UBTI
I just received a notice from the IRS that was sent to my former Roth IRA custodian and then forwarded to me by that custodian without any explanation – just the single page deficiency notice from IRS. The notice is addressed to the custodian and the IRS is requesting $4400 (plus penalties and interest, of course) for UBTI due in 2018 based on a return filed by that custodian. Receipt of this forwarded notice from IRS was the first I learned of the outstanding issue.
The Roth IRA account was transferred by that custodian to a new custodian about 2 years after 2018. I imagine that the old custodian should have paid the tax with funds from the IRA when they filed the tax return with IRS but neglected to do so. Who is now responsible for submitting the payment to IRS? The old custodian, the new custodian or me as the beneficiary of the Roth IRA?
Thank you for any insight provided!
Permalink Submitted by Alan - IRA critic on Thu, 2023-12-07 18:15
Sounds like the first custodian filed a 990 T at some point but either there was not enough cash in the Roth to pay the tax due or you had already transferred the account elsewhere. Have you encountered UBIT taxes for years prior to this or subsequent? If you feel that the 4400 is likely correct, you might check with the old custodian to determine if and when they filed the 990 T and get the EIN they secured, and if you have old Roth statements for around that time, determine if there was anything paid out for 990 T taxes or prep fees. If the 990 T filed showed 4400 tax due that was never paid, and all you are concerned with is that payment which was never made, perhaps the new custodian can use the notice to pay the IRS out of your current Roth. If so, you may have to free up enough cash in your Roth to fund the payment. Covid chaos may have contributed to processing delays.