Why Recent Custodian Letters are Routine—and Why PFD Does Not Expect UBIT to Apply

What Investors Are Seeing

Some of our IRA investors have recently received a notice from their IRA custodian (such as Community National Bank) regarding Schedule K-1 reporting and the potential for Unrelated Business Taxable Income (UBTI).

We want to address this directly and provide clarity.

These notices are standard communications sent by custodians when an IRA holds an investment that issues a K-1. They are not specific to PFD Capital Partners and do not indicate that a tax liability exists.

What Is UBIT (In Simple Terms)?

IRAs are generally tax-advantaged accounts. However, the IRS requires that IRAs pay tax on certain types of income known as Unrelated Business Taxable Income (UBTI).

In most cases, UBIT is triggered when:

• An IRA is involved in an active trade or business, or
• Income is generated through debt-financed activities

Additionally, UBIT typically only becomes relevant if total qualifying income exceeds $1,000 in a given year.

Why This Notice Was Sent

Custodians are required to notify account holders of potential tax considerations whenever:

• A Schedule K-1 is issued, and
• The investment is held inside an IRA

Importantly, this notice is not a determination of tax liability. It is a general reminder to review tax reporting obligations with a qualified advisor.

How PFD Is Structured

PFD investors participate as limited partners (LPs) in structured investment vehicles.

This distinction is important.

• Investors do not have management authority
• Investors do not participate in day-to-day operations
• Investors do not control or direct the business activities

This is a passive investment structure, not an active operating role.

Why PFD Does Not Believe UBIT Applies

Based on consultation with legal counsel and independent CPAs:

• Income generated is treated as Qualified Business Income (QBI)
• Investors are passive limited partners, not active participants
• There are no management rights or operational control granted to investors

Under IRS guidelines, UBIT is generally associated with active participation or control, which does not apply to PFD’s investor structure.

Additionally, the partnership itself has not made a determination indicating that UBIT applies.

For these reasons, our advisors do not expect UBIT to be triggered for IRA investors in PFD.

What Investors Should (and Should Not) Do

What you should do:

• You may share your K-1 with your tax advisor for confirmation
• Keep records of all IRA-related investment documents

What you should not do:

• Do not include IRA-related K-1 income on your personal tax return
• Do not assume the notice means a tax liability exists

As always, individual circumstances can vary, and consulting a qualified tax advisor is appropriate.

A Calm, Practical Perspective

It’s worth emphasizing:
This type of notice is a routine administrative safeguard, not a signal of a problem.

Well-structured investments often generate questions simply because they operate outside of traditional, publicly traded frameworks. That does not make them risky, it makes them different.

At PFD, we take a measured approach:

• Structure first
• Compliance always
• Communication when it matters

If there were any change to how this is interpreted, we would communicate it clearly and promptly.

In the meantime, we remain confident in the structure and alignment of our investment platform.