Demise of the Checkbook IRA, QRP, Solo 401k?

Attention Self-Directed Investors!

Must Know Tax Court Ruling: SDIRA, QRP, Solo 401k, Checkbook IRA, IRA-LLC, IRA-Trust, HSA, & ESA

Tax Court Opinion: ANDREW MCNULTY AND DONNA MCNULTY, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent

TL;DR

  • Watch out for “promoters!”
  • Lots of Tax Turkey & Red Herring out there!
  • Neither the IRS, nor the Tax Court, appear to be attacking the Checkbook IRA structure.
  • The ruling – in its essence – has nothing to do with Checkbook IRAs, but:
    • Checkbook IRAs clearly provide greater opportunity for running afoul of the Tax Court rules
    • There is some concern that the Checkbook IRA structure can be deemed to inherently run afoul of the Tax Court ruling
  • Creates questions for all self-directed retirement accounts, including QRP, holding personal assets
  • Creates questions for all arrangements in which person touching assets “wears more than one hat.” This includes QRP & Solo 401k!
  • Implications for many SDIRA structures – that don’t involve an IRA-LLC or IRA-Trust – that flunk custody! (For example, certain crypto arrangements)
  • QRP (incl. Solo 401k) may have a leg-up on SDIRA (Very nuanced discussion)
  • Using a QRP-LLC may undermine whatever “leg-up” a QRP may have over an SDIRA!
  • Always create and maintain a clear trail of transactions!
  • At all times, the role in which you’re acting – you’re “capacity” – must be unequivocal & unambiguous.
  • Never, ever take physical possession!
  • Don’t ever touch cash!
  • Be extra cautious with fungible assets that have no clear evidence of “title” (e.g., gold, silver, bullion, precious metals)
  • Creates uncertainty for crypto assets, especially crypto assets moved to “cold storage.”
  • Created questions regarding all personal assets
  • The Tax Court left many of the IRS arguments unresolved, so steer clear of any of those!

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