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What the Recent McNulty vs. Commissioner Tax Court Case Suggests About This Risky IRA Practice
Checkbook LLC IRAs and variations thereof can be enticing for alternative asset investors, especially with respect to investing in assets like real estate and precious metals. However, a recent tax court case, MCNULTY v. COMMISSIONER OF INTERNAL REVENUE, examined the issue of the IRA owner having “unfettered control” over the assets held in the IRA account. Where this leaves the option of checkbook control remains a question.
In the recent IRS case, the taxpayer formed an LLC, funding the LLC with cash from their IRA, then purchased precious metals. The client physically stored these metals at their personal property. The tax court ruled this was a prohibited transaction, and the client suffered stiff consequences and penalties, effectively distributing the entire account, and imposing a 20-percent penalty on top of the distribution tax.
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