What are the ongoing compliance requirements of a ROBS?
Posted 4.7.2021 in ROBS
Managing a ROBS does not end when you finish the ROBS set-up process, as a ROBS entails ongoing compliance requirements that are unique to small businesses. An additional tax return for the 401k is required as well as items of disclosure. While your 401k record keeper (e.g., Guidant Financial, Benetrends, Tenet Financial Group, etc.) can satisfy many compliance reporting requirements, a CPA with ROBS experience can help you:
- avoid incurring prohibitive transactions
- avoid doing business with disallowed parties
Ensuring compliance with IRS and ERISA regulations require proven processes, systems and attention to detail. Leveraging experienced advisors to support your ongoing compliance will enable the entrepreneur to focus more on higher-value activities including growing the business.
Ongoing ROBS compliance includes:
- Compliance unique to ROBS centering around the completion of an IRS Form 5500 tax return for the company’s 401k plan, which can require specific reporting:
- annual business valuation calculations obtained from financial statements
- employee Census Reporting of 401k plan eligibility, which must include wages paid to any shareholder
- special business valuations for determining value per share if and when additional equity is injected, shares are purchased or sold.
- corporate documents and Board resolutions for any action necessary
- Compliance not unique to a ROBS, but required for any other C-Corporation
While operating a ROBS-funded business can be very similar to operating any other business, there are some distinct landmines to avoid. For example, the funds that become available for the business can be used for any normal business expense that is considered ordinary and necessary, but cannot be used for personal expenses. These “prohibited transactions” can be costly to correct and bring on unwanted IRS attention. Leveraging a CPA with significant ROBS experience who can identify and mitigate the situation will help to minimize unwanted scrutiny.
In this series of blogs related to ROBS, we will discuss:
- Why use a ROBS to fund your business purchase or expansion
- The pros/cons of using a ROBS
- The process of setting-up a ROBS
- Ongoing compliance requirements
- Exiting your ROBS
If you have set-up a ROBS and you are looking for expert tax/accounting/payroll support for your ROBS, please contact Attaway Linville today at 803-831-0263 or 404-607-8400 to learn more about how we can help.
This is #4 in a series of blog posts about ROBS. Click below for the other entries: