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Metal Market Report December 2021 - Week 2 Edition

December 2021 - Week 2 Edition

Home Storage IRAs Banned Explicitly by Tax Court - Judge Warns About ‘Questionable Internet Scheme’

As early as 2017, we warned our clients about home storage for Precious Metals IRAs and how there were serious questions of whether they would be deemed legal under the IRS Internal Revenue Code Section 408(a)(2), which in layman’s terms lays out restrictions on having “unfettered access” to funds in an IRA. The topic was taken up by the former Industry Council on Tangible Assets, now known as the National Coin and Bullion Association (NCBA), using research from Dr. Mike Fuljenz and his legal counsel to further provide a warning that those choosing to participate in home storage for their Gold and/or Silver IRAs may be borrowing trouble.

At the time, Dr. Fuljenz consulted with Texas Attorney General Ken Paxton to prepare a consumer alert regarding gold and silver home storage IRAs, stating that consumers should stick with reputable independent IRA custodians and, “Be wary of Home Storage IRA Plans, as these have not been thoroughly tested with the U.S. Treasury or the IRS.”

Later, in response to inquiries, the IRS clarified its views on “home storage” and the use of an LLC set up as self-managed by the IRA owner to purchase and hold investments in gold and silver coins, warning that IRA owners cannot do indirectly what they cannot do directly.

Now, a recent court case has found the warnings to be spot-on. In the court case, Andrew McNulty et al. vs. Commissioner of Internal Revenue, Judge Robert Goeke ruled that the physical storage of $411,000 in gold and silver American Eagle Coins in a safe at home constituted “unfettered access” of the investment and would thus be considered a taxable distribution from the IRA in the amount of $411,000 and imposed penalties of more than $50,000.

Donna McNulty argued unsuccessfully that she had opened a separate bank account in the name of an LLC, documented the purchase of coins and labeled the coins as property of her IRA-owned LLC when depositing them into her home safe.

For several years false advertising in the form of television, radio and internet promotions have suggested that buyers could store assets of gold and silver bullion coins in their own homes or safety deposit boxes as part of an IRA account. The advertisements often misinterpret IRS guidance that allows for two-step transactions, claiming that an investor could use a “checkbook LLC” to circumvent enforcement of tax laws meant to prevent an IRA owner from direct possession of IRA assets.

Judge Goeke came down hard on the McNultys’ reliance on their LLC provider’s advertisements instead of competent professional advice, calling home-storage IRAs a “questionable internet scheme,” according to the Wall Street Journal.

No one should be shocked by the decision. The NCBA has long warned against the practice, including publishing a white paper on the subject in 2018, “The Prohibition on Home Storage of Bullion in an IRA.” In that paper, the NCBA explains in detail how this two-step process – setting up an LLC to “hold” the gold and silver investments, which are then stored at home or in a safety deposit box – is a violation of Section 408 of the Internal Revenue Code and even used the exact same circumstances occurring in the McNulty tax court decision as a hypothetical case.

We strongly advise you to contact your accountant and your attorney if you have set up a home storage precious metals IRA. Then call us for assistance in setting up an IRS-approved precious metals IRA that meets all of the requirements and guidelines set forth in the Internal Revenue Code. Failure to follow approved guidelines could result in a tax liability of up to 37 percent, not counting any penalties assessed by the IRS.

Gold Rallied then Held Steady

Gold rallied last Friday and has remained over $1,770 this week. The rally came after the release of disappointing jobs data showing no economic recovery. The U.S. economy is not likely to regain full strength as long as there are over 10 million unfilled job openings and almost that many unemployed workers unwilling to apply for them, for whatever reason. Gold has also been fighting a strong U.S. dollar since last June as the Fed is “tapering” its bond purchases (quantitative easing) and may raise short-term interest rates next year. That would give the dollar an advantage over zero, or even below zero, interests rates in the euro and Japanese yen. However, GOLD is still firming up over uncertainty regarding Russia’s possible invasion of Ukraine and the new COVID-19 variant.

We urge you to contact your sales representative to discuss your gold and silver investment options today.


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