iMac (Monterey 12.5) won't recognize new Magic Keyboard's Touch ID.

I have a brand new Magic Keyboard with Touch ID and Numeric Keypad keyboard. No matter what I've tried, my iMac will not recognize the keyboard as having Touch ID. It shows up under Bluetooth as a "Magic Keyboard". It's working as a keyboard just fine.

Attempts:

• resetting SMC (numerous attempts)
• Updating OS - I actually had an update pending so I applied that and now at 12.5 and still will not recognize that the keyboard has a Touch ID
• Killing and restarting via 'sudo pkill' the bluetoothd process
• Adding and removing the keyboard using different sequences of power off/power on, different USB ports, removing from Bluetooth as a device and re-adding, etc, etc, etc... dozens of different combinations

Anecdotally, one time after turning bluetooth off and on (after removing my bluetooth mouse, otherwise it will actually not let you turn off bluetooth) I was able to get the Touch ID icon to show up under System Preferences. I went into the control, but could not add a fingerprint as, I believe, it didn't think there was a Touch ID compatible device connected... so could get no further.

After restarting the machine, the Touch ID icon/component under System Preferences disappeared.

I would much appreciate some advice here as I'm at a loss. What the heck is going on? This should be a seamless operation.

thx!