Is the Checkbook IRA Illegal? 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
- 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 does make it easier for a self-directed investor to intentionally or inadvertently run afoul of the Tax Court rules
- 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!