UBTI - Paid by Earmarked Account?

[Guest notapensiongeek]

I know this is probably a dumb question, but...

A participant in a 401(k) plan paid appx. $8,000 in UBTI from his earmarked account. He had an LLC as one of his investments that generated the UBTI. Was this OK to pay the tax from his earmarked account? As a general rule, who should pay the tax (e.g., the Plan Sponsor, the Plan, the participant)?

Thanks for any input!!

[Guest mjb]

What does your tax advisor say? UBIT is paid by a TXO on form 990-T, not by the participant. I would assume that the TXO would file the 990-T and pay the 8,000 tax from the participant's account. Check box G 401(a) trust.

[Guest notapensiongeek]

The 990-T lists the "401(k) Profit Sharing Trust FBO The Participant" as the filer (401(a) Trust is checked in box G). So is it ok that the participant paid the tax from his e/m account?

[Guest mjb]

Who else should pay it it? Is this a cost that was incurred by the plan and allocated to all of the other participants. The payment should by paid by the trust from the participant's account. What does the plan provide for payment of taxes incurred by participants?