IRS Warns Business Funding Solution ROBS Retirement Plans

The Internal Revenue Service (IRS) has released a memo warning businesses that funding a business with your retirement plan may not be a good solution.

Entrust New Direction IRA, Inc., explained in a news release that financial companies promoting the “Rollovers as Business Startups,’ or ROBS, arrangement claim the IRS has preapproved the arrangement for years. However, the IRS memo titled, “When ‘Too Good to Be True’ Very Well May Be: Funding Business Startups with Plan Assets” warns that ROBS arrangements will be scrutinized very carefully, “may violate the law,” and “may be prohibited transactions.”

If the arrangement is a prohibited transaction, the retirement account in question could be closed and the funds subject to excise taxes. The IRS says it will focus on any transaction that claims you can transfer money without paying taxes, according to the news release.

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The IRS memo says the agency has seen an increase in transactions that try to “exploit the generous tax benefits enjoyed by qualified retirement plans.” For business funding transactions, the IRS requires a custodian between the retirement plan holder and the retirement funds, and business owners cannot spend the retirement money on themselves or their companies.

Entrust New Direction IRA, Inc., said a solution it is offering is a new service, the IRA Card, which provides quick access to IRA funds but keeps the custodial layer between the IRA holder and the IRS. The IRA Card can be used like an ATM or a credit card for qualified retirement plans, providing easy access without compromising the tax-free or tax-deferred status, according to the news release.


More information is available at www.newdirectionira.com.

IRS Puts Out Cycle D Plan Qualification Changes

The Internal Revenue Service (IRS) on Tuesday released the 2008 Cumulative List of Changes in Plan Qualification Requirements to be used primarily by plan sponsors of Cycle D individually designed plans.

According to an IRS news release, an individually designed plan is in Cycle D if it is a single employer plan where the last digit of the employer identification number of the plan sponsor is 4 or 9, or it is a multiemployer plan under section 414(f).

The publishing of the list was called for under Section 4 of Revenue Procedure 2007-44, which mandates the collecting of statutory, regulatory, and guidance changes that must be taken into account in submissions by plan sponsors for opinion, advisory, and determination letters whose submission period begins on February 1st following issuance of the list.

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The IRS said it will start accepting determination letter applications for Cycle D plans beginning February 1, 2009. The 12-month submission period for Cycle D plans will end January 31, 2010.

The tax agency said the new list reflects law changes under the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), the Pension Funding Equity Act of 2004 (PFEA), the American Jobs Creation Act of 2004 (AJCA), the Katrina Emergency Tax Relief Act of 2005 (KETRA), the Gulf Opportunity Zone Act of 2005 (GOZA), the Pension Protection Act of 2006 (PPA ’06), and the U.S. Troop Readiness, Veterans’ Care, Katrina Recovery, and Iraq Accountability Appropriations Act, 2007.

The latest IRS release is available here.

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