Are IRA trustees/custodians liable if they leave the filing of Form 99

[Guest Barbara Coatsw]

I have a question about filing Form 990-T for IRAs that

have unrelated business taxable income. UBTI is a difficult issue for trustees and custodians; therefore, many leave it up to the account holder to prepare and file the form.

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My question is: Does the trustee/custodian who leaves the account holder "on his/her own" to file Form 990-T risking penalties if the account holder fails to file the return?

From my reading of the Section 408 regulations,

the Internal Revenue Manual, and other materials, I think the answer is "yes." I think that the IRS can assess the trustee/custodian the failure to file and failure to pay penalties. Also, it appears to me that trustees and

custodians are subject to equivalent rules (in other words, a custodian does not get easier treatment than a trustee).

> Do you have any thoughts on this issue?

[Mary Kay Foss]

My clients generally get information from the custodian or directly from the source (partnership, etc) about the filing requirement. I've only had one custodian that will prepare the return "on request." In other cases, we've had to obtain checks from the custodian so that the account holder can pay the tax.

Earlier this month, I prepared Form 990-T for a client that had invested in a Cable-TV deal. We used the info provided on Schedule K-1 showing that there were suspended losses to offset all of the passive income and more. Two days after he filed it, the client got a copy of a form filed by the custodian. Just two minor problems, they filed federal only and in CA you must file with the state as well and secondly, they paid tax when none is due. I'll bet we have a rough time collecting the funds back from IRS.

All in all, I don't know what the requirement is but if the trustee/custodians are liable I hope their failure gets some publicity. Since a 990-T for an IRA is due 4/15, it would be nice if the custodians let the account holders know if the form is due and who is filing it on a timely basis.

[Guest J Singletary]

Here is an excerpt from the 990-T instructions under the heading "Who Must File":

"...Fiduciaries for the following trusts that have $1,000 or more of unrelated trade or business gross income must file form 990-T:

1. Individual Retirement Accounts (IRAs) described under section 408(a)..."

Although one might try to make the argument that an IRA holder is a fiduciary of their IRA under certain circumstances, I don't think that is the IRS's intent here. Several other references to IRAs in the 990-T instructions point to the conclusion that the IRA trustee/custodian is responsible for filing the 990-T.

I know several major IRA trustees/custodians are trying to push this responsibility onto their clients, but it appears to me and other specialists in this area that they are wrong.

Pursuant to IRC 408(h), the tax reporting responsibilities for an IRA trustee vs. IRA custodian are the same.

Bottom line, it appears that IRA trustees and custodians are responsible for filing form 990-T.