Vernoia, Enterline + Brewer, CPA LLC

The IRS has determined that an individual retirement account (IRA) could acquire shares in a trust invested in gold and the acquisition would not be treated as a collectible. As a result, the amount the IRA would invest in the trust would escape being treated as a distribution from the IRA in an amount equal to the cost of the collectible.

Background

Gold bullion barr on a stocks and shares chartA trust offered investors with an opportunity to invest in gold through shares and take delivery of physical gold bullion in exchange for their shares. The trust’s secondary objective was for the shares to reflect the performance of the price of gold less the expenses of its operations. Shares were listed and traded on a stock exchange. Investors, including retirement accounts, acquired shares through a broker-dealer. Ownership of the shares was evidenced only on the books and records of the broker-dealer through which the shares were purchased.

IRS analysis

The IRS first looked to Code Sec. 408(m)(1). Under Code Sec. 408(m)(1), acquisition of any collectible by an IRA or by an individually-directed account under a qualified retirement plan is treated as a taxable distribution from the IRA or account in an amount equal to the cost of the collectible. In other words, collectible are “discouraged” from being held within an IRA. A collectible includes works of art, stamps and coins, and other property. There is a limited exception for a certain type of gold bullion in the physical possession of the IRA trustee.

Here, the IRS determined that the acquisition of shares by the trustee or custodian of an IRA would not constitute the acquisition of a collectible for purposes of Code Sec. 408(m)(1). However, the IRS explained that if the shares would be exchanged for gold, the exchange would constitute the acquisition of a collectible, triggering Code Sec. 408(m)(1).

LTR 201446030

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