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Individual Retirement Account (IRA) Investment in Artwork, Finding and Analyzing Relevant Code Section, Regulation and a Case

Facts: Your client, Lucy, is a U.S. citizen who resides in Atlanta, Georgia. She is single and in her early 60s. Lucy enjoys going to art museums and owns a number of original paintings and sculptures by various artists. In late 2020, Lucy retired from her job at Inkco Corp. and rolled the amount in her Inkco 401(k) plan account into a traditional individual retirement account (IRA). The custodian of Lucy's IRA is the Bank of Atlanta. One of Lucy's friends has suggested that she should invest some of the funds in her IRA in original paintings by up-and- coming artists with the hope that they would increase in value and in recognition that the return on other investments has become more volatile.

Required:

First Step: Identify and properly cite the Code sections and regulations relevant to the question of whether an IRA can invest in artwork, such as paintings and sculptures.

Second Step: Find and review a relevant court decision that involves this issue and has similar facts. Provide a proper citation for the case. Briefly describe the facts of the case and the court's reasoning and conclusion(s). Indicate whether you think the court would reach the same conclusion(s) in Lucy's situation and why or why not.

Write both the memorandum to client tax file AND the client letter. (NOTE - The memorandum to client tax file is not the same as the memo to file (sandwich method) that we used for financial accounting sections of the course). Also - the client letter should NOT be a repeat of the memo to client tax file. It should not contain references to specific court cases, code sections, etc. It should repeat your understanding of the case in a simplified format at the start of the letter.