What is Unrelated Business Income Tax (UBIT) and Unrelated Debt Financed Income Tax (UDFI)?
UBIT comes in two forms. Unrelated Business Income Tax (UBIT) and Unrelated Debt Financed Income Tax (UDFI).
UBIT applies to IRAs invested in entities that do not pay taxes (such as many LLCs) that are an operating entity of a business that produces in excess of $1,000 per year in income.
UDFI relates to an individual retirement account that has a debt financed portion. The UDFI tax is based on income from the Debt Financed portion provided that the net gain is more than $1,000 in a year.
Preparation of the 990-T tax forms is performed by you. The trustee or custodian or appropriate agent will file such taxes and sign the tax forms on behalf of your plan.
Read more on UBIT/UDFI here.
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