Quote from jason_l:In these scenerios, they speak of UBI in terms of you buying a rental property via your IRA, yet you try to collect "mamangement fee's" outside of the IRA for running the rental 's
There are basically three issues that are being kicked around here in one way or another:
1) prohibited transactions, self-dealing with the IRA. e.g. taking a fee from the IRA
2) trade or business being operated with IRA funds
3) use of margin / debt to get leverage on top of the actual funds available.
Item #1 closes down the IRA retroactive to January 1st in the year the prohibited transaction first occurs. This is a serious event and is generally considered an absolute disaster to the IRA owner.
Items #2 and #3 are considered to be putting an unfair advantage in the hands of the IRA in comparison to fully taxable situations and therefore to even the playing field a tax is assessed against the IRA. This tax is payable on IRS form 990-T annually. This is a common event, and form 990-T is a commonly filed tax form used by tax deferred and tax free entities. Most IRAs are exempt from this because even if they do have some UBTI they do not exceed the $1,000 annual exclusion.