Employee Benefits Blog

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UBI in IRAs and Qualified Plans from Partnership Investments Can Ba a Nasty Surprise

During this past tax filing season, we came across several instances where clients experienced unexpected tax return filing requirements and, in some cases, tax liabilities resulting from partnership investments within their individual retirement accounts (IRAs) and qualified retirement plans.  This post will explore some of the issues involved in these unpleasant situations.

In general, tax-exempt organizations are required to pay income tax on net unrelated business income (UBI), which generally means income derived from regular business activities that are unrelated to the organizations’ missions.  In addition, investment income derived from debt-financed investments is generally taxable as UBI.  When people think of “tax-exempt organizations,” they generally think of charities such as hospitals or schools.  However, the term also includes IRAs and qualified retirement plans, which therefore are also potentially subject to tax on UBI.