Rollover as Business Start-Up ( ROBS ) is the setting in which the current or prospective business owner uses 401 (k), IRA or other pension funds to pay for the start of a new business cost -up, for business acquisition costs or to refinance existing businesses. ROBS is an acronym of the United Internal Internal Revenue Service for Rollover IRS ROBS as a Business Start-Up Compliance Project.
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The ROBS plan, while not regarded as a cruel tax avoidance transaction, is, according to the IRS, "questionable" because they can only benefit one individual who rolls his retirement 401k pension into a ROBS plan in a tax - Free transactions. In many cases, since the IRS's statement on this potentially discriminatory approach, the ROBS plan has included all participants and provided broad-based participation to all employees. The ROBS plan then uses rollover assets to buy new business stock. Company C must be established to roll out the 401 (k) withdrawal.
Promoters, such as self-directed IRA Roth IRA brokers, or small business financing, aggressively market IRS ROBS arrangements to prospective entrepreneurs and business owners to fund business for small business financing. In the case of most ROBS facilitators, there is a very close relationship between the promoter/facilitator and the franchise industry, which seeks to sell and promote business "opportunities" and find sources of funding for these sales and promotions. Most ROBS promoters and facilitators pay substantial reference fees to franchise brokers who refer businesses to promoters. Rarely is this fee disclosed to entrepreneurs. The fees imposed by most "promoters," consequently, exceed the fees that will be imposed by lawyers and accountants for the same services that are prohibited from paying referral fees. Some companies offering ROBS plans do not pay referral fees to brokers, and charge a lower fee as a result. There is still a substantial question of whether the referral fee is illegal under ERISA and the US Criminal Code: Offer, Acceptance or Request to Affect Operating Employee Benefit Plans (18 U.S.C. Section 1954).
In many cases, the broker will apply to the IRS for a favorable decree (DL) as a way to convince their clients that the IRS approves the ROBS arrangement. The IRS issues a DL based on the requirements of a plan that meets the requirements of the Internal Revenue Code. DL does not provide sponsorship protection plans from either applying the plan requirements or from operating the plan in a discriminatory way. When a plan sponsor manages the plan in a way that results in discrimination prohibited or involved in a prohibited transaction, it may result in a disqualifying plan and adverse tax consequences for the sponsors of the plan and its participants. Therefore, promoters who emphasize or "promote" by favorable decree, at least, engage in deceptive trading practices.
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ROBS Project Findings
New Business Failure
Initial results from the ROBS Project show that, despite some success stories, most ROBS businesses fail or are on the way to failure with high levels of bankruptcy (business and personal), lien (business and personal), and corporate dissolution Secretary of State. Some individuals who embark on the ROBS plan lose not only the retirement assets they have accumulated over the years, but also the dream of having a business. As a result, most retirement savings are invested in their failing or missing 'ROBS' plans, in many cases even before they start offering their products or services to the public.
Custom Issues with ROBS
Some other areas of the ROBS plan may have problems:
- After the ROBS plan sponsors bought new company shares with rollover funds, the sponsor changed plans to prevent other participants from buying shares. Since the 2008 announcement of the IRS, such amendments are rare.
- If the sponsor changes plans to prevent other employees from participating after the DL is issued, this may violate the qualification requirements of the Code. This type of amendment is likely to cause problems with coverage, discrimination, and potentially lead to violations of terms of benefits, rights and features.
- Promoter fee
- Assessment of assets
- Failure to issue Form 1099-R, Distribution of Pension Fund, Pension Fund, Pension Fund or Profit Sharing Plan, IRA, Insurance Contract, etc., when assets are rolled into ROBS plan
See also
- American Franchise and Dealers Association
- 401 (k)
- 401 (k) versus the IRA comparison matrix
- Roth 401 (k)
- 403 (b)
- Individual Retirement Account
- Internal Revenue Service
References
Source of the article : Wikipedia
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