The Tax Code provides that UBTI losses may be carried forward or backward to deduct against gains within an IRA.
See I.R.C. § 512(b)(6); see also Treas. Reg. § 1.512(b)–(1)(e)(1) (“The net operating loss deduction provided
in section 172 shall be allowed in computing unrelated business taxable income.”).
How to record this?
1) If I treat the current year loss as non-passive on schedule E, there is no option for a PYA non-passive entry for allowed losses from previous years.
2) Add the current year loss and previous years losses together and record as non-passive on schedule E. Attach a worksheet with the calculations.
3) If I treat this is passive, I can have separate schedule E line items as if these mlps were in a non-retirement account. This is the easiest way but I don't think UBTI is passive.
4) Report non-passive current year on schedule E and treat the previous year losses as NOL on line 31 of 990-T?
The situation is a client who holds mlps in her IRA, has disposed of some and thus generated a large UBTI we can offset with unallowed losses in the same mlp from earlier years. How should I record these transactions without risking a love letter? thanks.