Page 144 - TaxAdviser_2022

allowed because they were not based that meets requirements set out in the
on current services. The acting activity regulations. The trustee is required to In Griffin, the Tax
was held to be a business, but it was not keep adequate records and, if assets
generating income to sustain a retire- need safekeeping, they must be depos- Court allowed an
ment contribution. ited in an “adequate vault.” The IRS aunt to claim the
contended that Mrs. McNulty’s receipt
Sec. 408: Individual of the coins was a taxable distribution earned income
retirement accounts to her, but she contended that they tax credit for her
Reporting UBTI from retirement were the property of the LLC (that she
account: The IRS responded to a managed) and not a personal asset. She niece and two
nephews.
letter from a taxpayer disputing the also contended that only bullion, not
method his IRA custodian was using coins, need to be in the physical posses-
to report certain income. The income sion of a trustee, citing Sec. 408(m)(3).
was unrelated business taxable income The Tax Court rejected McNulty’s and completed the paperwork to open
(UBTI) from the master limited part- arguments and held that she had re- the new IRA before the 30 days had
nerships that his self-directed IRA was ceived a taxable distribution from her elapsed. She expected that the invest-
invested in. In INFO 2021-0020, the IRA when she received the coins. The ment adviser would handle the transfer
IRS directed the taxpayer to IRS court also upheld the IRS’s imposition of shares from the old IRA to the new
Publication 598, Tax on Unrelated Busi- of accuracy-related penalties. McNulty IRA. About six months later she was
ness Income of Exempt Organizations. contended she had reasonable cause notified by the custodian of the new
Coins held by owner as taxable for her position because she had relied IRA that the shares had not arrived,
distributions: In McNulty,31 a case on the information provided on Check and they were unsuccessful in several
involving a married couple who invested Book IRA’s website. The court found attempts to reach the investment ad-
retirement funds in gold and silver coins, that she did not have reasonable cause viser. The ruling allowed an additional
the Tax Court held that a taxable distri- because the website’s claims that the 60 days to transfer the stock to the new
bution occurred when the IRA owner coins could be handled the way she did custodian tax-free.
took physical possession of the coins. should have been interpreted as adver-
Donna McNulty caused a single- tising and not as a professional opinion. Sec. 408A: Roth IRAs
member LLC to be created by her Rollover allowed after 60 days: Tax Court reversed: In 2018, the
self-directed IRA by using the services The flood of ruling requests to waive full Tax Court had agreed with the
of Check Book IRA LLC, which ad- the 60-day rollover requirement has IRS that three members of the Mazzei
vertised on a website that an IRA could pretty much stopped since the IRS family owed excise taxes for excess
invest in American Eagle coins if the issued Rev. Proc. 2016-47 (updated contributions to Roth IRAs made using
coins were titled in a limited liability by Rev. Proc. 2020-46), which allows a foreign sales corporation (FSC) that
company (LLC). Kingdom Trust was a taxpayer to certify that the rollover dealt with their family business.32 The
the IRA custodian and requested the delay was due to a valid reason. A situ- individuals caused their Roth IRAs to
value of the IRA each year in order to ation not contemplated in the revenue invest in FSCs that received commis-
complete Form 5498, IRA Contribu- procedures occurred in IRS Letter sions from their business and then paid
tion Information, for the IRA. Gold Ruling 202134019. The taxpayer relied dividends to the Roth IRAs. Although
and silver coins were purchased by the on her investment adviser to open an the FSC legislation has now been
IRA’s LLC at three different dates. The IRA specifically to invest in one com- repealed, it was similar to domestic
coins were delivered to the McNulty pany’s stock. The investment was ac- international sales corporation (DISC)
residence either addressed to the LLC complished, but 11 days later the IRA legislation that other taxpayers had
or to Donna McNulty. The coins were custodian resigned and threatened to used to enlarge their Roth IRAs by
kept in a safe along with coins owned by distribute the shares of stock if another untaxed corporate profits.
husband Andrew McNulty’s IRA and custodian was not found within 30 In 2021, the Ninth Circuit reversed
personally owned coins. days. The taxpayer found another fi- the Tax Court to hold that the FSC
Sec. 408 requires that each IRA have nancial institution to serve as custodian arrangement did not result in excess
a trustee that is a bank or other person of an IRA that would hold the stock contributions to the Roth IRAs of the

31. McNulty, 157 T.C. No. 10 (2021). 32. Mazzei, 150 T.C. 138 (2018).

www.thetaxadviser.com March 2022 35