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1/ Income tax is captured in my IRA and taxes are paid when funds are withdrawn.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."
Peggy Herrel writes: "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 [with] the K1 and the MLP is handling such tax liability."
If this were true, then for all inherited IRAs [which is one case where the SS number on the IRA might differ from the current IRA holder], the MLP would pay all UBTIs. Right? And I do not believe that.
I am not doubting that someone at the IRS provided this answer to Peggy Herrel, but I am strongly doubting that the answer is accurate.
To me, the 'final answer' on UBTIs is to purchase negative UBTI producing MLPs in your IRA. And to know which MLPs produce negative UBTIs, our fellow unit holders need a large data base of unique UBTI experiences reported to a single source - like the effort being done on the MLP board at Investor Village. All K-1's report UBTI data - whether held in an IRA or not. All data is reported in UBTIs per 100 units - which gives the data provider a bit of privacy when reporting data. And the data provider can use any ID to report their data - providing more privacy.
I strongly believe that the 'answers' will be found in the data, and not in fishy answers that one can receive from the IRS.
Ideally, this is a function that should be done by the NAPTP [the National Association of Publicly Traded Partnerships - with their web site being a source for several high quality MLP 'primers'] and their web site. Anyone having any pull with that organization should be suggesting that. But until that happens, we only have the efforts from those at Investor Village.
For information on how to submit your UBTI data and receive the historical data, email UBTI.Data@gmail.com
And data providers or volunteers for the 2010 data are also receiving a decent MLP update twice a month as a reward for their efforts.