What is a Partnership (LP)?

A partnership is a type of unincorporated business organization or agreement in which multiple individuals, called general partners, manage the business and are equally liable for the debts of the business.

Other individuals or entities such as an IRA called limited partners may invest in the business but are not directly involved in management. Limited partners are only liable to the extent of their investments.

The partnership itself does not pay income taxes, but each partner has to report its share of the business profits or losses on either individual tax return or in the case of an IRA, a 990T Exempt Organization Business Income Tax Return. Estimated tax payments may be necessary for each of the partners for the year in progress. It is always recommended that anyone investing their IRA in an LLC or LP consult a tax advisor prior to the investment.

Here are some general rules regarding partnership investments in your self-directed IRA:

  • The partnership agreement must permit an individual retirement account or a qualified plan to be a partner.
  • The partnership must comply with the appropriate state law, have a determinate life, and be assignable.
  • The partnership subscription agreement must be signed by you as having been read and approved, and will be executed by Mountain West IRA for your benefit.

Partnerships may be subject to unrelated business income (UBIT) and other taxes. It’s important to consult your tax advisor for proper direction.

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