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than McNulty’s IRA, the coins purchased of a self-directed IRA is entitled to direct
with her IRA funds through Green Hill how his or her IRA assets are invested The plain text of
were labeled as belonging to the IRA. without losing the tax benefits of an IRA. the statute is that
For 2015 and 2016, McNulty and her However, the owner will lose those ben-
husband had their joint income tax re- efits if the owner has unfettered control an IRA’s bullion
that is not in the
turns prepared by a CPA. The couple did over the assets.
not seek or receive advice from the CPA Related to this rule regarding the physical possession
about the tax reporting for their self- owner’s control over IRA assets, the IRA
of a trustee is a
directed IRAs or the tax ramifications must have a qualified custodian or trustee
of the physical possession of AE coins that maintains custody of the assets, collectible.
purchased using funds from the IRAs maintains required records, and processes
or the LLC and did not disclose to the transactions that involve the assets. This
CPA that they had physical possession of independent oversight by a third-party
the AE coins purportedly purchased by fiduciary to track and monitor investment
McNulty’s IRA at their residence. activities is one of the key aspects of the receipt occurs where funds are subject
The IRS, on audit, found that Mc- statutory scheme and works to ensure to the taxpayer’s unfettered command
Nulty’s receipt of the AE coins consti- that the intended purposes of IRAs, to and the taxpayer is free to enjoy them as
tuted taxable distributions equal to their encourage retirement savings and to pre- he or she sees fit. Because McNulty, by
value (here the cost of the coins because vent the savings from being used before being in possession of the AE coins, had
they were shipped to McNulty upon pur- the owner’s retirement, are preserved. complete and unfettered control over
chase) that were includible in McNulty’s According to the Tax Court, if coins them, she was not acting as a conduit or
gross income under Sec. 408(d)(1). Ac- or bullion are in the physical possession agent of the IRA custodian, and thus the
cordingly, the IRS issued the McNultys of the IRA owner (in whatever capacity), value of the coins was includible in her
a notice of deficiency for 2015 and 2016 independent oversight that could prevent gross income.
in which it determined that McNulty the owner from invading her retirement Sec. 408(m): Alternatively, Mc-
had received taxable distributions in coins funds is absent, which “is clearly incon- Nulty argued that Sec. 408(m) provides
equal to their cost of $374,000 for 2015 sistent with the statutory scheme.” The an exception to the Sec. 408 custodial
and $37,380 for 2016. court further stated: “Personal control requirements for the AE coins, allowing
The McNultys challenged the IRS’s over the IRA assets by the IRA owner McNulty to take physical possession
determination in Tax Court, asserting is against the very nature of an IRA.” of them. Generally, under Sec. 408(m),
that the AE coins were assets of Green Moreover, the court reasoned that the IRAs cannot invest in collectible assets,
Hill and that McNulty’s physical receipt inclusion of the value of IRA physical which generally includes coins. However,
of them did not constitute taxable distri- assets in the owner’s gross income when certain gold and silver coins described
butions from her IRA. the owner takes possession of the assets in Sec. 408(m)(3)(A) are not considered
was consistent with the “basic axiom of collectibles, as well as gold, silver, plati-
The Tax Court’s decision tax law that taxpayers have income when num, or palladium bullion described in
The Tax Court held that McNulty’s they exercise complete dominion over it.” Sec. 408(m)(3)(B), if the bullion is in the
receipt of the AE coins was a taxable In McNulty’s case, the Tax Court physical possession of the IRA trustee
distribution equal to the cost of the coins. found that she had “complete, unfettered (Sec. 408(m)(3), flush language).
While the court based its decision on control” over the AE coins and could McNulty argued, based on this statu-
McNulty’s physical possession of the use them any way she chose, notwith- tory language, that the flush language of
AE coins, it also discussed McNulty’s standing Green Hill’s purported owner- Sec. 408(m)(3) makes physical possession
argument that Sec. 408(m)(3) created an ship of the coins and her status as the by a trustee a condition of an IRA’s own-
exception to the prohibition on physical LLC’s manager. ership of bullion. She further argued that
possession of IRA assets and the IRS’s The court noted that although an because the flush text applies only to bul-
argument that McNulty had improp- IRA owner may act as a conduit or agent lion described in Sec. 408(m)(3)(B) and
erly commingled the coins she bought of the IRA custodian, this is allowed AE coins are not bullion, a trustee is not
through the IRA with other coins. only if the owner is not in constructive required to have physical possession of
Prohibition on physical posses- or actual receipt of the IRA assets. Cit- AE coins. The IRS countered that Mc-
sion: Citing a number of its prior cases, ing its opinion in Ancira, 119 T.C. 135 Nulty was misinterpreting the plain text
the Tax Court explained that an owner (2002), the court stated that constructive of the statute and that the flush language

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