Newsletter icon

Join Our Newsletter

It's the best way to stay up to date on what Jeff's thinking and where he'll be next.
  • This field is for validation purposes and should be left unchanged.

A Deeper Dive into McNulty (Checkbook Control Series - Part 3)

            An important practice taught to me early in law school was that when you read a court decision, always look at the legal precedents cited within the case to better understand where the court is coming from and the basis for their opinion.  When we do that with the McNulty case (CLICK HERE to read the case for yourself), we find an important case cited, Ancira v. Commissioner, which was decided in 2002 (119TC135).  This case held that no taxable distribution from an IRA occurred when the IRA accountholder personally received and had possession of a check that he could not negotiate.  The check was made payable to the IRA but was in the hands of the accountholder.

            This is an important case to think about when looking at what the court meant in McNulty when it talked about “unfettered access and control”.  It’s clear that if you choose to remain the manager of your IRA-owned entity and receive payments, wires, ACH deposits, checks, money orders, etc., that are directly payable to the IRA entity and not to you personally or in your title as manager, then your receipt and possession of those negotiable instruments is not a distribution of the assets.

            In McNulty, the court further emphasized that point by talking about another case, McGaugh v. Commissioner, and how the accountholder held in his possession a stock certificate issued in the name of the IRA.  The court stated that the IRA account owner could not realize any personal benefits from the possession of that stock certificate and did not have constructive receipt of the IRA asset because the stock certificate, being a financial instrument, was titled in the name of the IRA.

            “An owner of a self-directed IRA is entitled to direct how her IRA assets are invested without forfeiting the tax benefits of an IRA.”  McGaugh v. Commissioner, T.X. Memo. 2016-28, at *9, aff’d. 860 F.3d 1014 (7th Cir. 2017).

            From these cases, we can see various examples of possession and that dealing with financial instruments is permissible for an IRA accountholder when their IRA owns an LLC or trust.

            Before I conclude, I must give you this warning.  The facts of each and every case are always different and very dependent upon all the circumstances and facts of each case.  Making a decision based upon just this information would be unwise and imprudent.  It’s important to consult with your own legal counsel when you have a question about IRA-owned entities, how those entities should be operated, and who should be managing them.

Related Posts

Appointment Booking

If you are looking to book an appointment with Jeff, click the button now.