billable hours to file a tax return are pale in comparison to the billable hours in advising on on you know tax tax structures processes. I think the other thing that and the
Seth Fineberg
value of that work too. The outcome of what you’ve produced isn’t just a form or a document or even just a number.
John LaMancuso
Yeah. Oh, for for certain. You know, as I’ve mentioned throughout our our call today, spending less time manually gathering, organizing, and moving tax data-that’s that is going to be a yesteryear thing. AI will be doing that heavy lifting of manual gathering and organizing. Tax professionals of the future will become the consultants of the future. They are going to be the ones that are going to be reviewing AI-generated work rather than creating Excel spreadsheets that go into some output that creates a form. Tax professionals of the future are going to be the consultants of the future. They’re going to be applying professional judgment to their work more than ever. Right. You know, if you think about the crunch and the and the stress and the processes that they go through from a, you know, a wit bucket to to the next wit bucket to the next wit bucket today, that will go away. They are going to be applying professional judgment to help as an advisor, a trusted advisor that educates, informs, improves that tax environment for their client, and then lastly, you know, in the future, they’re going to be moving from these point solutions, like I mentioned, to these platforms in the future, and I think tax professionals of the future will be not only advising, but they are going to be operating a technology that is vastly different than the technology they use today.
Seth Fineberg
Oh, of course.
John LaMancuso
Yeah, today the technologies they they use are are full stack procedural solutions. Here’s a process. Here’s a procedure. File a tax. That’s what the technology does. In the future, with AI-generated agents embedded in these technologies, the tax professionals of the future are going to be using more of their historical experience, their knowledge about tax, their knowledge about advising clients, and the technology is going to be supporting that. It’s not going to be the end game of hey, this technology files it files a solution. No, the technology is going to be enabling the tax professional to become a phenomenal counselor, an amazing advisor. That’s how I see the tech changing in in the future, and that’s what that’s how I see the whole the practice and the practitioners changing in the future.
Seth Fineberg
But John, this has been incredibly insightful, not just for me but for everyone involved, I wanted to thank you again for taking the time. I guess one final quick question is just more: Hey, where are we going to be seeing? It’s still conference season, and then you know we we roll into the conference season part two, which is in the fall. Where might we be seeing you?
John LaMancuso
Yeah, I’ll be. Different conferences for certain, you know. I’ll be spending more time with you and your team and different venues, of course. But I like to spend most of my time in our clients’ offices or on a client Zoom call because it’s you know, as a leader of our organization, learning and understanding the requirements of our clients is the most important thing to me. My marketing department and my sales organization-they’ll be at the conferences for the most part. I’ll be at a few, but learning and understanding what’s on the mind of a tax professional-I that’s invaluable. It’s gold to me, and that’s where I spend most of my time, so really appreciate the time here, Seth. It’s been a pleasure working with you, and I really enjoy these opportunities. So, thank you so much.