Tim Schubert of Blue Diamond Documents says he's helped people prepare Individual Retirement Accounts, (a.k.a. IRAs) for about 16 years. He's a specialist in self-directed IRAs, which allow people to keep money tax-free and still be in control of the assets and where to invest.
Republic Monetary at 40th Street and Camelback Road helps people invest in gold and other precious metals that would be held in a tax-free IRA account.
Trouble is, Schubert says, Republic's doing it wrong.
The Internal Revenue Service prohibits almost all collectible items, including most collectible (also known as numismatic) coins, in IRA accounts.
A 2011 article on Investopedia explains which coins are okay and which are not:
"In order to be allowed to be held inside an IRA, coins must be very pure in their mineral content and not seen as a collector's coin," the article says. "Krugerrands and the old Double Eagle gold coins are disallowed because they do not meet this standard."
The article states which coins are okay for IRA accounts:
American Eagle coins (proof and non-proof)
American Gold Buffalo coins (non-proof)
American Silver Eagle (proof and non-proof)
Austrian Gold Philharmonics coins
Canadian Maple Leaf coins
Another article lists the type of coins not allowed in IRAs. Here's a partial sample:
Rare or collectible coins, including certified or "graded" coins
South African Krugerrand
Swiss 20 Franc
French 20 Franc
Belgian 20 Franc
Schubert says Republic has been helping people put the wrong kinds of coins in customers' IRA accounts.
The reason a gold company might want to do that, as our article this week explains, is because the markup on collectible coins is much higher than on gold or silver bullion.
An ex-employee of Republic Monetary tells New Times he's considering filing a federal whistle-blower suit over the practice.
"We were told there is an opinion from a tax attorney" that Republic's IRA scheme was legal, the former employee says. He later found out there was no such letter.
When New Times asked Republic Monetary for any of kind of legal analysis or comment about the how the precious-metals IRA accounts were being handled properly, the company's lawyer said he'd get back to us. But the company still hasn't responded to that question.
The government's IRA program started back in the '70s. It's similar to a 401K in that it lets people invest money for retirement without being taxed on it. With gold more than doubling in price from 2008 to now, many IRA holders have decided to take a chunk of their tax-free money and invest in precious metals.
Republic Monetary helps customers set up a limited-liability corporation through an IRA custodian company, Sunwest Trust. The LLC then gets a check representing the money in the IRA and the LLC manager, the IRA account holder, writes checks for gold or other investments.
IRA account holders aren't supposed to take possession of their investments -- in other words, they aren't allowed to keep the gold themselves. Typically, it's stored at an IRA custodian company. But in what appears to be a loophole, if the IRA account holder is the manager of an LLC that owns precious metals, the account holder essentially does have physical possession of the investment.
In a damning lawsuit deposition earlier this year, James D. Clark, son of Republic Monetary CEO Jim Clark, expressed concern that the IRS may "frown" upon the practice of Republic Monetary customers taking possession of their gold by becoming the manager of their IRA's limited liability corporation.
Putting collectible coins in the IRAs, meanwhile, is "putting their clients in danger of conducting a prohibited transaction," Schubert says, adding that he has no idea if Republic would be on the hook for penalties if the IRS scrutinizes the accounts, or if only the customer would be in trouble.
Schubert was introduced to some employees at Republic, met Jim Clark, and for the next two-or-so years helped the company's customers create LLCs for their IRAs. They sent him a "ton" of clients, but Schubert never met them -- he only handled their paperwork. He didn't know, he says, that Republic was selling unapproved collectible coins for use in customers' IRAs until early in 2012, when he received a call from a Republic customer. She'd seen his name on some of the paperwork.
"She said to me, 'They're trying to put these numismatic coins in my LLC...and from what I've been reading, it's not allowed,'" Schubert says the woman told him. "I told her, 'That's true.'"
Soon after, Republic's sales manager, Dave Fisher, called Schubert and told him that the female customer had made the call from Fisher's office.
"You just cost me thousands of dollars in commission," Schubert says Fisher told him, adding that from now on, Republic would take its document-preparation business elsewhere.
As promised, they stopped sending him customers.
Schubert says he's not sure if the IRS has ever penalized anyone for having collectible coins in their IRAs, but he believes the issue is "black and white."
By going to the Arizona Corporation Commission's corporate agent look-up page, you can see the hundreds of LLCs formed under the IRA custodian company Republic typically contracts with, Sunwest Trust.
We called a few of the managers of those LLCs before yesterday's publication of our feature article. It wasn't long before we found a Republic customer, who said he had put collectible coins in his IRA. He didn't want to be identified.
Terry White, CEO of Sunwest Trust, says if an IRA holder asked his company's representatives if it was okay to put numismatic coins in an IRA, they'd say no. However, Sunwest doesn't get to see the details of investments if IRA holders has put all of those investments under a limited-liability corporation. Sunwest lists the IRA investment as the LLC, in those cases.
"We have no way of monitoring it -- how they run their LLC," White says. "Because they're managing it themselves, they potentially could do something they're not supposed to do."
According to Schubert and the former Republic Monetary employee who spoke to New Times, Republic Monetary is facilitating these questionable IRA investments.
We're still waiting for Republic Monetary to explain how it's IRA programs work, and we'll update this post if they get back to us.