"don't such rules undermine the original stated purpose of tax deferring all gains incurred within an IRA until actual distributions?"
Yes, it does, but that's the choice you make when you invest in an investment that generates UBTI which is taxable income to your IRA. Review 26 U.S. Code § 511 - Imposition of tax on unrelated business income of charitable, etc., organizations and 26 U.S. Code § 512 - Unrelated business taxable income:
<a rel="nofollow" target="_blank" href="
https://www.law.cornell.edu/uscode/text/26/511">https://www.law.cornell.edu/uscode/text/26/511</a>
<a rel="nofollow" target="_blank" href="
https://www.law.cornell.edu/uscode/text/26/512">https://www.law.cornell.edu/uscode/text/26/512</a>
I also suggest reviewing the instructions for Form 990-T to see how various types of UBTI are taxed.
<a rel="nofollow" target="_blank" href="
https://www.irs.gov/pub/irs-pdf/i990t.pdf">https://www.irs.gov/pub/irs-pdf/i990t.pdf</a>
