Filed November 18, 2021 (ANDREW MCNULTY AND DONNA MCNULTY, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent), a taxpayer’s self-directed IRA was deemed as involved in a taxable distribution because the tax payer (McNulty) stored at her home the American Eagle gold coins purchased through her IRA owned LLC ( IRA LLC, also known as a checkbook IRA).
Essentially, an IRA LLC facilitator, who is named in the court case along with the self-directed IRA custodian, mistakenly advertised to IRA LLC investors that they could store the precious metals including American Eagle coins at their home without tax consequences or penalties since they were owned by the IRA LLC (checkbook IRA).
It is important to note that while the IRA whether through the IRA or the IRA LLC and the solo 401k rules allow for investing in precious metals including American Eagle gold coins (visit here for a list of allowed metals in both an IRA and a solo 401k), they must be stored with a depository taking institution such as a bank. For guidance on storing requirements See IRS Private Letter Ruling 200217059
With respect to the impact of the McNulty court case on cryptocurrency held in a solo 401k and/or IRA LLC, it can serve as good reminder of not storing your cryptocurrency wallet at your home as it can run the risk of resulting in a taxable distribution.
VIDEO SLIDES: https://www.mysolo401k.net/wp-content/uploads/2021/12/McNulty-Cant-Store-IRA-IRA-LLC-or-Self-Directed-Solo-401k-owned-Metals-or-Cryptocurrency-at-Home.pdf
While the precious metals or coins may not be stored at home, some options for storing precious metals include a safety deposit box at the bank or credit union or a storage facility such as Delaware Depository.
Options for storing cryptocurrency do not include your home or personal residence as this runs the risk of a taxable distribution at minimum.
4 Comments
I’ve seen other companies posting much more inflammatory headlines related to this case such as “Demise of “Checkbook” SDIRA, 401k, QRP?” and “US Tax Court Just Ruled that certain Checkbook IRA’s are now illegal in America.”
Is this case really as dire as they are making it out to seem or is that just a marketing tactic?
hey Mark – longtime reader of your excellent blogg posts. I read a couple articles about this case that said this means IRA LLCs aren’t allowed anymore. But I’ve also read a couple articles that are saying the case only applies to holding metals by the manager of the LLC. Seems like people are all over about this case. What do you think this will do for IRA LLCs going forward?
thanks
Jim
Hi Mark, thanks for noticing the new metals Tax Court case. I read the same thing and am wondering about the comments you made above regarding storage of metals. You noted as the court case highlighted that storage at home is not allowed, but I am concerned that the other storage locations could be an issue as well, due to the weird “Unfettered access” comment in the case. If my IRA LLC gets a safe deposit box at my local bank, how is that different than putting them in my home safe?
You guys helped me set up my solo 401k so I wanted to follow-up about this case after receiving a link on another email blast I subscribe to (see link immediately below):
https://corporatedirect.com/articles/checkbook-ira/?mc_cid=b125ca94f1&mc_eid=7086088fc7
Additionally, I clicked the link at the top of your article to read more of the details and found the following quotes:
“Personal control over the IRA assets by the IRA owner is against the very nature of an IRA.”
“While an IRA owner may act as a conduit or agent of the IRA custodian, she may do so only as long as she is not in constructive or actual receipt of the IRA assets.”
“An owner of a self-directed IRA may not take actual and unfettered possession of the IRA assets. It is a basic axiom of tax law that taxpayers have income when they exercise complete dominion over it. See Commissioner v. Banks, 543 U.S. 426, 434 (2005); Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 431 (1955). Constructive receipt occurs where funds are subject to the taxpayer’s unfettered command and she is free to enjoy them as she sees fit.”
These quotes seem to be concerning since we seem to have unfettered checkbook control of the cash in order to make investments. Is this something we need to address/change?