Page 105 - TaxAdviser_2022

TAX TRENDS

did not eliminate the physical possession assets requiring safekeeping be kept in an
requirement of Sec. 408(a). adequate vault.” Independent
The Tax Court analyzed the language oversight by a
of Sec. 408(m)(3) to determine its mean- Reflections
ing. The court found that under the plain McNulty’s husband had also set up a third-party fiduciary
text of the statute, an IRA’s bullion that is self-directed IRA to purchase AE coins, to track and monitor
not in the physical possession of a trustee and he was penalized for engaging in
is a collectible. Furthermore, it did not prohibited transactions (i.e., certain investment activities
is one of the key
address the fiduciary or custodial require- transactions between a disqualified
ments of Sec. 408(a). The court refused to person and a qualified employee benefits aspects of the IRA
interpret the flush language as creating an plan, including an IRA) under Sec. 4975
statutory scheme.
exception to the Sec. 408(a) requirements with his IRAs. Because the issues with
in the absence of express language in the his IRA were settled before trial, the Tax
statute, because, as the Supreme Court Court did not discuss them in its opinion.
has held, a court should assume that The court, in a footnote, stated without
Congress is aware of existing law when it explanation that the IRS conceded that contribution deduction of $80,150,000
passes new legislation. McNulty had not engaged in any Sec. for the donation of the easement.
The court also concluded that 4975 prohibited transactions. Sand’s return was selected for exami-
McNulty’s argument negated the Sec. McNulty, 157 T.C. No. 10 (2021) nation, and the IRS assigned the case
408(a) requirement that there be a to Revenue Agent Adrienne Cooper,
trustee that acts as a fiduciary and ad- a member of Team 1124 in the IRS
ministers IRA assets. The court refused Procedure & Administration Large Business & International Division
to “apply such a negative inference to (LB&I). Supervisory Revenue Agent
override the basic fiduciary and custodial Definition of ‘immediate Gregory Burris supervised all cases as-
requirements of section 408(a) that are supervisor’ clarified for penalty signed to Team 1124, and he served as
fundamental to the retirement savings purposes both the “case manager” and the “issue
scheme, particularly in the absence of For purposes of the Sec. 6751(b) su- manager” for the examination of Sand’s
clear statutory text.” pervisory approval requirement for return. In these capacities, he super-
Prohibition against commin- penalties, the immediate supervisor who vised all aspects of the examination of
gling: The IRS argued in the alterna- must approve the penalties is the person Sand’s return.
tive that even if the court sanctioned who directly supervises the work in an Near the end of the exam, Cooper was
McNulty’s physical possession of the examination of the examining agent who promoted to senior revenue agent. As a
AE coins, McNulty had violated Sec. makes the initial determination to assert result, she was transferred to a different
408(a)(5). This section prohibits IRA the penalties. team in LB&I, and William Wilson be-
assets from being commingled with came her new immediate supervisor. For
other property except in a common trust Background the ongoing Sand examination, the IRS
fund or common investment fund. The Sand Investment Co. LLC is a South authorized Cooper to continue working
IRS claimed she violated the statute by Carolina limited liability company that with Team 1124 until the examination
storing her coins in the safe with non- was treated as a partnership for its short was finished. Although Wilson, as Coo-
IRA assets, but McNulty claimed that tax year beginning Dec. 9, 2015, and per’s new supervisor, was responsible for
the labeling of the coins she purchased ending Dec. 31, 2015. Sand is subject approving Cooper’s time sheets, leave
before they were put in the safe pre- to the TEFRA unified audit and litiga- requests, and other routine administrative
vented commingling. tion procedures. matters, Burris remained the case and
The Tax Court did not reach the issue In May 2014, Sand acquired land in issue manager of the Sand examination
because it had already held that McNulty Jasper County, S.C. On Dec. 28, 2015, and continued to oversee all of Cooper’s
had violated the Sec. 408(a) physical cus- Sand granted the Southeast Regional work on that examination.
tody requirements. It did state, however, Land Conservancy a conservation ease- Proceeding with the Sand examina-
that it questioned “whether labeling is ment over a portion of that land. Sand tion after her promotion, Cooper deter-
sufficient to satisfy the Code’s prohibition timely filed Form 1065, U.S. Return of mined that Sand’s charitable contribution
against commingling or whether storage Partnership Income, for its short 2015 tax deduction for its contribution of the con-
in a safe satisfies the requirement that year on which it claimed a charitable servation easement should be disallowed.

58 February 2022 The Tax Adviser