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Taxes: K-1 issued for IRA Holding?
Old 04-07-2010, 12:52 PM   #1
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Taxes: K-1 issued for IRA Holding?

Silly me, I did some short term trading in USL within my IRA acct early in 2009. I got in and out a couple of times and made a couple of STCG's which I understand I do not report on my taxes. The gains will be taxed as ordinary income when I withdraw them sometime down the road.

But now they have sent me a K-1. I tossed it aside assuming I didn't need to include it on my tax form since the ownership/partnership participation was inside an IRA. But now on the eve of pushing the button to electonically file, I'm having second thoughts. I haven't come across specific info on this. Does anyone know the answer from already having marched down this path?

Thanks.
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Old 04-07-2010, 04:26 PM   #2
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People who hold partnerships in their IRA do receive K-1s and, in some cases, they are required to include them on their tax forms (if they received more than $1,000 in "ordinary income" distributions from the partnership during the year IIRC). But I have never heard of people receiving a K-1 for trading an ETF (that's what USL is, right?).
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Old 04-07-2010, 04:36 PM   #3
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Quote:
Originally Posted by FIREdreamer View Post
People who hold partnerships in their IRA do receive K-1s and, in some cases, they are required to report them to the IRS (if they received more than $1,000 in distributions from the partnership during the year IIRC). But I have never heard of people receiving a K-1 for trading an ETF (that's what USL is, right?).
Thanks FD.

My distribution was well under $1k. They say the current year capital increase in my account was $136 made up of -7 ordianary bus income, 1 int income and 142 other income. They never sent me any money nor credited anything to my IRA acct.

Yes, I think USL is an ETF. It's the "United States 12 Month Oil Fund Limited Partership." I bought and sold it thinking that it would trade and be handled, for tax purposes, like an ETF. Their letter of explanation was that they do not pay taxes themselves and must by law pass distributions on to partners via a K-1, which they dutifully attached.

I mean this was a small potatoes deal. I wanted to play with oil volitility so bought a few shares of USL and when it popped up a little a few weeks later, sold them. That was fun, so a couple of weeks later I did it again. Then I forgot about it knowing that I didn't have to account for the CG's with the IRS cuz of the IRA acct. Then this K-1 shows up!

The $136 on the K-1 is not the STCG of the 2 transactions. That was significantly more. So I have no clue where the number comes from.

My inclination is to go ahead and push the send button on my return leaving this K1 business out of it. OTOH, I woke up in the middle of the night, soaked to the skin and dreaming of jack-booted IRS thugs breaking down my door and making DW watch as they pulled out my fingernails and burned my groin area with cigarette lighters.

I hate it when I have dreams like that.........
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Old 04-07-2010, 04:52 PM   #4
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Youbet:

can't help you with your specific question. However for any tricky tax issue the advice is the same.

try to call the IRS. Since tax day is near you may not be able get a hold of someone knowledgeable to know what to do.

You can file your form now. Then if they tell you later you need something different you can file a 1040X to amend whatever they need.

A pain yes, but it always works.

For a matter like this the IRS expertise is the way to go. Whatever you read on this forum check it again with the IRS.
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How to Report a K-1 on an IRA Account
Old 04-07-2010, 05:01 PM   #5
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How to Report a K-1 on an IRA Account

How to Report a K-1 on an IRA Account:

How to Report a K-1 on an IRA Account | eHow.com


What Happens If My IRA
Gets a K-1 Form?


Q: I own shares of a publicly-traded partnership as part of my Roth IRA. I received a Schedule K-1 (Form 1065). Do I need to report partnership items on my tax return? I thought a Roth account is exempt from reporting any gains or losses.
Mark
A: First, check to make sure that the recipient of the K-1 is not you personally, but rather your IRA. The IRA should have its own tax ID number, and should be listed as something like "Custodial Roth IRA for Mark XYZ."
Assuming that's the case, then you can simply file the K-1 in your records. No income needs to be reported, and no deductions are allowed to be taken. When and if you sell the partnership shares, gain or loss is not recognized.
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Old 04-07-2010, 05:02 PM   #6
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Thanks MB. I was thinking of that and only avoiding it thinking it'll be hours of "on hold" time now that I procrastinated this long. When I got the K-1 a few weeks ago, I filed it under "ignore" since the trade was within an IRA acct. Should have followed up then since now I'm having second thoughts on my initial assumption.
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Old 04-07-2010, 05:12 PM   #7
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I think you can probably ignore it (just my opinion). It is my understanding that the "ordinary income" distributed by a partnership held in an IRA can be taxed as unrelated business taxable income (UBTI). "Ordinary income" is usually a very small portion of the total distribution. So I think that the relevant number here is $-7 (ordinary business income) which is well below the $1,000 limit (actually it's a loss if I understand correctly). So unless you received distributions from other partnerships in your IRA, it looks like you are in the clear.
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Old 04-07-2010, 05:38 PM   #8
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another article: Unrelated Business Income Tax - Wikipedia, the free encyclopedia
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Old 04-07-2010, 05:38 PM   #9
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I have had MLP in my IRA before. Schwab yells at me that if the unrelated income exceeds $1,000 that they as custodians of my IRA will need to file an 1040 and they will charge me a lot of money. Since I am never close to the $1,000 limit I simply ignore the K1s. Never had a problem with the IRS (at least for that )
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Old 04-07-2010, 05:40 PM   #10
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MB and FD,

Thank you guys very much!

The info from eHow.com was very specific and very clear........even for me. I've printed it out and will file it with the K-1 in my tax records.

Whoooo...Hoooooo! No fingernail pulling, no cigarette lighters! This is great news and I'll sleep well tonight.

edit: clifp and kaneohe - just noticed your posts. Thanks as well for the additional comments and info!
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Old 04-07-2010, 09:00 PM   #11
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Quote:
Originally Posted by MasterBlaster View Post
For a matter like this the IRS expertise is the way to go.
What 'IRS expertise'? It's not like they'll actually stand behind anything they tell you. And you probably wouldn't get the same answer on two separate calls.

Doesn't qualify as 'expertise' in my book.

BTW, the frustration isn't directed at you, but at the IRS & Congress.


-ERD50
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Old 04-07-2010, 09:20 PM   #12
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I have no experience with them, but I have read other people talking about them. The consensus was that those that had MLPs in their Roth IRA were not paying any taxes, i.e. they tossed the K-1 if they got it.

I have no idea if that is the right thing to do or if it will result in a visit from the
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