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MLPs in an IRA


Guest RJRogers

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Guest RJRogers

IRA holds ~$100,000 spread over four publicly traded oil & gas pipeline MLPs generating ~$6,000 dividend income. 2009 990-T and 2010 8868 declared only the UBIT reported on K-1s. Owner now suspects that is probably not correct and wishes to retain adviser who understands required reporting so that amended returns can be filed if that is what is required. Is anyone knowledgeable with this issue available for this assignment?

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IRA holds ~$100,000 spread over four publicly traded oil & gas pipeline MLPs generating ~$6,000 dividend income. 2009 990-T and 2010 8868 declared only the UBIT reported on K-1s. Owner now suspects that is probably not correct and wishes to retain adviser who understands required reporting so that amended returns can be filed if that is what is required. Is anyone knowledgeable with this issue available for this assignment?

Q- Why does owner think there is any tax issue other than UBIT? Since the IRA is a tax exempt entity under the IRC, all income received by the IRA from the MLP (other than income subject to UBIT in excess of $1,000) is exempt from income tax.

mjb

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Guest RJRogers

The IRA's owner is under the (perhaps, mistaken) impression that since dividend income has not been taxed prior to distribution to the limited partners it is somehow subject to UBIT in the IRA. He recognizes that seems unreasonable, since the dividends will ultimately be taxed again as ordinary income when distributed by the IRA, but has read in several publications that may be the case. He's concerned the tax exempt status of the IRA could be jeopardized if it inadvertently fails to report taxable income.

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Is the owner of the IRA trying to correct the reporting by the IRA or the reporting of the MLPs?

What is the relationship of the IRA owner to the MLPs?

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Edit:

Ignore my post. I did not notice that the entities were publicly traded.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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All UBIT is reported on the K-1. If the 990T was done correctly, then it's the end of the discussion.

My guess is your client read some two-bit article which overgeneralized the problems of owning MLPs in IRAs. I just found 5 such articles in as many minutes on the internet. These are usually by idiot writers who have the mistaken understanding that UBIT must be avoided at all costs. (Is my bias about personal finance writers showing yet?)

Your client really needs to do a return on investment analysis which takes into account the UBIT tax and cost for preparing the 990T, etc., and then evaluate his MLP holdings just like any other investment (yield, growth potential, etc.).

Kurt Vonnegut: 'To be is to do'-Socrates 'To do is to be'-Jean-Paul Sartre 'Do be do be do'-Frank Sinatra

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The IRA's owner is under the (perhaps, mistaken) impression that since dividend income has not been taxed prior to distribution to the limited partners it is somehow subject to UBIT in the IRA. He recognizes that seems unreasonable, since the dividends will ultimately be taxed again as ordinary income when distributed by the IRA, but has read in several publications that may be the case. He's concerned the tax exempt status of the IRA could be jeopardized if it inadvertently fails to report taxable income.

I agree with Masteff. All MLP are required to list the amount of UBIT on Part III, line 20V of the K-1. The IRA custodian then computes the amount of the tax due on the 990-T and pays it from plan assets. The IRA owner should consult the partners instructions for reporting of UBIT. UBIT does not result in disqualification of the IRA.

mjb

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