IRAs and UBTI/K-1
I have a rollover IRA. I held [foolishly in more ways than one] units of LINE which I sold in December of 2015. The K-1 statement I received shows more than $1,000 in UBTI and a positive amount of COD [cancellation of debt] income in box 11E. Also there are entries in a few of the other boxes in the K-1. I understand that my IRA must file a
form 990-T and pay the taxes on any amount of UBTI in excess of $1,000.
Besides UBTI, what other amounts from the K-1 am I obligated to declare and pay taxes on?
I sent the completed 990-T and other requested info to my IRA custodian, but I don’t think that they filed/submitted anything to the IRS yet since I don’t see that any funds have been withdrawn from my IRA account.
Also does anyone know how the UBTI amount is calculated? Is it simply a summary of the various amounts incomes and expenses on the K-1 or is it determined by a separate manner? How would one know if the amount of UBTI reported on the K-1 is correct?
Permalink Submitted by Alan - IRA critic on Sat, 2016-04-09 19:01
You would need to get a calculation worksheet from the issuer and have a CPA review it for accuracy to know for sure. The taxes on UBTI are calculated using trust tax rates which are higher than individual tax rates. Make sure you know whether your IRA custodian has committed to filing the 990 T or not. The tax due will be deducted directly from your rollover IRA and will not be a reportable distribution. Other elements of the K1 do not apply to IRA accounts, just the UBTI, but I suggest you confirm that with your IRA custodian.
Permalink Submitted by THOMAS WNUK on Sat, 2016-04-09 19:48
Thank you for your prompt response. The UBTI was reported in the supplemental info in the K-1 so it wasn’t necessary to calculate it. I was just curious as to how it was done. Per my custodian which is Fidelity,they asked for a copy of the 990-T. I completed and signed the copy. They also asked for a signed and dated letter authorizing the withdrawal of the amount of the taxes plus any wiring fees. They also requested a completed same day tax worksheet. I sent them everything they asked for. It is also required to get a EIN for the IRA account which one can get online from the IRS site using form ss4. It takes about 2 weeks for the number to be recognized by the IRS system.