IRS Looking at Checkbook IRA LLCs and Precious Metals

goldI have written several posts on the IRS and its interest in self-directed IRAs.  The IRS recently released a notice regarding the use of self-directed IRA checkbook LLCs to hold precious metals. It is a good thing because I recently spoke with a client who was told by a company selling precious metals, he could set up a LLC owned by his IRA to hold the metals.  Engaging in this type of transaction is a good way to destroy your IRA.

PUBLIC SUBMISSION

Docket: IRS-2016-0012
Priority Guidance Plan; Public Comment Invited on Recommendations for
2016-2017 (Notice 2016-26)

Comment On: IRS-2016-0012-0001
2016 Annual Solicitation Notice 2016-26 03 18 16

Document: IRS-2016-0012-0004
Priority Guidance Plan; Public Comment Invited on Recommendations for
2016-2017 (Notice 2016-26)

Submitter Information

Name: Anonymous Anonymous

General Comment

The IRS should clarify that taxpayers may not use so called self-storage or checkbook LLCs to take possession of physical precious metals. Currently unscrupulous companies are telling taxpayers they can create their own LLCs and hold gold and silver in their home or a bank safe deposit box. The Internal Revenue Code permits IRA funds to be invested in certain physical precious metals only if these metals are placed in the physical possession of a “trustee” which Code defines as either (1) a traditional bank or an insured credit union or another financial institution subject to regulation by state or federal bank regulators; or (2) “Such other person who demonstrates to the satisfaction of the Secretary [of the U.S. Treasury] that the manner in which such other person will administer the [IRA] will be consistent with the requirements of this section.”

Any entity seeking to qualify under this second provision must demonstrate to the IRS of its fiduciary ability, fiduciary experience, capacity to account, fitness to handle retirement assets, bonding, audits and net worth. Even then, the entity may only act as a trustee with the written approval from the Service.

When precious metals are not held by an appropriate trustee, the purchase is treated as a taxable distribution from the retirement account. This means the IRA assets lose their tax-deferred status and are subject to taxation and potential penalties for an early withdrawal.

 

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