Is the Checkbook IRA Illegal? Must Know Tax Court Ruling: SDIRA, QRP, Solo 401k, Checkbook IRA, IRA-LLC, IRA-Trust, HSA, & ESA

Tax Court Opinion: ANDREW MCNULTY AND DONNA MCNULTY, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent

TL;DR

• Watch out for “promoters!”
• Lots of Tax Turkey & Red Herring out there!
• Neither the IRS, nor the Tax Court, appear to be attacking the Checkbook IRA structure.
• The ruling – in its essence – has nothing to do with Checkbook IRAs, but:
  • Checkbook IRAs does make it easier for a self-directed investor to intentionally  or inadvertently run afoul of the Tax Court rules
• Creates questions for all self-directed retirement accounts, including QRP, holding personal assets
• Creates questions for all arrangements in which person touching assets “wears more than one hat.” This includes QRP & Solo 401k!
• Implications for many SDIRA structures – that don’t involve an IRA-LLC or IRA-Trust – that flunk custody! (For example, certain crypto arrangements)
• QRP (incl. Solo 401k) may have a leg-up on SDIRA (Very nuanced discussion)
• Using a QRP-LLC may undermine whatever “leg-up” a QRP may have over an SDIRA!
• Always create and maintain a clear trail of transactions!
• At all times, the role in which you’re acting – you’re “capacity” – must be unequivocal & unambiguous.
• Never, ever take physical possession!
• Don’t ever touch cash!
• Be extra cautious with fungible assets that have no clear evidence of “title” (e.g., gold, silver, bullion, precious metals)
• Creates uncertainty for crypto assets, especially crypto assets moved to “cold storage.”
• Created questions regarding all personal assets
• The Tax Court left many of the IRS arguments unresolved, so steer clear of any of those!

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