UBTI in IRA Account

Forum|Forum|5 years ago
April 9, 2021
4 replies
56 views

I received a letter from the IRS demanding payment for postive lines of UBTI on partnerships held in an IRA. The sums of the partnership K-1 lines of 1-5 were negative. My brokerage filed a 990-T with the net negative number. Lines 3 (Rent) and 5 (Interest) were positive and were over $2,000. IRS is asking for tax payments for the positive numbers. I contacted tax support for the brokerage firm and didn't feel comfortable with the response. On a partnership held in an IRA is UBTI reported as a net number or is tax owed on the positive lines?

macuser_22

Alumni - Champ

Any tax owed must be paid directly by the IRA by the IRA trustee not by you with an IRA distribution. Perhaps the K-1 did not have the IRA box checked or did not name the IRA as the holder. If it did did, then the IRS is wrong.

Unrelated business income is reported on a 990-T form.

If you hold a Limited Partnership or LLC in your IRA then any Unrelated Business Income in excess of $1,000 is taxable (even though it is in an IRA). It is not reported on your tax return but on a 990-T form. (The custodian of your IRA is required to file the form for you but you must submit the K-1 form(s) to them - ask the custodian about this).

Unrelated Business Income is reported as code "V" in box 20 on the K-1 form.

Also see pub 598.
http://www.irs.gov/publications/p598/ch01.html

Per the 990-T Instructions: https://www.irs.gov/pub/irs-pdf/i990t.pdf

"Who Must File
Trustees for the following trusts that
have $1,000 or more of unrelated trade or
business gross income:
1. Individual retirement accounts
(IRAs), including traditional IRAs"
4. Roth IRAs described under section
408A,

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**

SDKtxAuthor

Level 2

Thank you. I appreciate the quick response. The negative value in listed with letter V is the value that the brokerage firm reported which was the net value of lines 1-5 on the K-1. I feel more comfortable with the brokerage response which was just tell the IRS that the partnership is held in an IRA.

macuser_22

Alumni - Champ

The IRS letter should have a phone number to dispute it. It is odd that the IRS would even send a letter since the K-1 should tell them that it is held in an IRA.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**