How does UBTI effect IRA income, what would qualify the IRA to have UBIT, how would it be accounted for? ie taxed and
how is it reported?

Far from an expert on this stuff but here's some reference materail to peruse

Publication 598

Filed on form 990-T (Instructions)



-D

Thank you

UBIT usually results from using plan assets as security to borrow money to purchase investments, e.g., as a margin loan. If plan uses borrowed money to purchase assets, the gains on the assets will be taxed as ordinary income at the rate for a taxable trust in the year of the sale, e.g, 38.6 % for taxable income in excess of $9200.

Not familiar with what you wrote mbozek… but for retirement accounts, UBTI is income from unrelated trade or business, for instance Limited Partnerships in which the IRA invests. Form 990-T is filed when the UBI is $1,000 or more. Generally, this means that the retirement account holder is required to pay taxes on the UBI ( unlike other retirement income which is tax deferred or tax-free). The retirement account custodian is required to file the 990-T , withhold any taxes due on the UBI and pay such taxes to the IRS on behalf of the retirement account.

I wish that the IRA custodian would file the Form 990-T. Quite often they rely on the IRA owner. Normally Form 990-T is due May 15 for a calendar year entity, but IRA UBIT must be reported by April 15 (a very busy deadline).

The other bad news about UBIT in an IRA is that there is no reliance on the prior year if you owe tax for the first time. Once income is over $1,000 and tax is due you get an underpayment penalty if no Form 990-T was required the previous year.

For a final insult to injury item with UBIT and IRAs, the tax is supposed to be deposited with a Federal coupon at the bank. An IRA is treated as a corporation for tax payments and underpayment purposes; that's what causes these nasty quirks.

If anyone is thinking of investing in a partnership in the IRA, Please Do Not.

Mary Kay,

The IRA Custodian is responsible for filing the Form 990-T. The Custodian is also responsible for debiting the IRA for UBTI and remitting it to the IRS on behalf of the IRA holder.

For qualified plans it is different. The plan administrator is responsible for handling the process.