INVESTMENT STRATEGY
RETIREMENT
SPONSORED CONTENT
Checkbook IRA, or Checkbook LLC? WHATEVER YOU CALL IT, THERE’S TROUBLE AHEAD WITH THIS RISKY RETIREMENT PLAN STRATEGY.
by Garrett Sutton
A
recent case has shed light on one of the riskiest retirement plan strategies offered by promoters.
responsible for storing the coins in an adequate vault. In this case, McNulty, following the promoter’s advice, took personal possession of the coins herself and held them in her own safe at home. McNulty and the IRS made numerous arguments and counterarguments as to why the whole chain of events was either appropriate or amiss. The court could have decided the case on a number of issues, but it chose just one. The Tax Court noted that an owner of a self-directed IRA is entitled to direct how IRA assets are invested with- out forfeiting the tax benefits of an IRA and that a self-di - rected IRA is permitted to invest in a single-member LLC. However, IRA owners cannot have unfettered command over the IRA assets without tax consequences. The Tax Court stated that based on McNulty’s control over the American Eagle coins, she had taxable IRA distributions. A qualified custodian or trustee is required to be responsible for the management and disposition of prop- erty held in a self-directed IRA. A custodian is required to maintain custody of the IRA assets, maintain the required records, and process transactions that involve IRA assets. The presence of such a fiduciary is fundamentally import - ant to the statutory scheme of IRAs, which is intended to encourage retirement saving and to protect those savings for retirement. The Tax Court emphasized that independent oversight by a third-party fiduciary to track and monitor invest - ment activities is one of the key aspects of the statutory scheme; that when coins or bullion are in the physical possession of the IRA owner (in whatever capacity the owner may be acting), there is no independent oversight and was clearly inconsistent with the statutory scheme; and that personal control over the IRA assets by the IRA owner was against the very nature of an IRA. The Tax Court concluded McNulty had complete, unfet- tered control over the American Eagle coins; that she was
In McNulty v. Commissioner (157 T.C. 10), a U.S. Tax Court provided clarity to the scheme of using self-directed IRAs for personal investments. Although the rules are strict, they had become lax and were unenforced in recent years. The McNulty case brings the requirements back into line and serves as a warning of what may come. If you have a checkbook IRA or LLC, you may want to speak with your lawyer immediately. THE FACTS OFTHE CASE The facts in McNulty are fairly common. Promoters of the scheme have been attending investment conferences for years. In August 2015, Donna McNulty purchased services from Check Book IRA, LLC (Check Book), through its web - site. Those services included assistance in establishing a self-directed IRA and forming an LLC. She would transfer IRA funds to the LLC though purchases of membership interests. Then American Eagle (AE) gold coins would be purchased using IRA funds. During 2015, Check Book’s website advertised that an LLC owned by an IRA could invest in AE coins, and IRA owners could hold the coins at their homes without tax consequences or penalties so long as the coins were “titled” to an LLC. So, McNulty used Check Book to set up Green Hill Holdings, LLC (Green Hill) to own the coins. Green Hill was then owned by her IRA. WHYPROBLEMSAROSE There were a few problems with this. First, an IRA trust must be administrated by an independent trustee, not the beneficiary of the retirement assets. The trustee is
28 | think realty magazine :: march – april 2022
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