What Did the McNulty v. Commissioner Case Rule About Home Storage Gold IRAs?

Andrew and Donna McNulty, California residents, established a self-directed IRA in 2015. Following advice they received (presumably from a Home Storage Gold IRA promoter), they set up a single-member LLC called "Green Hill Holdings" that was owned entirely by the IRA. They served as managers of the LLC. The self-directed IRA custodian — a company called Capital Gold Group — held an interest in the LLC, but the LLC itself conducted transactions independently.

Using funds from the IRA-owned LLC, the McNultys purchased American Gold Eagle coins in 2015 and 2016, totaling approximately $411,000. They stored the coins in a safe at their California home. They reported no taxable distributions on their returns for 2015 or 2016, treating the coin purchases as IRA investments.

The IRS audited the McNultys' 2015 and 2016 returns and issued a Notice of Deficiency. The IRS's position was that the coin purchases constituted taxable distributions under IRC § 408(m)(1) (prohibited collectible acquisition) or, alternatively, under the broader principle that the coins were not held by a qualified trustee and therefore were not IRA assets. The McNultys petitioned the Tax Court, raising several arguments in defense of the structure.

McNulty Argument 1: The coins were not "collectibles" because American Gold Eagles are specifically permitted by IRC § 408(m)(3)(A)(i).

Tax Court's Response: The court agreed that American Gold Eagles are not prohibited collectibles — they qualify under the specific exception. However, this did not end the analysis. The exception in § 408(m)(3) permits Gold Eagles to be held in an IRA only if they are "in the physical possession of a trustee described in subsection (a)." The question was whether the trustee-possession requirement was met.

McNulty Argument 2: The LLC, which was owned by the IRA, served as the trustee, and the LLC's manager (Mr. McNulty) held the coins on behalf of the LLC/trustee.

Tax Court's Response: The Tax Court rejected this argument on two grounds. First, an LLC is not a qualified trustee under IRC § 408(a)(2) — that provision requires a bank, an insured credit union, or a person specifically approved by the IRS. An LLC, even if IRA-owned, does not meet the definition. Second, even if one were to treat the LLC as having some trustee-like role, the physical coins were in the possession of the McNultys personally, in their home safe. The court held that an LLC manager holding property in their personal residence is not meaningfully different from the IRA owner personally holding the property. The LLC wrapper did not create "trustee possession" within the meaning of the statute.

McNulty Argument 3: The IRS had never explicitly stated that LLC checkbook control arrangements violated § 408(m)(3), so the structure should be given the benefit of the doubt.

Tax Court's Response: The court found the statutory language clear: "physical possession of a trustee described in subsection (a)" is an unambiguous requirement. The absence of an IRS-issued Rev. Ruling specifically condemning the LLC structure does not create a loophole where the statute is plain. The court also imposed accuracy-related penalties, finding the McNultys had not relied in good faith on a qualified tax advisor's opinion that the structure was lawful.

The Tax Court upheld the IRS's deficiency determinations for both 2015 and 2016. The full acquisition cost of the coins purchased in each year was included in the McNultys' gross income as a taxable distribution. Because the distributions were not from a Roth IRA and the McNultys were under age 59½, the 10% early withdrawal penalty under IRC § 72(t) also applied. Additionally, the court upheld the IRS's imposition of the accuracy-related penalty under IRC § 6662(a) — a 20% addition to the tax deficiency for a substantial understatement of income tax.

The combined federal tax consequence was substantial: income tax at marginal rates on approximately $411,000 in distributions, plus 10% early-withdrawal penalties, plus the 20% accuracy-related penalty, plus underpayment interest. The total federal tax consequence for the McNultys was, by any measure, several times the annual depository storage fees a compliant Gold IRA arrangement would have cost them.