IRA with UBTI

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.

I also should have mentioned that the income is "related" or "unrelated" based on whether the investment held in the retirement account is "passive" or "active".

This Web page has examples.

Note that the page uses a third term, "unrelated debt-financed income", which is income from borrowed monies. UDFI is always UBTI, without considering "passive" or "active".