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Limited Partnership within an IRA

 
 
Luka
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      01-20-2011, 02:10 PM
I am thinking of buying a PTP (KMP) within my IRA, will this cause
any special tax problems?

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removeps-groups@yahoo.com
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      01-20-2011, 04:49 PM
On Jan 20, 6:10*am, Luka <(E-Mail Removed)> wrote:

> I am thinking of buying a PTP (KMP) within *my IRA, will this cause
> any special tax problems?


Possibly. It looked like KMP issues a K-1. This means it might have
unrelated business income. If a partnership held in your IRA
generates UBI greater than $1000, then your IRA has to be pay tax.
The tax will be paid by the IRA custodian (ie. the company where your
IRA is like ETrade, Fidelity), and the tax rate is the trust tax rate
which is almost a flat 35% (http://www.irs.gov/formspubs/article/
0,,id=188575,00.html). Line 20V of K-1 states the unrelated business
income.

Box L of the K-1 states the initial investment. Say it was 10k and
line 20V is $300, then if you were to invest 40k then UBI would be
$1200 and there would be tax. So somehow you should get a sample K-1
or ask the company about it. If line 20V is zero you have no worries.

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NJOracle
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      01-20-2011, 06:21 PM
(E-Mail Removed) wrote:
> On Jan 20, 6:10 am, Luka<(E-Mail Removed)> wrote:
>
>> I am thinking of buying a PTP (KMP) within my IRA, will this cause
>> any special tax problems?

>
> Possibly. It looked like KMP issues a K-1. This means it might have
> unrelated business income. If a partnership held in your IRA
> generates UBI greater than $1000, then your IRA has to be pay tax.
> The tax will be paid by the IRA custodian (ie. the company where your
> IRA is like ETrade, Fidelity), and the tax rate is the trust tax rate
> which is almost a flat 35% (http://www.irs.gov/formspubs/article/
> 0,,id=188575,00.html). Line 20V of K-1 states the unrelated business
> income.
>
> Box L of the K-1 states the initial investment. Say it was 10k and
> line 20V is $300, then if you were to invest 40k then UBI would be
> $1200 and there would be tax. So somehow you should get a sample K-1
> or ask the company about it. If line 20V is zero you have no worries.
>

FWIW, I have 400 shares of KMP purchased 6 years ago. Line 20V shows
-610. I have it in a taxable account, not an IRA so I don't have the
problem you mentioned above. I only show the amount to give the OP an
idea of what line 20V might be.

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<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
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Arthur Kamlet
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      01-20-2011, 08:31 PM
In article <(E-Mail Removed)>,
(E-Mail Removed) <(E-Mail Removed)> wrote:
>On Jan 20, 6:10*am, Luka <(E-Mail Removed)> wrote:
>
>> I am thinking of buying a PTP (KMP) within *my IRA, will this cause
>> any special tax problems?

>
>Possibly. It looked like KMP issues a K-1. This means it might have
>unrelated business income. If a partnership held in your IRA
>generates UBI greater than $1000, then your IRA has to be pay tax.
>The tax will be paid by the IRA custodian (ie. the company where your
>IRA is like ETrade, Fidelity), and the tax rate is the trust tax rate
>which is almost a flat 35% (http://www.irs.gov/formspubs/article/
>0,,id=188575,00.html). Line 20V of K-1 states the unrelated business
>income.
>
>Box L of the K-1 states the initial investment. Say it was 10k and
>line 20V is $300, then if you were to invest 40k then UBI would be
>$1200 and there would be tax. So somehow you should get a sample K-1
>or ask the company about it. If line 20V is zero you have no worries.



Just to add a comment:


The $1000 of UBTI is the total generated by all you IRA accounts.

So if you have three IRA accounts each with a PTP generating UBTI of
$400, each custodian will have to calculate the UBTI for this account
and of course charge you a lot for doing that. Probably well over $250
for each calculation.
--

ArtKamlet at a o l dot c o m Columbus OH K2PZH

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Phil Marti
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      01-21-2011, 01:05 PM
On Jan 20, 1:31*pm, Arthur Kamlet wrote:


> The $1000 of UBTI is the total generated by all you IRA accounts.


Art, do you have a reference that supports this conclusion? This one
has been driving me nuts for a long time, and I've reached the
opposite conclusion, but based on only forms and instructions, which
we all know aren't legally worth the paper they're printed on. I
suppose there's also the remote possibility that my analysis could be
faulty.

Phil Marti
VITA/TCE Volunteer
Clarksburg, MD

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<< The foregoing was not intended or written to be used, >>
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<< that may be imposed upon the taxpayer. >>
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Stuart A. Bronstein
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      01-21-2011, 05:24 PM
Phil Marti <(E-Mail Removed)> wrote:
> Arthur Kamlet wrote:
>
>> The $1000 of UBTI is the total generated by all you IRA
>> accounts.

>
> Art, do you have a reference that supports this conclusion?
> This one has been driving me nuts for a long time, and I've
> reached the opposite conclusion, but based on only forms and
> instructions, which we all know aren't legally worth the paper
> they're printed on. I suppose there's also the remote
> possibility that my analysis could be faulty.


I haven't researched this issue, but based on what I do know, I would
tend to agree with you. I don't see how an IRA could have UBTI,
since its purpose is to invest in things that generate income. Any
reasonable investment would satisfy that purpose.

--
Stu
http://downtoearthlawyer.com

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<< The foregoing was not intended or written to be used, >>
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Bill Brown
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      01-21-2011, 08:12 PM
On Jan 21, 12:24*pm, "Stuart A. Bronstein" <(E-Mail Removed)>
wrote:
> Phil Marti <(E-Mail Removed)> wrote:
> > *Arthur Kamlet wrote:

>
> >> The $1000 of UBTI is the total generated by all you IRA
> >> accounts.

>
> > Art, do you have a reference that supports this conclusion?
> > This one has been driving me nuts for a long time, and I've
> > reached the opposite conclusion, but based on only forms and
> > instructions, which we all know aren't legally worth the paper
> > they're printed on. *I suppose there's also the remote
> > possibility that my analysis could be faulty.

>
> I haven't researched this issue, but based on what I do know, I would
> tend to agree with you. *I don't see how an IRA could have UBTI,
> since its purpose is to invest in things that generate income. *Any
> reasonable investment would satisfy that purpose.
>
>

Here is the needed citation that verifys the validity of Art's
concern:

"IRC Section 408(e)(1) Exemption from tax. Any individual retirement
account is exempt from taxation under this subtitle unless such
account has ceased to be an individual retirement account by reason of
paragraph (2) or (3). Notwithstanding the preceding sentence, any such
account is subject to the taxes imposed by section 511 (relating to
imposition of tax on unrelated business income of charitable, etc.
organizations)."

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<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
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Arthur Kamlet
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      01-21-2011, 08:40 PM
In article <Xns9E745FA22AEEDspamtraplexregiacom@130.133.4.11> ,
Stuart A. Bronstein <(E-Mail Removed)> wrote:
>Phil Marti <(E-Mail Removed)> wrote:
>> Arthur Kamlet wrote:
>>
>>> The $1000 of UBTI is the total generated by all you IRA
>>> accounts.

>>
>> Art, do you have a reference that supports this conclusion?
>> This one has been driving me nuts for a long time, and I've
>> reached the opposite conclusion, but based on only forms and
>> instructions, which we all know aren't legally worth the paper
>> they're printed on. I suppose there's also the remote
>> possibility that my analysis could be faulty.

>
>I haven't researched this issue, but based on what I do know, I would
>tend to agree with you. I don't see how an IRA could have UBTI,
>since its purpose is to invest in things that generate income. Any
>reasonable investment would satisfy that purpose.



No cites, this comes from a recent seminar.


To answer wheher IRAs are subject to UBTI, Pub 598 is
pretty clear they are.


IRAs holding not only MLPs but REITs and certain S Corps and
LLC etc that generate UBTI maybe subject to filing a 990T and
paying tax on the income.


The $1,000 exclusion from tax on UBTI comes from the 990-T
where all UBTI eventually flows (I think to line 5) and then
is reduced, but not below zero, by 1,000.

And the 990-T asks that all sources of UBTI be added to that line.

========= ================


Looking at this as a Form vs Substance issue, it makes little
sense to think one can split an IRA earning 1500 of UBTI and thus
clearly subject to UBTI into two separate IRA accounts, perhaps
with different custodians, each earning 750 of UBTI and magically
avoid UBTI, but other than trying to understand how to fill out a
990-T I have not found a cite to this specifically.

Anyone want to argue why form should rule over substance here?
--

ArtKamlet at a o l dot c o m Columbus OH K2PZH

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<< The foregoing was not intended or written to be used, >>
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<< that may be imposed upon the taxpayer. >>
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removeps-groups@yahoo.com
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      01-21-2011, 09:47 PM
On Jan 21, 12:12*pm, Bill Brown <(E-Mail Removed)> wrote:

> "IRC Section 408(e)(1) Exemption from tax. Any individual retirement
> account is exempt from taxation under this subtitle unless such
> account has ceased to be an individual retirement account by reason of
> paragraph (2) or (3). Notwithstanding the preceding sentence, any such
> account is subject to the taxes imposed by section 511 (relating to
> imposition of tax on unrelated business income of charitable, etc.
> organizations)."


Why would a for-profit company have unrelated business income. If
they have ordinary income (line 1 of K-1) then it is not taxable in
IRA, but certain types of income are unrelated business income and
taxable in the IRA. I can see that a non-profit company should pay
the tax because businesses may incorporate as non-profits and shield
their business profits from taxes. But if you have a company, say one
selling musical instruments, how can it generate unrelated business
income? An example of what UBI really is?

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<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
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Bill Brown
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      01-21-2011, 10:10 PM
On Jan 21, 4:47*pm, "(E-Mail Removed)" <removeps-
(E-Mail Removed)> wrote:
> Why would a for-profit company have unrelated business income. *If
> they have ordinary income (line 1 of K-1) then it is not taxable in
> IRA, but certain types of income are unrelated business income and
> taxable in the IRA. *I can see that a non-profit company should pay
> the tax because businesses may incorporate as non-profits and shield
> their business profits from taxes. *But if you have a company, say one
> selling musical instruments, how can it generate unrelated business
> income? *An example of what UBI really is?
>
>

A "for-profit" entity (an IRA in this case)) would have unrelated
business income because Section 408(e)(1) of the Internal Revenue Code
says so.

What is and is not UBI can be determined by reading Section 511 of the
Internal Revenue Code.

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<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
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