A Rollover Business Startup (ROBS) allows entrepreneurs to use retirement funds to start or acquire a business without incurring early withdrawal penalties or immediate taxation. This specialized arrangement creates a pathway for using tax-deferred retirement savings as business capital while maintaining tax advantages—but only when structured and maintained in strict compliance with IRS regulations.
Rollover Business Startup (ROBS) Consulting
What is a Rollover Business Startup (ROBS)?
How the ROBS Arrangement Works
The ROBS transaction follows a specific sequence that must be executed precisely to maintain compliance:
Step 1
Form a new C-Corporation
Step 2
Create a new 401(k) plan through the corporation
Step 3
Roll over existing retirement funds into the new 401(k) plan
Step 4
The 401(k) plan purchases stock in the C-Corporation
Step 5
The corporation uses stock purchase funds to capitalize the business
Step 6
Become an employee of the business while maintaining proper corporate governance
*This arrangement must be structured carefully and operated in ongoing compliance with IRS regulations to avoid triggering immediate taxation and substantial penalties.
2008 ROBS IRS Memorandum: Critical Compliance Concerns
In 2008, the IRS issued a memorandum outlining specific concerns with ROBS arrangements, establishing guidelines for evaluation during audits. This memorandum serves as the foundation for compliance requirements and identifies several critical risk areas.
Key IRS Concerns Include:
Prohibited Transactions
Improper interactions between the plan, corporation, and disqualified persons
Valuation Issues
Inaccurate or unsupported valuation of corporation stock
Employee Exclusion
Failure to offer meaningful benefits to rank-and-file employees
Operational Compliance
Inadequate corporate governance and plan administration
Business Purpose
Structures designed primarily as tax avoidance mechanisms rather than legitimate businesses
*Violations can result in immediate taxation of the entire retirement amount used, a 10% early withdrawal penalty (if under age 59½), potential excise taxes, and disqualification of the retirement plan.
Why You Need Independent ROBS Legal Counsel
ROBS promoters typically focus on completing the transaction and collecting their fees—not on ensuring your long-term compliance or protecting your retirement investment. As one of fewer than a handful of attorneys nationwide with specialized expertise in ROBS structures, Kennedy Law Group offers the independent legal counsel essential for:
Objective Compliance Assessment
Unbiased review of your ROBS structure against IRS guidelines
Risk Identification
Early detection of compliance issues that promoters may have overlooked
Customized Corrections
Tailored solutions for addressing compliance gaps before they trigger IRS actions
Long-term Protection
Ongoing compliance guidance as your business evolves
*Without independent review, many entrepreneurs unknowingly operate non-compliant ROBS arrangements, creating significant financial exposure that may only become apparent during an IRS examination—when it’s often too late for simple corrections.
Our Comprehensive ROBS Process
Step 1: ROBS Overview & Initial Assessment
We thoroughly evaluate your current or proposed ROBS arrangement, examining corporate formation documents, 401(k) plan documents, stock purchase agreements, and operational practices. This assessment identifies immediate compliance concerns and establishes a baseline understanding of your situation.
Step 2: Assessment of Additional Needs
Based on our initial findings, we determine what specific legal services will best address your compliance situation, considering:
- Whether you’re planning or have an existing ROBS
- Your business structure and operational complexity
- The quality of existing documentation
- Specific risk factors unique to your arrangement
- Your long-term business goals and exit strategy
Step 3: Customized Service Delivery
We implement tailored solutions to address your specific compliance needs, which may include:
- Correcting formation documents to align with IRS requirements
- Revising 401(k) plan documents for proper compliance
- Implementing appropriate corporate governance procedures
- Developing compliant operational policies
- Creating documentation to support stock valuations
- Establishing ongoing compliance monitoring systems
Why Work With Kennedy Law Group
Specialized Expertise
One of fewer than a handful of attorneys nationwide with deep ROBS knowledge
Preventive Approach
Identify and address compliance issues before they trigger IRS actions
Independent Perspective
Unbiased advice focused solely on protecting your interests
Comprehensive Protection
From initial review through ongoing compliance monitoring
Cost-Effective Solutions
Our virtual law firm model keeps costs reasonable
Peace of Mind
Confidence that your retirement investment is protected by proper legal compliance
Protect Your ROBS Investment Today
Don’t wait until IRS issues arise. The small investment in independent legal counsel can save you thousands in taxes, penalties, and business disruption.