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Even though the income earned within an IRA is not taxable until withdrawn, there is an exception for UBTI. This income is taxable within the IRA. Thus the IRA will be required to file a form to report its UBTI and pay the appropriate tax. Where there is only nominal UBTI (under $1,000) no filing is required.
I have provided a link to an article from The Motley Fool that fully explains UBTI: