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Purchasing a PTP within your Sep-IRA

 
 
CBotella@aol.com
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      04-03-2010, 01:11 AM
I think this was discussed a little while ago, but never having run into
the situation, I didn't pay too much attention. I think there was a
consensus that it should NOT be done.

Can you agree or disagree with me? What are the pros and cons of a PTP
within a SEP-IRA.

Thanks for any help you can give me on how to handle this.

Kate, EA in PA

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Tom Healy CPA
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      04-03-2010, 04:07 AM
On Apr 2, 7:11*pm, (E-Mail Removed) wrote:
> I think this was discussed a little while ago, but never having run into *
> the situation, I didn't pay too much attention. *I think there was a *
> consensus that it should NOT be done.
>
> Can you agree or disagree with me? *What are the pros and cons of a *PTP
> within a SEP-IRA.
>
> Thanks for any help you can give me on how to handle this.
>
> Kate, EA in PA
>


Some PTPs will generate positive Unrelated Business Taxable Income
(UBTI), either every year, or perhaps only sporadically. Others will
usually have UBT losses, but may have income in the year you sell it.
If the retirement plan (whether SEP, Roth, traditional, or qualified)
ends up with positive UBTI, it will need to file a tax return, just as
a charity would have to do. Not what you want in a tax deferred
account!

That being said, I looked at the ones I own, and just one of the ten
had positive UBTI in 2009. So maybe the thing is to have enough of
them in the account that the losses are likely to outweigh the income.

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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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      04-03-2010, 06:10 AM
On Apr 2, 9:07*pm, Tom Healy CPA <(E-Mail Removed)> wrote:
> On Apr 2, 7:11*pm, (E-Mail Removed) wrote:


> > I think this was discussed a little while ago, but never having run into *
> > the situation, I didn't pay too much attention. *I think there was a *
> > consensus that it should NOT be done.

>
> > Can you agree or disagree with me? *What are the pros and cons of a *PTP
> > within a SEP-IRA.


Pro: No need to deal with Schedule K-1. Just be sure there's no UBTI.


> Some PTPs will generate positive Unrelated Business Taxable Income
> (UBTI), either every year, or perhaps only sporadically. Others will
> usually have UBT losses, but may have income in the year you sell it.
> If the retirement plan (whether SEP, Roth, traditional, or qualified)
> ends up with positive UBTI, it will need to file a tax return, just as
> a charity would have to do. Not what you want in a tax deferred
> account!
>
> That being said, I looked at the ones I own, and just one of the ten
> had positive UBTI in 2009. So maybe the thing is to have enough of
> them in the account that the losses are likely to outweigh the income.


What form do you file to report the UBTI?

Who pays the tax -- the IRA or you?

Isn't a tax return required only if the UBTI is greater than $1,000?

Are UBTI losses carried forward indefinitely?

What's an example of a PTP that generates UBTI? Or what is an example
of unrelated business income?

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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. >>
<< >>
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Arthur Kamlet
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      04-04-2010, 01:15 AM
In article <(E-Mail Removed)>,
(E-Mail Removed) <(E-Mail Removed)> wrote:
>On Apr 2, 9:07*pm, Tom Healy CPA <(E-Mail Removed)> wrote:
>
>> Some PTPs will generate positive Unrelated Business Taxable Income
>> (UBTI), either every year, or perhaps only sporadically. Others will
>> ....
>> That being said, I looked at the ones I own, and just one of the ten
>> had positive UBTI in 2009. So maybe the thing is to have enough of
>> them in the account that the losses are likely to outweigh the income.

>
>What form do you file to report the UBTI?



You should send the K-1 to the custodian and request he handle
the tax aspects of UBTI. Broker will file and pay taxes for UBTI.o

And charge you for the service.



>Who pays the tax -- the IRA or you?





The custodian will pay the tax out of the IRA, and may take his fee
from you or from the IRA, usually the IRA, and usually you won't even
be asked.



>Isn't a tax return required only if the UBTI is greater than $1,000?


Yes. But....


If there's just a single custodian who has vision into all your K-1s,
it's not all that difficult.

The problem arises when several custodians are involved, and you
have less than a total of $1000 UBTI with any one custodian but
more than $1000 total.

You can be sure the charges from the custodians will be, how to say it,
High!

>Are UBTI losses carried forward indefinitely?



Yes.

--

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

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removeps-groups@yahoo.com
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      04-04-2010, 04:52 AM
On Apr 3, 6:15*pm, (E-Mail Removed) (Arthur Kamlet) wrote:

> >Isn't a tax return required only if the UBTI is greater than $1,000?

>
> Yes. *But....
>
> If there's just a single custodian who has vision into all your K-1s,
> it's not all that difficult.


So if your 2 IRA have $600 in UBTI each then how do you let them know
them must file? Or will they file regardless of the amount?

If they file regardless of the amount, is it just an information
return or is tax actually paid?

And you said the fees will come out of your IRA, but what if your IRA
is full invested in stocks or has no cash?

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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. >>
<< >>
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Phil Marti
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      04-04-2010, 10:05 AM
On Apr 3, 9:15*pm, Arthur Kamlet wrote:

> The problem arises when several custodians are involved, and you
> have less than a total of $1000 UBTI with any one custodian but
> more than $1000 total.


Art, maybe you can help. I've spent a lot of time digging around,
starting with the 990-T instructions, and reached the conclusion that
each IRA is a separate taxpayer unaffected by what went on in the
beneficiary's other IRAs, even those at the same custodian. It's
really one of those angels/pinhead issues, but I'm curious how you
reached your conclusion.

On a side note, unless I missed it, nobody has answered the question
about what generates UBTI. I pretty much assume that if there's
positive operating income, it's UBTI.

Phil Marti
VITA/TCE Volunteer

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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. >>
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Arthur Kamlet
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      04-04-2010, 11:47 PM
In article <(E-Mail Removed)>,
(E-Mail Removed) <(E-Mail Removed)> wrote:
>On Apr 3, 6:15*pm, (E-Mail Removed) (Arthur Kamlet) wrote:
>
>> >Isn't a tax return required only if the UBTI is greater than $1,000?

>>
>> Yes. *But....
>>
>> If there's just a single custodian who has vision into all your K-1s,
>> it's not all that difficult.

>
>So if your 2 IRA have $600 in UBTI each then how do you let them know
>them must file? Or will they file regardless of the amount?





They should not file if total UBTI is under 1000, but making them
aware of total UBTI is your job.


>If they file regardless of the amount, is it just an information
>return or is tax actually paid?


>And you said the fees will come out of your IRA, but what if your IRA
>is full invested in stocks or has no cash?




If the custodian needs to sell off some stocks, he will.

You have delegated to him this power.
--

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, >>
<< 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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      04-04-2010, 11:51 PM
In article <(E-Mail Removed)>,
Phil Marti <(E-Mail Removed)> wrote:
>On Apr 3, 9:15*pm, Arthur Kamlet wrote:
>
>> The problem arises when several custodians are involved, and you
>> have less than a total of $1000 UBTI with any one custodian but
>> more than $1000 total.

>
>Art, maybe you can help. I've spent a lot of time digging around,
>starting with the 990-T instructions, and reached the conclusion that
>each IRA is a separate taxpayer unaffected by what went on in the
>beneficiary's other IRAs, even those at the same custodian. It's
>really one of those angels/pinhead issues, but I'm curious how you
>reached your conclusion.
>
>On a side note, unless I missed it, nobody has answered the question
>about what generates UBTI. I pretty much assume that if there's
>positive operating income, it's UBTI.



I've been told this more than once at some continuing educ
seminars, from speakers I rely on and would recommend.


I've seen a small list of things that generate UBTI, and have seen
UBTI on Oil/Gas PTPs but I'm sure they're not the only source.
--

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

--
<< ------------------------------------------------------- >>
<< 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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      04-05-2010, 10:39 PM
On Apr 4, 4:51*pm, (E-Mail Removed) (Arthur Kamlet) wrote:

> >On a side note, unless I missed it, nobody has answered the question
> >about what generates UBTI. *I pretty much assume that if there's
> >positive operating income, it's UBTI.

>
> I've been told this more than once at some continuing educ
> seminars, from speakers I rely on and would recommend.
>
> I've seen a small list of things that generate UBTI, and have seen
> UBTI on Oil/Gas PTPs but I'm sure they're not the only source.


What were some of the things on the list?


At http://www.guidantfinancial.com/resources/faq.aspx they say:

<Quote>
UBIT was implemented to keep the playing field even between plans that
open businesses and the typical small business owners. If a plan or
self-directed IRA was able to purchase a business and did not have to
pay any taxes, it would be able to deliver an identical product at a
discount. UBIT mitigates that risk for the typical business owner.
</Quote>

That kind of makes sense, but a C corp will not have UBIT (because
they only pay dividends) yet a PTP will -- but they're kind of the
same thing from an end user perspective, that is a business.


At http://library.findlaw.com/1996/Jan/1/127953.html

they say dividends, interest, royalties, qualifying rents, capital
gains are exempt from UBTI. Good, because that's what stocks, mutual
funds, and cash in the IRA will generate. But if these arise from
debt-financed property, then it will generate UBTI. So I guess if you
buy stocks on margin in the IRA, then UBTI will incur. Or if you buy
a house in your IRA, assuming that can be done, you will have UBTI.


Am I on the right track?

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