The End of Paper Refunds: What Fund Managers & Investors Need to Know

Effective September 30, 2025, the IRS will no longer issue paper refund checks to individual taxpayers. Instead, refunds will be delivered exclusively through direct deposit into verified bank accounts.

This transition is part of the IRS’s broader initiative to modernize payments, reduce fraud, and streamline efficiency. But beyond the headlines, it carries important implications for fund managers, investors, and alternative investment professionals.

Why the Change?

The IRS move reflects a larger trend in finance: a full shift toward digital-first payments. Paper checks create inefficiencies, higher fraud risk, and longer processing times. By phasing them out, the IRS expects to:

• Speed up refund timelines
• Cut administrative overhead
• Reduce check fraud and lost mail
• Encourage seamless financial tracking

What It Means for Fund Managers

1. Investor Liquidity & Redemption Timing

   Refunds tied to investor tax positions will now move electronically. While this could mean faster delivery, failed transactions due to incorrect details could disrupt liquidity planning.

2. KYC & Bank Verification

   Fund managers will need to double down on ensuring investor bank account details are up to date and properly verified.

3. Cross-Border Complexity

   For funds with U.S. investors overseas, additional compliance layers may emerge. Bank compatibility and reporting rules should be reviewed carefully.

4. Operational Adjustments

   Internal systems and workflows should reflect the new electronic-only refund environment. Fund accountants and administrators should prepare for reconciliation challenges

Action Steps for Funds & Investors

✅ Notify Investors — Communicate the change early and request updated banking details.

✅ Update Procedures — Collect ACH/direct deposit information during onboarding and KYC refresh.

✅ Review Technology — Ensure fund accounting/tax platforms can handle electronic refund reporting.

✅ Stay Updated — Monitor IRS guidance for new protocols around account changes or refund rejections.

✅ Plan for Delays — Build time buffers into financial planning for rejected or delayed transfers.

Bigger Picture: Digital Trust in Finance

This move underscores a truth we’ve been seeing across markets: finance is going fully digital.

For fund managers, adapting early isn’t just about compliance — it’s about showing investors that your fund is operationally sophisticated, risk-aware, and future-ready