Verifying Accredited Investor Status Under 506(c)
In a Rule 506(c) offering, you must take reasonable steps to verify that every investor is accredited, not just accept a checkbox. What is reasonable depends on the facts: the type of investor, the information you have and the terms of the offering. Safe harbors include reviewing tax returns or bank statements and credit reports, or getting a letter from an attorney, CPA, broker-dealer or investment adviser. SEC staff guidance in 2025 also allowed a high minimum investment plus written representations in some cases.
The principles-based test
The SEC does not prescribe one method. It asks whether the issuer took reasonable steps considering the nature of the purchaser, the amount and type of information the issuer has about the purchaser and the nature and terms of the offering, including how the investor was solicited and the minimum investment. A high minimum investment, for example, makes it more likely an investor is accredited. Documentation of the steps is the key.
Common verification methods
| Test | Evidence |
|---|---|
| Income | IRS forms such as W-2, 1099 and K-1 and tax returns for the two most recent years, plus a written representation about the current year |
| Net worth | Bank, brokerage and similar statements for assets dated within the prior three months and a consumer credit report for liabilities, plus a written representation |
| Professional licenses | Check the license status on FINRA's public database |
| Third-party letter | A letter from a registered broker-dealer, investment adviser, licensed attorney or CPA stating they verified status in the last three months |
The minimum investment approach
In 2025, SEC staff said an issuer may reasonably conclude investors are accredited if the minimum investment is high enough, generally $200,000 for natural persons and $1 million for entities, and the investor provides a written representation that they are accredited and that the investment is not financed by a third party for that purpose. The issuer must also have no actual knowledge of contrary facts. Confirm the current staff position, since it is guidance and can change.
Practical points
- Use an online verification service or a letter from the investor's own professional to reduce the paperwork on your side.
- Keep verification records separate and protected, since they contain sensitive financial data.
- Re-verify when the verification is stale, for example for a later closing in an offering.
- Do not accept an investor if you have information that contradicts their claim.
Why verification deters some investors
Many accredited investors will not send tax returns or bank statements to a sponsor they have just met. Sponsors address it by offering third-party verification or the minimum investment route. If verification is a barrier, a 506(b) offering to a group with prior relationships may be a better fit. See 506(b) vs 506(c) and who is accredited.
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Book Free ConsultationFrequently asked questions
Is a checkbox enough for 506(c)?
No. You must take reasonable steps to verify and document them.
How long is a third-party verification letter good for?
The safe harbor generally treats a letter dated within the prior three months as current.
Do I have to verify existing investors again?
Existing investors in a prior 506(b) offering may be handled differently, but a new 506(c) offering requires verification for its investors.
Who can write a verification letter?
A registered broker-dealer, an SEC-registered investment adviser, a licensed attorney or a CPA who has verified status.