Hello everyone and welcome to the Capital Stack by Yardi. In this video series, we dive into the latest market trends in real estate with a practical take on how software can or already is helping investment managers oversee and grow their capital stack. In today's edition, we're gonna focus on investor tax reporting and that relationship that it has with the accounting processes and systems used to track both accounting and tax reporting. Joining us today is Scott and Tom from R-S-M-R-S-M is a leading middle market accounting, tax and consulting firm serving the real estate investor and fund manager community, known for their deep industry specialization and integrated approach. RSM helps clients streamline operations, navigate regulatory complexity and reporting transparency across the investment lifecycle, including our topic investor tax reporting. Scott and Tom, can you guys start by introducing yourselves and your roles at the firm? Hi Jace. Thank you for having us. Uh, I'm Scott Helberg. I'm a tax partner from Chicago. Uh, I work with real estate clients who invest in a variety of asset types and I particularly specialize with real estate funds and REITs. I'm also an industry analyst for RSM, so I work with our chief economist to develop middle market insights focusing on economic business and digital trends in real estate. Um, we've, we really appreciate the valuable relationship we've built with Yardi over these past few years, you know, with successful SaaS and consulting agreements. And so, you know, along with being a sponsor at the Yardi conference, um, that we've done the last couple of years, we're also really enjoying continuing to collaborate on market strategies and identifying value add opportunities with our mutual clients. So it's been a really good experience and happy to kind of talk more on what's going on from a digital front today. Uh, I'll pass it over to Tom. Thanks Scott. Thanks Jace. Thank you for having us. So, I'm Tom Silversmith. I'm a senior manager and our national tax to Jewel services practice based outta New York. I specialize in designing and implementing tax technologies for our clients here at RSM. I have a diverse industry background, but I've focused the majority of my career in serving the real estate industry. Um, client structures that I serve are real estate funds, both open-ended, closed ended REITs tendencies in common, Delaware statutory trust. And I'm really excited to be here to talk to you about one of my favorite topics, tax technology and integration with county systems. Great. Well, thanks guys again for joining us. Really excited to have you bring your expertise and, and RSMs uh, expertise into the conversation here today. So just to introduce the topic a little bit further, um, we're gonna talk about tax and accounting systems and the relationships between them and, and how that can help, you know, our mutual clients, the industry. So for those listening, tell me if you've heard this story before, right? You close your books for the year, your accounting books, you have to extract that accounting data somehow, probably Excel files, PDFs, et cetera, send it to your CPA firm. They come back with a bunch of well placed questions, right? Detailed questions about pulling apart the books and looking at it from a tax reporting standpoint. And then as the accounting firm or as the the owners, I have to go back and pull my accounting ledger back apart and get back to the answers CPA, right? And after all is back and forth. I'm ready just to pull my hair out at the end of the day and it, it can create a, a stressful and kinda a brutal tax reporting season, right? And we, we hear many of our clients go through this at Yardi. So, you know, very common, uh, amongst our investment managers. And what leads myself and Scott and Tom to today's discussion is how can we really hone in on bringing those two worlds together, right? The tax reporting and the accounting systems to make that a more seamless process, whether it's during tax season or what I would say better. Yeah, really throughout the year, right? How do we improve our processes and systems? So we're preparing ourselves for a very, um, you know, seamless or as seamless as possible tax reporting season at end of the year. So, you know, what kind of information do we need to feed across systems? What does the tax preparer need from the accounting teams, you know, the owners of the assets and properties, um, ultimately producing of course K ones investor tax documents, then getting those tax documents out to investors. So that's really the kind of the, the backbone and focus of our conversation today. And Scott, I want to turn to you first with our first question here and you know, kind of think about from the accounting side of things. What are some of the gotchas that you would advise and talk to your clients about to be mindful of when it comes to the accounting system and their usage of their accounting reporting? Sure. So as tax preparers, we run into all sorts of issues with accounting software. The common problems we often see involve missed transactions, typos, um, or even wrong categories, categorization due to bad software setup or not using all of the features that they can. There's also reconciliation headaches, like accounts don't match up or transactions are just unrecorded. And sometimes we even see that the accounting software doesn't play well with other financial tools, so that can mess up importing and exporting of data or productions of reports. So what we find is fixing these problems and being, um, upfront with it can make your financial reporting better and then makes the tax prep easier on, on our end. So getting that software set up right, keeping good documentation and managing your finance as well, help cut down on those mistakes. At the end of the day, when we get quality and detailed financials, this leads to a quicker turnaround of tax return and a lower cost for our clients, Right? So setting up that accounting system is just so, so important in the proper way. And, and there's a lot of components, and this is of course what you know, myself and my team at Yardi focus on on a lot, is setting up the accounting system with our clients. There's so many factors involved in that. One of the things that we talk about a lot, one of the first things we talk about with our clients is what are your investment vehicle structures, right? Because that's gonna be a big determining and driving factor of how you wanna set up the accounting system. So let's dig into that a little bit further. Maybe Scott, you know, from your perspective, what are some key implications on the accounting system in terms of how your, how your vehicle structures are, are built? So when, when a real estate manager is setting up their fund structure, it's very important they involve their legal counsel and tax advisor early on. There's a lot of factors to consider with structuring could or you know, things like your investment strategy. What types of investors are you targeting? How big of a fund are you looking to grow? And also, you know, what cost flexibility do you have? And once you've figured out that structure, you have to make sure it's properly set up in the, the accounting system to meet all future needs that can lead to systems that boost transparency by ensuring accurate recording and reporting of transactions and valuations. And that's key for regulatory compliance, but also keeping your investors happy. It also makes fund management easier, right? Because you're able to automate some routine tasks, improve efficiency and manage your cost better. Good risk management is also crucial 'cause accounting systems can help you identify, measure and reduce financial risks by tracking key metrics and putting risk mitigation strategies in place. The type of real estate fund you have, whether that's closed end, open end, or maybe you even have a re or structure, affects what's needed from those systems. Closed-end funds need systems that can handle capital calls, liquidations. If you have an open-end fund, maybe you need one to make sure you can handle those continuous share transactions and the back and the ins and outs of what can happen from your investors. And if you have a rate in place, there are special requirements related to income and asset testing, income distribution and particular tax reporting. So overall accounting systems play a vital role in running, uh, real estate funds to make sure they operate smoothly and make sure that everything aligns within the fund structure and that aligns with the strategic goals of the manager to optimize performance and again, keep investors satisfied. Yeah, thanks Scott for that. Um, like I said, we definitely see this all the time of the first questions we ask implementation of accounting system is what are your fund structures, what are your REIT structures, et cetera. And, and because that can determine how you're gonna implement the accounting system, you can't just sort of dive in, you know, even starting with the chart of accounts, you first wanna understand the structures first. Um, so thanks for that, Scott. And I wanna shift gears a little bit here. Tom, you've been patiently waiting. So let's talk a little bit about systems, right? I often talk to clients about integrating the accounting systems with banks and treasury systems, but when it comes to tax preparation, it seems to always be, you know, yeah, we just dump some reports out of Yardi and we send it to our CPA. So I wanna talk a little bit, Tom, from your perspective, you know, what, how does RSM think about this relationship between the tax and the accounting system? You guys being on the tax side, of course, you know, and, and what does sort of the future look like for RS seven and how you're thinking about this? Oh, absolutely. Absolutely. Yeah. And, and I, we view accounting systems often as the backbone of our tax systems. Personally, I love analogies, Scott likes to tease me about my nerdy analogies. We are all accountants and we have to just embrace it, but I like to envision your accounting system as almost a master timeline, a foundation of everything that we do in tax. And if you think about all the different functions within tax, there are different branches of your source, which is your accounting system, that's federal tax, state and local tax, international tax. And then within those functions it gets even more granular sales and use tax, gross rent tax. The possibilities are endless. And at r sm we leverage our tax digital ecosystem powered by AI automation to bridge accounting systems like Yardy Voyager into our proprietary applications. The best example that I can think of of, you know, a seamless transition from county to tax is with our proprietary application partner site. Partner site is our industry leading tiering allocation tool that streamlines the processing of tax documents. So for example, you can go very seamlessly from accounting systems straight through to tax reporting to your investors, where the more you know, you could push to a Yardi investor total. So all one having one, all integrated system, not only benefits practitioners, it also benefits stakeholders greatly. And our firm views accounting systems integrating with tax systems no longer as a nice to have item. It's essentially becoming a standard across all industries and, and specifically not just specific to real estate. Yeah, no, I think it's a great evolution of the industry of technology's use. Right. And to, to sort of desi the two sides of the equation, um, can you speak, Tom, maybe what are some specific identified friction points that you guys, you know, as you built out partner site and some of their systems, what were the identified friction points that you were looking to solve for and how do you guys solve for those? Yeah, Yeah. The first one is what I like to call the follow on approach. You know, essentially as you change your accounting systems updates, your GLS booking entries, allowing that upfront investment in integrating your tax system with your accounting systems, allow tax, allows tax to follow books. So when you think about that, you think about different treatments of different accounting, financial accounting concepts versus how it's treated for tax. So when you are integrating those systems, you are streamlining the process and allowing free flow of data within your, your tax ecosystem. Another pain point is something that tax practitioners deal with constantly. It's one of our biggest challenges in tax season. You know, we've gone through the entire process of completing a tax return and we're on our fourth or final, you know, fourth version of our final trial balance. So the, the other challenge that we solve for with integration of systems here is essentially, you know, final TVs coming to us one, you know, multiple times throughout the process, you know, a tax professional can go through the entirety of the tax return cycle, completing all of our entries doing, you know, all of our K ones, our k threes. With an integrated system, it allows for free, free flowing of tax data from the accounting system to the tax system where it's no longer a manual rework of your process. And then finally, something that we can all relate to across financial accounting and tax accounting is the alleviation of the compression challenges. As we are all aware of. There's talent crisis in the accounting industry and you know, having more automated processes and eliminating the manual efforts in our day to day leads to a streamlined process. Yeah, Some, some clear and evident benefits definitely to the overall process. And you know, one of the, the sort of philosophies we think of a lot when we build software at Yardi is, um, it's the scalability, right? It's not necessarily replacing human capital in your, in your ecosystem, your org chart, but how can software help you, you know, take your portfolio to a 50%, a hundred percent growth, whatever it is, without having to grow your, your staff equal to that. And it sounds like you guys are kind of in line with that as well. How do you scale effectively and efficiently, um, across across the organization? Um, yeah, thanks Tom for the introduction of, of your guys' solutions and some of those friction points. It's nice to see very specific things that you guys have focused on or solving for. Um, are there any areas within those solutions that your clients directly interact and directly get benefit from the solution? So obviously you guys have efficiencies in your preparation, but how do your clients interact with that? Yeah, I mean our, our focus has always been that our clients should stick to what they're able to do best and let their accounting systems and tax functions run smoothly in the background. Nowadays, linking these systems is key for hassle-free financial management. And this combination allows for a data flow that is automated, it saves time on data entry, it trends human errors and it keeps the information consistent to one source of truth. And so this allows businesses to make the most of their resources, save on compliance costs and boost productivity. And then what does that mean? It means that we're able to meet tax deadlines, right? That tax compliance function be comes a breeze and there's no more frustration with delays or penalties. And so keeping that data consistent across platforms is really, really important. 'cause that means that you have accurate financial reporting and you're also gonna be able to main trust with your key stakeholders or, or investors. Yeah. That, that continuity is so important, right? Where your accounting system says this, your tax system says this, and if they don't equal up, that's a potentially a big problem. Yeah. Tom, I'm sorry, you were gonna add something? No, No, no, that's, that's spot on. Uh, you know, having synergy between our accounting and compliance systems, tax compliance systems, you know, not only is is a tax compliance benefit, it also is a benefit for the business side as well. You know, uh, I mentioned follow approaches from a tax standpoint. Um, a lot of times tax is left in the dust when we're making major business decisions and having integrations of accounting softwares and tax softwares allows tax the tax answer to be surfaced much quicker. And you're no longer finding out about, you know, what the tax liability would be a year down the road after you'd close the transaction. You could surface those insights in real time. And that's another really great benefit of integration of systems. It's not just on the compliance, it's across the board. Sure, absolutely. Well, thanks guys for that. Just to maybe quickly summarize here, um, before we move forward, so, you know, efficiency in the process and the time it takes to perform these actions, you know, from, from the accountants on our mutual client side, you know, you guys as the CPA firm, the tax team, investor reporting team, right? I think these are all things that you see, uh, a speed up effect on, right? Getting ultimately those reports out to investors faster. So winners all around, right? Which leads to happy investors, happy clients for all of us. Um, you know, the access to the accounting tax information, I think Tom is really interesting. What you guys are building with the system and letting your clients get insight into that, um, is really, really powerful, right? 'cause historically that's maybe hidden in the PDFs or what they would get as an output for a K ones and whatnot. But to have the insight into that data I think is really powerful. And, you know, with with RSM in particular, you know, I've, I've had a great time preparing for this event, uh, this, this session with you guys and kind of understanding how your technology and services are really coming together. And I think that's a trend we'll continue to see in the market across across the board. And, uh, yeah, just really excited to have had you guys here today and and appreciate your time that, you know, we can work together, Scott, as you said, as partners in, in helping our mutual clients where, where everybody wins. Um, I wanna transition really briefly to finish off our video here for today to my colleague Alex Lewis who's gonna talk to us a little bit more of the practical take on the Yardi side, the accounting system, right? So what are some of the tools and how can we use those in Yardi to help a lot of the conversation that we were talking about here today, Alex? Hey, thanks Chase. Appreciate that. So I wanna start here. First and foremost, with this fund that I'm managing inside investment accounting kind of allows me to consolidate all the information around the fund itself by organizing all the entities in the structural hierarchy. So all the properties through the LLCs and the holding companies need to consolidate up to the fund or organize in the system through something we call commitment records. So if I wanna look at a property's commitment and structure, we're committed inside of the system through a record and the roll up rules that we've defined inside of here hold the methodologies we need to track. So full consolidation versus an equity pickup, for example, are all organized in a system like you see here. And we can kind of look at this through, there's perspective of a full consolidation from the properties up, meaning I have the ability to go into a financial report for this particular fund, roll up all the financial information, including multiple sets of books in the system, meaning the accruals, eliminations, and the consolidated accrual books of the properties and holding companies up to the fund in one place to give me a very clear and concise consolidated report. I can also drill into the, uh, report for the investor itself to display their structural hierarchy and the accounts that are associated with, I can see the con contributions and distributions and, and most importantly, the income allocations that have been consolidated up and allocated from this fund to each investor in their sub-ledger. And then once we've completed that process, we make it easy to get this out to an investor portal that looks something like this for them to consume any, they feel it's appropriate drilling down a particular deal, fund, or partnership that they're interested in and consuming this data 24 7.