I finally can report how such tax is handled on such tax liability. I hold 4 MLPs in my IRA account. I am 65 and drawing on funds from my IRA account. The IRS tells me the following:
1/ Income tax is captured in my IRA and taxes are paid when funds are withdrawn.
2/ Other taxes on income reported (including UBIT) are accountable to the tax ID on the K1s received each year. If your SS number is not in Part II Box E, the IRS will not associate you the the K1 and the MLP is handling such tax liability.
MLPs are great dividend generators and should be considered in an IRA account. If you want further clarification and to verify what I have said here, Call 800 829-1040, enter option 2, then option 2, again, and option 3. An operator will select someone in your area of concern. State the following: " I receive K1's form 1065 yearly and wish to clarify my tax liability for UBIT from MLP common stock that I own."
Amen, you are 100% correct. I hope the original poster doesn't end up seeing his ira wiped out due to interest and penalties. MLP's are NOT suitable investments because of the complicated tax implications.
The Ein number of your Broker is what is put in Part II E, and that makes them responsible for tax filing NOT the MLP. If the person you spoke to from the IRS said the MLP is responsible, than you can add that to another wrong answer from 829-1040.