Taking possession of coins in IRA causes a taxable distribution.

• Author: Beavers, James A.
• Position: Individual retirement accounts

A taxpayer who purchased American Eagle coins through a self-directed IRA, had the coins delivered to her, and stored the coins in a safe in her home received taxable distributions from the IRA equal to the coins' cost.

Background

Donna McNulty wished to invest her retirement savings in American Eagle (AE) coins through a self-directed IRA. To this end, in 2015 she engaged the services of Check Book IRA LLC, which advertised that a limited liability company 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.

With the assistance of Check Book, McNulty established a self-directed IRA with Kingdom Trust Co. as custodian and set up Green Hill Holdings LLC, a single-member LLC with the IRA as the sole initial member and McNulty and her husband as managers. McNulty transferred funds to the IRA by purchasing Green Hill membership interests. The IRA then purchased AE coins using the funds from those purchases.

McNulty, who exercised sole control over her IRA's investment decisions, funded the IRA through direct transfers from two qualified retirement accounts she owned: an individual retirement annuity and a 401(k) account. She transferred $378,487 from the annuity to her IRA during 2015 and $48,375 from the 401(k) during 2016 to purchase membership interests in Green Hill. McNulty did not report any part of these transfers as gross income.

After the IRA purchased the interests, McNulty, as Green Hill's manager, had the LLC use almost all of the funds from the membership interest sale to purchase AE coins from Miles Franklin Ltd., an authorized coin dealer. The money to purchase the coins was transferred to Miles Franklin from Green Hill's bank account, and the invoices for them showed Green Hill as the purchaser. However, the shipping labels for the coins purchased identified McNulty individually or along with her IRA as the recipient of the shipments. In 2015, the IRA purchased 320 AE one-ounce gold coins for $374,000, and in 2016 it purchased 2,000 AE one-ounce silver coins, four one-ounce AE gold coins, two one-quarter-ounce AE gold coins, and one one-tenth-ounce AE gold coin for a total of $37,380.

McNulty had the coins shipped to her home and stored them in a safe there. Although the safe also contained AE coins purchased with funds from sources other than McNulty's IRA, the coins purchased with her IRA funds through...