Five Years Later: The McNulty v. Commissioner Case Reaffirms Physical Possession Rules

More than five years after McNulty v. Commissioner, the decision remains one of the most important U.S. Tax Court rulings interpreting physical possession rules for precious metals and coins under IRC §408, especially for retirement investors using Self-Directed IRAs and IRA LLC structures.

The case reinforced a principle I often emphasize: access is not ownership, and paperwork without proper compliance is not protection. If IRS requirements for control, documentation, and possession are not satisfied, your tax position is vulnerable. Substance matters more than labels.

In this article, I’ll:

• Explain what the McNulty case was about
• Detail the physical possession rules
• Clarify how the case applies to self-directed retirement accounts
• Highlight related developments and best practices
• Provide practical takeaways for investors in 2026

Summary of the McNulty Case and Its Impact on Precious Metals IRAs

The Case: McNulty v. Commissioner

The case most often cited in connection with precious metals IRAs is McNulty v. Commissioner, T.C. Memo 2021-110. This Tax Court decision directly addressed how physical possession of precious metals is treated under Internal Revenue Code §408(m) when those metals are held in, or purportedly held by, an IRA.

The McNultys attempted to hold gold coins through a Self-Directed IRA LLC, also known as a checkbook control IRA structure. They argued that because the IRA owned the LLC, and the LLC owned the coins, the metals were effectively owned by the IRA, even though the coins were stored at their personal residence.

The IRS disagreed. The Tax Court sided with the IRS.

The Core Issue: Physical Possession Under IRC §408(m)

What IRC §408(m) Says

IRC §408(m) generally prohibits IRAs from investing in “collectibles,” which include:

• Art
• Rugs
• Antiques
• Gems
• Stamps
• Alcoholic beverages
• Certain coins and metals

However, §408(m)(3) provides a narrow exception allowing IRAs to invest in certain gold, silver, platinum, and palladium coins and bullion, but only if strict requirements are met.

The most important requirement is this: the metals must be in the physical possession of a trustee.

That phrase, physical possession of a trustee, was the focal point of the McNulty case.

What the Taxpayers Did in McNulty

In McNulty:

• The taxpayers established a Self-Directed IRA
• The IRA invested in a single-member LLC
• The LLC purchased American Eagle gold coins, which are otherwise permitted coins under §408(m)
• The coins were shipped to and stored at the taxpayers’ personal residence

The taxpayers argued that because the IRA owned the LLC, and the LLC owned the coins, the IRA indirectly owned the coins and physical possession by the IRA owner should be sufficient.

The court rejected this argument.

The Tax Court’s Holding

The Tax Court ruled that:

• Physical possession by the IRA owner, or an IRA-owned LLC, is not the same as physical possession by a trustee.
• The statute requires that precious metals be held by a bank, federally insured credit union, or other IRS-approved trustee or custodian.
• Storing coins at the IRA owner’s home, even through an IRA LLC, violates IRC §408(m).

Because the metals were not held by a qualified trustee, the IRA was deemed to have distributed the coins to the taxpayer in the year of purchase.

As a result:

• The entire value of the coins was treated as a taxable distribution
• The IRA lost its tax-advantaged treatment with respect to those assets
• The taxpayer was subject to income tax and penalties, where applicable

Key Takeaway: IRA LLCs Do Not Override §408(m)

One of the most important clarifications from McNulty is that an IRA LLC does not override the physical possession requirement in §408(m).

Even though IRA LLCs are commonly used for:

• Real estate
• Private lending
• Private equity
• Operating businesses

They cannot be used to:

• Store precious metals personally
• Bypass the requirement that metals be held by a qualified trustee or custodian

The court made clear that statutory exceptions must be followed exactly, and §408(m) is explicit.

Why Certain Coins Still Failed in McNulty

A critical point that is often misunderstood:

The coins at issue, American Eagle coins, are otherwise permitted investments. The problem was not the type of coin. The problem was where and how they were held.

In other words, permitted metals plus improper possession equals prohibited investment.

That distinction is crucial for Self-Directed IRA investors.

How McNulty Applies to Precious Metals IRAs Today

What Is Allowed

An IRA may invest in certain IRS-approved bullion and coins, such as American Gold Eagles, American Silver Eagles, and certain bars, but only if the metals are:

• Purchased by the IRA
• Titled in the name of the IRA
• Held in the physical possession of an approved trustee or custodian
• Stored at an IRS-approved depository

What Is Not Allowed

After McNulty, it’s clear that an IRA may not:

• Store precious metals at the IRA owner’s home
• Store metals in a personal safe or safe-deposit box
• Use an IRA LLC to checkbook control metals at home
• Argue that constructive or indirect possession satisfies §408(m)

Why the Court Rejected Constructive Possession Arguments

The taxpayers argued that because they controlled the IRA and the LLC, they had constructive possession on behalf of the IRA.

The court rejected this reasoning, emphasizing that Congress intentionally used the phrase physical possession of a trustee. Constructive possession is not sufficient. Allowing home storage would defeat the statutory safeguard against abuse.

The court’s reasoning aligns with the IRS’s long-standing position on metals IRAs.

Why McNulty Still Matters Today (2026)

More than five years later, McNulty remains highly relevant for several reasons.

1. Reinforces the Importance of Documentation

McNulty is a reminder that the IRS cares about substance over form. The Tax Court rejected the taxpayer’s positions because he lacked clear evidence of ownership, key documents were missing or ambiguous, and proof of control was insufficient.

When you use a self-directed retirement account, documentation is not optional. It’s foundational, especially for alternative assets.

2. Highlights the Risks of Improper Titling

The case illustrates that failure to properly title assets, or to prove that they were properly titled, can significantly weaken your tax position. This is especially important for investments held through entities, LLCs, trusts, or private arrangements.

3. Applies to Alternative Assets

McNulty’s principles apply with particular force to alternative investments such as real estate, private notes, partnerships, and investment funds because these assets do not have centralized custodians or standard clearinghouses the way stocks and bonds do.

For alternative assets, the first thing the IRS will ask for is clear chain of title, proper contractual documentation, and proof of control that reflects retirement account ownership. If the documentation is not airtight, the IRS can and will challenge it.

McNulty and Self-Directed IRAs: A Practical Example

Imagine a self-directed IRA that invests in a private note issued by a real estate company. The investor believes the note is owned by the IRA and that interest payments have accrued tax-free inside the IRA.

If documentation is weak, here is how McNulty principles could come into play:

• If the note’s assignment was not properly executed in the name of the Self-Directed IRA
• If the custodian never received or retained the original note or assignment
• If there is no clear chain showing when and how the note was transferred
• If copies sit unsigned or lack corroborating records

The IRS could argue that the IRA never truly owned the note, that the interest was not earned by the IRA, and that tax-free treatment is not justified.

Even if the position is honestly stated, the IRS ultimately cares about proof, not intention.

Documentation Best Practices in a Post-McNulty World

Following McNulty, the standard for documentation has only become more exacting. For self-directed investors, best practices include:

Proper Titling
Make sure investments are titled in the name of the retirement account, not an individual’s name. This creates the unbroken record the IRS expects.

Custodial Acknowledgement
When your custodian receives investment documents, confirmations, or assignments, ensure they are reviewed, logged into the account records, and retained in your organized digital repository.

Clear Chain of Assignment
If you acquire private investments such as notes, partnerships, or structured settlements, maintain original assignments, documented purchase agreements, and transfer records with dates and titles spelled out explicitly.

Consistent Recordkeeping
Scan and store all investment documents, all custodian correspondence, and all executed agreements. Use cloud backups and indexed systems so nothing is lost.

Documentation is not about paperwork. It’s about proof.

Why This Matters for Self-Directed IRA and Solo 401(k) Investors

Many investors choose self-directed retirement accounts for greater control and broader investment options. That control comes with responsibility. You must ensure that investments are properly documented, confirm that titles and assignments align with plan ownership, coordinate closely with custodians or administrators, and retain proof at every step.

McNulty is a cautionary tale about what happens when documentation gaps exist, even for well-intentioned investors.

IRA Financial: Helping Investors Stay Ahead of McNulty-Style Risks

At IRA Financial, we have seen how documentation gaps lead to costly disputes, confusion, and audit headaches. We help investors establish retirement accounts that support alternative assets, structure investments properly with accurate titling, collect and maintain thorough documentation, coordinate with custodians and administrators, and implement systems that anticipate IRS scrutiny.

Our team operates on a simple principle: if it’s not documented, it did not happen, at least not for tax purposes.

This means more than setting up an account. It means helping you build a verifiable record that stands up to the IRS’s highest standards.

Final Takeaway: Documentation Is Your Most Valuable Asset

The McNulty v. Commissioner decision provides a clear and lasting reminder that when it comes to precious metals held in a Self-Directed IRA, strict compliance with IRC §408(m) is mandatory. Even otherwise permitted coins and bullion will lose their tax-advantaged status if they are not held in the physical possession of a qualified trustee or custodian.

Five years later, the case continues to underscore that IRA owners cannot use IRA LLC structures or personal storage to bypass the IRS’s custody requirements. Documentation and proper custodial control remain essential to preserving an IRA’s tax benefits.

If you are serious about self-directing your retirement account and doing it in a way that stands up under scrutiny, prioritizing documentation and expert support is essential.