990T taxes, and related tax preparation fees, paid from an IRA
I have a client with a large IRA. For 2015 it had substantial UBTI that required the preparation and filing of 990T and the related CA form and the payment of taxes. These were paid directly from the IRA. The custodian of the IRA (NFS) says that the taxes and tax preparation fees paid from the IRA will be included on the 1099R as distributions to the IRA owner, in addition to the amount he took as his RMD. Is this the correct treatment of both items (taxes and fees)? Thank you very much.
Permalink Submitted by Alan - IRA critic on Thu, 2017-01-12 21:35
With their size and expertise, NFS should know. However, it was my impression that the 1099R should not include the 990 T tax or prep fees, which are separate taxes on the IRA itself using the compressed tax rates of a trust. Including these payments on the 1099R appears to be a double tax on the same income. With respect to the tax prep fees in particular, a case could be made that those are administrative fees for maintaining the IRA. I would certainly have client contact NFS and ask for a citation indicating that these payments are properly reported as distributions to the IRA owner when the taxes are due from the IRA, not the owner.