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Broker Letter Regarding UBTI: Unrelated Business Income held in an IRA
Old 01-26-2016, 09:02 AM   #1
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Broker Letter Regarding UBTI: Unrelated Business Income held in an IRA

I received a letter from my broker yesterday. The gist is "they" have a had a policy change and "they" are going to file my taxes for any Unrelated Business Income" for any asset (such as a MLP or LLC) held in my IRA's that exceed the $1,000 threshold. "They have hired a 3rd party tax preparer. "They" will access my K1's electronically and "They" will prepare the tax forms (Form 990-T). For this, "they" will deduct from my IRA any taxes due and will charge me $200 to $500!

In the letter they state only that "they" have had a policy change. They do not state that they have been mandated by the IRS to do this. I have not signed anything authorizing them to access my K1's or do any portion of my taxes.

Has anyone else received a letter such as this or been notified by their brokers or trading platforms of anything similarly related to UBTI? Does anyone know if the IRS has, indeed, mandated the brokerages do this?

I have put a call into the branch manager and am waiting to see if I can opt
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Old 01-26-2016, 09:38 AM   #2
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Join Date: Jul 2014
Location: Spending the Kids Inheritance and living in Chicago
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Change Brokerage by tranferring your IRA to another (some will even pay you hundreds of dollars to move to them).
You can transfer "in kind" so nothing is sold (no trading costs).

I've done it just to get the $600 bonus as I was planning a move anyhow, unrelated to your tax issue.
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Old 01-26-2016, 09:42 AM   #3
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the acronym is UBIT...never heard of it applying to an individual. I learn something every day.
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Old 01-26-2016, 10:48 AM   #4
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The little I understand of this is that evidently when assets such as MLP's, Reits, etc. are held in an IRA, the government wants their money (tax) on any Unrelated Business Income generated by the entity based on the premise that this is not truly "investment income", hence the tax. So holding these types of assets in an IRA does not protect you from the taxation in this case. (jeeezzzzzz!). That is the thing that gets me. It's in an IRA! I thought the tax code was suppose to get simpler!
Wonder how long it will be before the government yanks the preferential tax treatment away from such entities. There have been statements as such in the past.

Big_hitter: I like your acronym of UBIT better than UBTI! More appropriate I would say!
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