IRAs may invest in master limited partnerships, but there is a catch. MLPs tend to make big distributions to investors. So many IRA owners may find these to be good investments. MLPs issue Schedule K-1s to their owners (including retirement plans) reporting the owner’s share of business income or loss. For IRAs, this income is generally considered unrelated business or trade income. The IRA can owe tax. If UBTI from all of an IRA’s investments exceeds $1,000, then the excess is taxed at a rate of up to 37%. The IRA, not the individual owner, uses Form 990-T to report and compute this tax. If you’re in this situation, ask your custodian whether it will handle the preparation and filing of the form. Losses from IRA-owned MLPs aren’t deductible by the account owners on their individual tax returns. That’s because the IRA is the owner of the MLPs. The losses may be used only to offset any income reported by the IRA on the 990-T. IRS knows if your IRA owns hard-to-value assets. That’s because IRA trustees are required to separately report on Form 5498 the values of nonpublicly traded assets held in the account and to list those investments by type, such as real estate, stock in closely held firms and nonpublicly traded debt obligations. IRS uses the data to eye potential audit issues, such as violations of the prohibited-transaction rules