They are established when existing retirement funds are rolled over to the ROBS plan in a tax-free transaction, and the ROBS plan then uses the rollover funds to purchase the stock of the new business.
But to those either planning on using a ROBS or just starting a business by a recently established ROBS be aware that the IRS is looking closely at this type of business start up funding.
The IRS's under a program called the ROBS project started last year has found that most ROBS businesses either failed or were on the road to failure, and that these business owners not only lost their companies, but their retirements' savings as well. Using these findings the IRS is expected to weigh in on the side of calling ROBS abusive tax avoidance transactions. And while that has not yet happened they may do so any any time.
So it would be advisable for any one planning or using ROBS to stay abreast of what's going on in this area as abusive tax avoidance transactions status for ROBS would make them plans to be avoided even if they aren't completely banned.
It's still possible to do much the same thing in what I've always preferred anyway and that's a self directed Roth or IRA that's used to purchase stock in the start up. It's much less a trigger point to leave any retirement monies that will be used for a start up in accounts that don't carry the stigma of being called ROBS. Of course any ROBS account ruling could well address this method by considering it a ROBS type of transaction even though it technically didn't use a formal ROBS plan.
Just keep in mind that any such funding arrangement could well be a problem in the future and if you are planning on doing this type of funding it might be advised that you get it done as quickly as possible to avoid any chance of the IRS disallowing it in the future.
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