Fred J. Tydeman <
tydeman@tybor.com> wrote:
I have a self directed Roth IRA.
It has two investments.
The K-1s from those investments show UBTI.
#1) positive +x
#2) negative -y
Now, do I pay taxes on:
Just the +x
or on the net of +x-y
Net.
This is one of those bizarre instances in which the same tax that a
nonprofit is subject to in certain circumstances can also apply to
various retirement accounts.
People in your circumstances are totally screwed. (Note that "screwed"
isn't the word I wanted to use. This is a moderated newsgroup.) What the
hell is a 990-T? Why do I submit a 990-T as an individual? What is an
employer identification number? My IRA isn't an employer. It's just me!
For tax purposes, the IRA is an exempt entity in and of itself. The IRA,
as an entity separate from the beneficial owner, is subject to the reporting requirement.
Simplifying, an exempt entity has an exempt purpose. The entity can have
income related to its exempt function (exempt function income) that is
not taxable. But it can have income unrelated to its exempt function
(unrelated business taxable income) that is subject to tax (unrelated
business income tax).
The taxable income is UBTI. The tax is UBIT. I dislike these
abbreviations because they are too similar.
For this purpose, an IRA and a Roth IRA are subject to making the same disclosures.
What is the exempt function of an IRA? To earn income from the
beneficiary's own contributions.
What is unrelated? Example: The IRA is a limited partner. The
partnership (as a separate entity from its partners) has borrowed monies
not contributed by the partners and has income specific to the borrowed
monies (or losses in your case).
Why can't this all be reported on the partnership return? Because the
income isn't attributed separately between borrowed and contributed.
Again, the IRA and not the beneficiary is subject to reporting. If the
IRA were managed by a custodian, then the custodian would have filed a
990-T on behalf of the IRA. As yours is self-directed, you get the joy
of filing the 990-T for the IRA.
Note that there is a specific deduction of $1,000. You don't file the
990-T unless you exceed this. If you must file the 990-T, then you must
obtain an EIN and disclose it to the partnership.
Before somebody asks, if I am the beneficiary of multiple retirement
accounts and each account is treated like its own entity, is each
account subject to separate reporting if it has UBTI?
I didn't look it up.
This nonsense (I really wanted to use a different word) is due to
new reporting requirements effective for tax year 2022. Partnerships are
now required to break out the income between exempt function and
unrelated.
Now, partnerships got relief from reporting the IRA's EIN for 2022 but
that did not relieve the IRA from filing the 990-T, which requires an
EIN. Is there any such relief for 2023? I don't believe so. I didn't see anything specific to that effect.
I would really like to offer my opinion of a tax that has higher
administrative costs to the taxpayer than the proceeds being remitted to
the government, but I'd be banned for life.
Welcome to the wonderful world of nonprofit disclosure you had no idea
you were subject to.
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