UBTI & 990-T filing
Regarding UBTI in an IRA, who is responsible for filing the 990-T? In the instructions for the 990-T it states that the Fiduciary is responsible for the filing. We believe that this indicates that the client, is responsible; however, many have come back expecting us to file the 990-T. Can you provide any clarification?
Thank you!
Permalink Submitted by mk foss on Mon, 2008-09-29 22:44
The custodian is responsible but they often don’t have enough information to complete the form.
An IRA owner can have their tax preparer complete the forms. Any tax should come out of the IRA, the fee for preparing the form should come out of the IRA.
Some custodians do these automatically. If there has been a change of custodians, prior K-1s will be needed to report UBI correctly.
Permalink Submitted by Alanna Crawford on Tue, 2008-09-30 14:16
Thank you! I have two follow-up questions…
1. What happens if the custodian doesn’t have the necessary information to file the 990-T? Is the client then responsible?
2. Can you provide a cite that indicates the custodian is responsible for filing the 990-T…I have looked and have not been able to find one.
Thanks!
Permalink Submitted by mk foss on Tue, 2008-09-30 21:57
See page 2 of the instructions for Form 990-T; it says the fiduciary is responisble for filing an IRA return.
The responsible person is supposed to obtain the information to file. If they don’t have it all, it’s likely that the tax could be overstated. The client should take some responsibility if there are taxes to come out of their account but the “fiduciary” is the one that’s on the hook.
Permalink Submitted by Martin Helmer on Wed, 2008-10-01 03:38
There are court cases labeling the IRA owner as a fiduciary of his own IRA. It may well say the same thing in the I.R. Code. According to the BNA IRA portfolio, many IRA custodial and trust agreements state that it is the owner’s responsibility to file the 990-T. It seems the bottom line is that the owner had better file if the custodian/trustee doesn’t.
Permalink Submitted by Denise Appleby on Wed, 2008-10-01 22:51
From what I have seen…:
—-As part of the process, the custodian/trustee usually applies for a TIN for the IRA, if the IRA does not already have one on file, by filing form SS-4. A TIN is used, and not the individual’s SS#.
—-Previous UBIT is not usually tracked by the custodian/trustee, and as Mary Kay indicated, trasnfered IRAs may have relevant K-1 informtion. As such, the custodian/trustee may send an advance notice to the IRA owner to say let them know the amount of UBIT due from the IRA, and request that -if they have records to show that this should be reduced because of UBIT paid for previous years- or any other related information-they should submit those records by a specified deadline. Adjustments are usually made if sufficient documentation is provided, and any remaining UBIT is debited from the IRA and paid to the IRS.
As an aside…A few years ago I went to a retirement conference, hosted by a well recognized organization. The heads of IRA departments and IRA compliance officers and such attend this conference, and one of the break-out session involved operations and compliance officers chatting about best practices and challenges. The issue of UBTI and the Filing of 990-T came up, and it surprising to know that many did not file 990-T or was even aware that they should. Some wanted to have nothing to do with the investments that generated UBTI because of the administrative difficulties that applied. Those who did file Form 990-T charged fees for doing so.