A recent Tax Court case, McNulty v. Commissioner, held that a self-directed IRA owners “…[personal] receipt of the AE [American Eagle] coins constituted taxable distributions equal to their purchase price.” In this case, Donna McNulty established a self-directed IRA and invested those IRA funds into an LLC where she was the manager. She then established a bank account for the LLC. The IRA funded this bank account with cash and then the LLC bank account was used to purchase precious metals. The precious metals were then subsequently shipped to and stored at Mrs. McNulty’s personal residence in her personal safe.
The IRS challenged Mrs. McNulty’s personal possession of the precious metals stating that personal possession violated IRC 408 and said that, “Mrs. McNulty’s receipt of the AE coins constituted taxable distributions equal to their purchase price.”
The IRS has been of the opinion, and we have long communicated to our clients, that home storage of precious metals via an IRA owned LLC violates the IRA rules under IRC 408. See the IRS Announcement and my article from 2016 on the subject, here. Some IRA custodians and non-licensed companies promoting precious metals IRAs have argued that you can have personal possession and can personally store specifically approved coins, such as American Eagle Gold Coins, by using an IRA/LLC structure (aka, checkbook IRA). This argument for specifically approved coins was based on some ambiguity in the law surrounding storage requirements for precious metals and IRAs in IRC 408(m). We’ve always believed IRA precious metals home storage was an aggressive strategy and one we advised against for the reasons the IRS and the Tax Court expressed in the McNulty case.
I have seen some providers of solo 401(k)s and other alternative strategies claim that, “checkbook IRAs are illegal.” This is great clickbait – but terrible content and advice as the court did not say that checkbook IRAs (aka, IRA/LLCs) are illegal. That was not part of their holding nor was it a part of the case from the IRS. The holding in the case was specific to a distribution of precious metals stored personally by the IRA/LLC owner. Please talk to your attorney, CPA, or licensed tax professional at to the details of the case and its impact on your IRAs investments. For our clients, our advice remains the same – don’t personally store your IRA or IRA/LLC precious metals at your home or in your personal possession.
The Court’s opinion can be found at the link below.