I'm brand new to Bigger Pockets (having signed up over this past weekend) and this is my first reply. So please pardon me if I don't follow the rules properly. Also, full disclosure: I work for a trust company that specializes in providing custodial services for self-directed IRAs.
My reason for offering a reply to this rather stale topic is that it seems to me there is a lack of clarity in the responses when viewed as a whole.
Let's look at the original post. The background is that a taxable LLC partners 50/50 with a self-directed IRA to do wholesaling. Let's assume for illustration purposes that the taxable LLC and the self-directed IRA form a new LLC with each being a member. Presumably the CPA's advice on taxation of each entity is based on consistent tax treatment were the entities members of this new LLC.
That is, if the taxable LLC receives a K-1 from "new" LLC in which business income is reported, the same should apply for the IRA. If the K-1 has capital gains for the taxable LLC, it should show capital gains for the IRA as well.
The same logic would apply if the taxable LLC simply co-invested with the SDIRA, without forming a separate LLC.
Otherwise, imagine trying to explain to an examiner why you reported the wholesaling operation as income for one partner, but capital gains for the other.
I would suggest, therefore, that when considering whether an IRA investment is subject to UBIT, first ask yourself how you would treat the taxes due if you used non-IRA funds instead.
And by all means talk to your CPA before making the investment.
Apologies if I misunderstood the original question and my reply is off base.
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