Symptoms

The error we are receiving is:

Service: URL]
Service Guid: GUID]
Severity: Error
Error Message: The specified user ID] could not be found.
InnerException Message:

or

Service: URL]
Service Guid: GUID]
Severity: Error
Error Message: The specified user FQN] could not be found.
InnerException Message:

When using the Group's ID (top error) or Group (Name) item reference (bottom error).
 

Diagnoses

Group (Name) was returning the FQN of the group. SharePoint isn't able to understand the FQN as it is a K2 creation. SharePoint needed just the group name for it to be able to target it with the new permissions.
 

Resolution

Used the Group's 'Title' item reference to reference the name of the group. Using this reference as the target, all functionality worked as expected.