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Hi, I'm new to MLP investing and have a question. I understand the preferred way to invest in MLPs is in a taxable account. However my only investable funds are all in IRAs. My question is , if I invest $20,000.00 or less in an MLP within my IRA, is there any way of knowing if that invested sum would exceed the $1000.00 allowed amount of UBIT and thus trigger the requirement to file and pay tax ? Hope I made sense. Thanks, itch
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Hi, I'm new to MLP investing and have a question. I understand the preferred way to invest in MLPs is in a taxable account.

I disagree. The hidden trap of MLPs is that ownership of an MLP interest opens the investor to the possibility of having to file income tax returns in every state where the MLP operates. Some states have minimum income thresholds; others require a return for $1 of income.

Conversely, most MLPs don't generate much UBI and many generate UBI losses. Should your IRA receive more than $1000 in UBI, the custodian (broker) will usually file the return for the IRA.

All bets are off, however, if Congress reconciles the competing tax cut bills.

Ira
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Just got an unpleasant surprise relating to UBI from Fidelity. Last year they were required to file tax return and pay tax from IRA accounts with over $1000 UBI. My only holding with possible UBI is Blackstone Group and they have little UBI so I'm not likely to ever have to file. However, the Fidelity letter says beginning in 2018 if they have to file for me they will charge me $300 for filing. You better believe I'll be looking at my 2017 report from Blackstone very closely. If it looks like I might get hit with that filing fee next year I'll have to re-evaluate holding BX.
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I was also confused by the note from Fidelity. However, the note also mentioned a $1000 threshold. Is the $1000 threshold applied to the amount paid to the individual or is it the amount earned by the Company? Also, if you have invested in multiple Limited Partnerships, is the threshold applied against each individual company or summed across companies. I would hate to be selling reliable income investments because of the additional filing burden.
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Is the $1000 threshold applied to the amount paid to the individual or is it the amount earned by the Company?

The $1000 threshold is per account, not per holding within the account. From IRS Pub 598 https://www.irs.gov/pub/irs-pdf/p598.pdf :

Form 990-T is required if the organization's gross income from unrelated businesses is $1,000 or more. An exempt organization must report income from all its unrelated businesses on a single Form 990-T.
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The $1000 threshold is per account, not per holding within the account.

For an individual does "organization" refer to the account or to all tax deferred accounts held by an individual?
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Sorry, hit submit too soon. With one correction, better formatting, and some additional comments:

Is the $1000 threshold applied to the amount paid to the individual or is it the amount earned by the Company?

The $1000 threshold is per IRA, not per holding within the account. From IRS Pub 598 https://www.irs.gov/pub/irs-pdf/p598.pdf :

Form 990-T is required if the organization's gross income from unrelated businesses is $1,000 or more. An exempt organization must report income from all its unrelated businesses on a single Form 990-T.

In this case, the 'organization' is the IRA (Individual Retirement Arrangement). So, even if you hold investments producing UBTI in a few accounts at different brokerages, if the total UBTI is more than $1000, your IRA would still be responsible to file, even if each individual account was less than $1000. I would strongly suggest consulting a tax professional if you have this situation.

AJ
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In this case, the 'organization' is the IRA (Individual Retirement Arrangement). So, even if you hold investments producing UBTI in a few accounts at different brokerages, if the total UBTI is more than $1000, your IRA would still be responsible to file, even if each individual account was less than $1000. I would strongly suggest consulting a tax professional if you have this situation.



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I want to strongly echo AJ's Warning.

A while back, I held the MLP Linn Energy (LINN & LINE) in my Roth IRA. I got a big end of year UBTI surprise (over $800) when their "forgiven" loans became UBT Income thru the bankruptcy process!

No Prior Warnings, just POW! right there on the K-1. Since that scare (& the recent Fido $300 threat for filing ) I have purged my Roth IRAs of all MLPs.


sunray
a wiser man
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