It sounds like you have UBIT.
Generally, everything in an IRA is never taxed until distributed, but with certain investments that have Unrelated Business Income (therefor Unrelated Business Income Tax
, UBIT) the taxes have to be paid by the IRA ...
In other words the IRA gets a tax bill.
If your IRA invests in things that produce Unrelated Business Income (UBI), and the net income from these investments exceeds $1,000, your IRA could be subject to the Unrelated Business Income Tax (UBIT).
The Motley Fool has an excellent article on this:
"The UBIT was first introduced into law
in 1950. Prior to that, tax-exempt organizations had a competitive advantage over for-profit corporations. As long as the level of business activity conducted by a tax-exempt organization was not so extensive that it caused the organization to lose its tax exemption, a tax-exempt organization could undertake business activities and retain the profits without any income tax burden. As a result of highly publicized incidents in which tax-exempt organizations undertook business activities in direct competition with for-profit businesses, Congress enacted a general tax on the "unrelated business income" of tax-exempt organizations.
What do tax-exempt organizations have to do with your IRA account? Nothing... other than the fact that the same rules
for UBIT that apply to tax-exempt organizations also apply to your traditional IRA account. They also apply to your Education IRA, and your SEP. The UBIT also appears to apply to your SIMPLE account and your Roth IRA account."
Additionally, The taxes that your IRA account is required to pay will reduce the balance in your IRA account, which will reduce your tax-deferred or tax-free income, that's what. And, it's a hassle. And, in addition to the tax, the IRA will likely have to pay tax preparation
fees, compounding the problem.
Sorry to be the bearer of bad news, but it sounds like you now have a very good understanding of the effective double taxation that CAN happen.
What's worse, whoever had you do this inside an IRA gave you very bad advice.
Here's an overview of the legalities of it:
You may want to show all of this to your CPA. I find it hard to believe that he never even saw a statement.