This was posted on an mlp which I found extremel helpful. MLP’s in an IRA I am amazed by the dead ends one encounters when trying to arrive at the truth to this matter. Finally, after talking with several MLP tax assistance numbers, the IRS, and a tax expert, I have come to terms with my tax obligation.
First, I am speaking ONLY to my situation. I own 4 MLP's in my IRA account. As long as they are held in my IRA, taxes will be paid on all gains in value and distributions when I make cash withdrawals from my IRA. If you hold MLP's in a regular brokerage account, my comments are not meant for you. That said, the IRS tells me if the tax ID in part II box E is not yours (social security number) it should be an identifier for your broker. They will track your UBTI tax obligations (the number found in part III box 20 noted "V") and when you close out your positions in each MLP, they will be required to pay such tax for you out of your IRA account or contact you as to your UBTI obligation. Since most passive income is negative, it would be unusual to have any tax obligations since it would have to be above $1,000 annually. (Note: you can refer to your annual K-1 to keep track of your future UBTI tax that might come due when you close out your partnership share ownership. If the sum of your dollar amounts Part III box 20 noted "V" are under $1,000 in a given year you will not have any future UBTI obligation for that year). The representative I spoke to at TD Ameritrade stated he had never had to file a tax payment on UBTI to the IRS. Of course everyone you talk to will tell you to speak to a tax professional. He did as well.
I spoke to a CPA and was told no taxes should be filed from information on your annual K-1's received from MLP's held in an IRA account. Therefore regarding you K-1's that you get each year, keep them on file. The numbers are for your information only. (Note dividends (Part III box 6) and interest (Part III box 5) are not being paid to you thus you have no tax obligation even though you might be told by the MLP to file this on your annual 1040 schedule E.)
Also if you own KMP or any other mlp only in a Roth or regular IRA, you might still get a k-1 statement from your mlp just before tax time in April. You can just disregard whatever is on your k-1 regarding interest, expenses, capital gains, or distributions. None of it is reportable on your 1040 because you hold your mlp's in IRA's.
no, you don't pay any taxes on dividends/distributions in a regular IRA until you take a distribution out of your regular IRA. Then it is considered as income and is taxed as income, not at the dividend tax rate. I am newly retired and on a fixed income. I also keep my IRA distributions at a low enough level so that I won't need to pay any taxes on them, nor my Social Security.So all my income/distributions come to me tax free. A Roth IRA distribution or dividends taken from it are always tax free.....in other words not counted as income, dividend income, or share distributions. So either way, my way or the Roth; they are tax free.