Use our new AI tool to find the right Self-Directed IRA!

IRA Financial Blog

Important Self-Directed IRA Case For Bitcoin Investors – Episode 319

Adam Talks

In this episode of Adam Talks, IRA Financial’s Adam Bergman Esq. discusses a recent court case that could impact Bitcoin investors, specifically, storing them on a cold wallet.

In a recent court case, McNulty v. Commissioner, the Court ruled that the petitioners were in violation of IRS rules when they held their IRA-owned Gold Eagle coins in their physical possession. This reaffirms the stance that one should not hold coins and precious metals personally. It’s a clear violation of Internal Revenue Code 408(m). However, this Self-Directed IRA case may have far-reaching impact, especially for crypto investors.

The Facts of McNulty v. Commissioner

In what should have been a short ruling, the Court found that the McNultys were in clear violation of the physical possession rule. We’ve always stressed the importance of not holding IRS-approved coins and metals personally. Although there is never been any specific IRS guidance, the Code strictly states that you should not hold those investments personally.

The petitioners mistakenly believed they were allowed to hold the American Eagle coins at home, so long as they were titled to an LLC, which was owned by their Self-Directed IRA. However, 408(m) states that bullion cannot be held in the physical possession of the IRA owner(s). Since the term “coins” does not appear in the Code, marketers were quick to say that they should be excluded. However, that’s not the case, and the Court ruled accordingly. Since the coins were held at home, the IRS deemed the value of the coins as an IRA distribution. Taxes were due on the amount of the distribution.

The biggest thing that came from the ruling was the term “unfettered control.” The ruling stated, “IRA owners cannot have unfettered command over the IRA assets without tax consequences.

What About Bitcoin?

The fact of the matter is that most Self-Directed IRA investors need not worry about this ruling. Alternative investments, such as real estate, tax liens and private notes, do not have a physical possession caveat. However, there may be some headaches for those that invest in Bitcoin and other cryptocurrencies.

Even then, so long as your Bitcoin and other cryptos remain on an exchange, there will still be no impact. However, if you wish to take them off the exchange, you may be hearing from the IRS!

Because of McNulty, storing Bitcoin and other cryptos on a cold wallet may be deemed a distribution. This is because you will take “physical” possession of the currency. Instead of holding coins in your bedroom safe, you will have Bitcoin stored on a USB drive. As is, you have control over the asset.

What Now?

IRA Financial is working on a solution so that you do not have complete control of your cryptos. Once you take your cryptos off the public exchange (and onto a cold wallet), you might fall into the possession rule. However, we think that we can put something in place that will offset the rule. Two solutions we are thinking of are veto power and dual signatures. That way, you won’t have unfettered control of the cryptos.

Essentially, with one of those in place, you would need the IRA custodian’s permission to make a move. You can’t simply walk into a store and make a purchase with your Bitcoin. You would need the custodian to sign off on it. This should satisfy McNulty.


This important Self-Directed IRA case may have a long-term impact on not only coins and metals, but Bitcoin too. Cryptocurrencies are not going anywhere. If you decide to use your retirement funds to invest in them, you must pay attention to the physical possession and unfettered control rules set forth by this case.

Thanks for listening and Adam will certainly keep you guys updated with the fallout from this case. Subscribe to our SoundCloud channel to keep informed. See everyone next time!


Latest Content

Send Us a Message!