UBTI
If Ed is interested in covering a current and complex situation, he would review the exchange offer from Kinder Morgan (KMI)for Kinder Morgan Partners (KMP). The offer is complex because it involves a K-1 basis that is much different than normal basis calculations that results in significant capital gain and ordinary income tax liabilities. In Ed’s area, IRAs that hold KMP will be very surprised to see a high level of UBTI is they have held the stock for years. The exchnage will happen this year but there is 45-60 days before the actual dates are announced. IRA sponsors are probably not responsible for notifying their accounts of the potential increase in UBTI tax.
Permalink Submitted by George Barrow on Sun, 2014-09-21 15:15
I would like to see an IRA analysis of UBTI related to the Kinder Morgan KMP transaction. How is UBTI determined from K-1s for the past 5 years? How is it reported on Form 1040?
Permalink Submitted by Alan - IRA critic on Sun, 2014-09-21 17:49
Look for code V in Box 20 of your K1. If that amount exceeds $1,000, then your IRA (not you personally) must file Form 990 T with the IRS. Taxes due for this return must be paid from your IRA, you cannot pay personally. Many large brokers and other larger IRA custodians might file the 990 T for you, either with or without a charge. Your 1040 is not involved in UBTI, just the 990 T. Sounds like if you hold KMP, the UBTI might spike this year which means that it will take fewer shares to cause the UBTI to exceed $1,000 and trigger the need to file. It seems that it is not clear what the reporting needs are if you have multiple IRA accounts where the total UBTI exceeds 1,000, but no single IRA account exceeds it.