New tax law case affecting bullion in an IRA

I guess some hucksters used to promote that you can buy gold and silver with IRA funds and keep them at home. Just read a tax court had specifically listed this as disallowed, and it blew up the IRA and caused all of the taxes to be due. Between the taxes and now 5 years later penalties and interest the owners of the IRA owe over $500k on $750k worth of IRA assets.

Please use proper legal advice if you entertain the idea of doing something untraditional with your IRA. If you were someone who also did this, PLEASE contact an attorney who specializes in IRAs and see what you can do at this point to extricate yourself from the same fate.

I am not a PM hater, having some in SDB and safes, but none of it is IRA money.

 

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I agree. The IRS warned of this at the time, but no one asked for a private letter ruling so they could not really promulgate official rules. They did release warnings they would consider this abuse. What I read is this is one of the first official court rulings on the issue, and so will set the precedent.

If someone reading this DID this, I would suggest getting to a specialized attorney and seeing how they can unring that bell. If the IRS has not found them yet, MAYBE, (not an attorney and not giving advice), you could work on getting it into the hands of a valid custodian now and maybe avoid the outcome of this case.

 

I suppose this isn't the place to speculate on any, um, changes that might have led people to expect policy shifts just precisely five years ago.

 

Years ago IRS could wait up to 2 years to notify you. This gave you the opportunity to correct your errors. After 2 years they usually notified you of the mistake but they had to take action at some point as they could not collect anything past 7 years.

 

That's mostly true. However, in the case of tax fraud there is no statute of limitations. I don't know that holding bullion in an IRA can or cannot be considered fraud. I just wouldn't be the least bit surprised if they had a big enough penalty against someone that they wouldn't attempt to collect after seven years charging that it was fraudulent.

 

But in this instance, what could they do? Sure, they heard of people counseling and advertising to people that this is "legal", but I believe the hucksters were having people sign agreements where they stated they are not lawyers, its our opinion, etc. So, the hucksters technically were not breaking the law at the time, they were advocating to others that THEY do this. The IRS issued warnings, but could not prosecute anyone for anything until they caught someone doing this and then it went to court. That is just what just happened now. Its not the easiest crime to detect.

 

I wasn’t thinking tax fraud and that this could be that. I was just thinking in general terms.

 

That's why I said 'mostly true'. Lots of gray area here. With the IRS involved that's scary.

 

Downright frightening!

 

My son is a CFP and told me long ago to AVOID this pitfall. His words to me were "Keep your IRA, Keep your gold and Silver but NEVER TOGETHER.
Semper Fi

 

As I understand it, yes, you can have gold and silver "in" an IRA. It is a little complicated, so I would never try this without consulting an attorney, CPA or CFP. The key seems to be that you cannot have possession, your IRA custodian cannot have possession; the precious metals have to be in an "approved" warehouse - sort of like when you trade commodities: you don't hold the good delivery bars, your broker does not hold the good delivery bars; they have a receipt that the bars have been deposited in a certified facility. Again, to avoid the pitfalls others have mentioned, get unbiased expert advice before doing anything. It doesn't seem like it is worth the trouble, unless you can put them in a Roth IRA, and I don't know if you can do that.

 

If you can't grab the metal and take it with you, what exactly is the benefit of a "custodial PM IRA" over owning shares of a gold or silver ETF?

 

I am a CPA, but not a tax CPA CFA. However, some time ago, I saw it advertised on TV that Precious Metals can be part of your IRA. My wife and I are both retired state employees. She was a High School English teacher and I was an Internal Auditor. When we saw the TV commercial, we decided to deal with something we could understand and we figured we would deal with the laws governed and managed by the State Controller's Office. I do our Federal and State Tax Returns and have never been audited. My thoughts are, "If you aren't a CPA, CFA, or an attorney and you have an IRA or want an IRA, get their help."
Do you remember the request at the bottom of the tax form where they ask for your profession? If you list your profession as a carpenter and you do your own taxes AND you have an IRA? They have huge computers and computer programs that look at that type information and it increases the likelihood that they will audit you.
Best of luck!

 

I've scoffed at the concept of a "gold backed IRA" since this scheme was hatched. The whole point of an alternative PM holding is to have it SEPARATE from the current monetary system and trends...especially seeing the the Govt has it's eyes on EVERYONE's IRA for either partial govt control or monkeying with the taxes. The Fed recently proposed changes to limitations you can withdrawal from ROTH IRA's...the Holy Grail of personal retirement accounts. Keep your PM's totally separate from conventional investments...even "classifying" them as investments vs collections, and the PM-building inventory process, handling and mindset. A recent online video touched on purchasing some fractional gold (in place of silver) and I posted the following:

"Love seeing your presentations re (in my case) buying fractional gold vs silver for future appreciation OR wealth preservation. Your point regarding design changes leads to a different aspect: accumulating the coins based on date/mintage/numismatics OR just stacking whatever you can get your hands on. Hobby gold and investment gold is taxed differently by the IRS:"If coin collecting is one of your hobbies, meaning you acquire the gold coins for leisure rather than investment purposes, or if the sale is an ordinary transaction in your business, all profits are taxed as ordinary income – not capital gains. Hobby income is reported on the “other income” line of your 1040, whereas reporting business income depends on the type of entity you use, if any, and the tax form required for it."

"If the gold coins are held as an investment, meaning you don't regularly deal in them and held onto them for potential appreciation in value, they're considered a capital asset. Whenever you sell a capital asset, the resulting gain or loss must be reported on your return. This will first require you to determine your basis in the gold coins."

In short, I "stack" based on dates, designs and mintages (full or partial date sets, keys, Type sets etc) vs a tube of just one date...mix it up for the average person and shop as a collection....with the lobbying and support of the coin and Numismatic lobby. Generic stacks of whatever is available might be looked at differently by the iRS so...I accumulate as a collector hat on in a hope to (possibly!!) hedge against future capital gains taxes. Of course, the IRS MIGHT change this with the proposed New Amy of IRS agents to be hired looking for taxable under every rock, but I'll stick to this until circumstances change "

Maybe it'll work, maybe not. But purchasing PM's from a researched-collector aspect is a lot more FUN than just buying whatever and generic stacking 30 of the same dates and denominations. Stacking just for "ounces" can get boring after a while...something I learned from silver stacking ovrr a dozen years...and upward valuation limitation it's over 100 year record (been over $30 less than 10 years over the last 100+...lost in it's under $30 realm). BUT DO dolar-cost-average stack silver to eventually convert to gold..."convert large piles of silver into small piles of gold".