Revenooer Rants: So you want that IRA to invest in your business
Generally speaking — it’s not a good idea. Though often subject to more than ordinary scrutiny by the Revenooers, however, a scheme sometimes referred to as “rollover as business startup” (ROBS) or some similar moniker can work if you dot all I’s and cross all T’s.
The steps are generally these:
New business owner creates a new “C” corporation.
New corporation adopts a retirement plan containing a provision that 100% of plan assets attributable to rollovers are to be invested in the corporation’s stock.
Business owner rolls over the dough in an existing tax deferred account, such as a 401(k) plan with a former employer into the new ROBS plan.
Business owner then directs the corporation to issue all of its stock to the ROBS plan in exchange for the rolled over retirement plan proceeds.
Result: business owner has used rollover retirement plan proceeds to indirectly capitalize his business while avoiding the income taxes which would otherwise apply if he had simply “distributed” the 401(k) dough to himself for use in making the investment personally.
Again — this is not for everybody, due not only to the risk that the retirement money will be lost if the business fails, but also to the technical requirements of doing this in a manner which does not raise IRS’s hackles.
Indeed, the first one of these we saw led to nothing more than a guffaw in the expectation that the deal would never fly. Get help if you think this has merit in your case.
And speaking of retirement plans, those of you who turned 70-1/2 in 2015 must not lose sight of April 1, 2016 looming on the horizon.
This is your latest possible “required beginning date” for purposes of annual withdrawals (and payment of taxes with respect to) of the retirement dough.
And here comes IRS Commissioner Koskinen, again whining to we and thee about IRS’ fiscal problems. A few nuggets from his recent remarks to the National Press Club:
“According to statistics compiled by the Organization for Economic Cooperation and Development, the average OECD member country spends almost twice as much as the U.S. to collect a dollar of revenue … So it costs the IRS about 35 cents to collect $100. Now, if Congress were to give us the $1 billion increase requested by the President’s budget proposal for Fiscal Year 2017, that means we’d be able to do more … In cutting the IRS budget, historical collection results suggest that the government is forgoing more than $5 billion a year in enforcement revenue, just to achieve budget savings of a few hundred million dollars … Ultimately, continued underfunding of the IRS threatens to erode its effectiveness. My concern is that we’re getting dangerously close to that point. And, at a minimum, I don’t want anyone to say, after my term is over, that they didn’t understand the seriousness of the situation. They can continue to ignore it if they so choose, but they won’t be able to say that they weren’t warned.”
CONSULT YOUR TAX ADVISER – This article contains general information about various tax matters. You should consult your CPA regarding the implications to your own particular situation. Jeff Quinn is a CPA, recently retired from Ashley Quinn, CPAs and Consultants, Ltd., with offices in Incline Village and Reno. He welcomes comments at firstname.lastname@example.org.
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