Enrolling In ROBS

Enrolling in ROBS is an extremely complex process. So is running a C corporation, the type of corporation required for ROBS. The risk of violation is extremely high to the extent that the Small Business Administration warns that using the complex tax strategy is likely to draw increased scrutiny from the IRS.
The most extreme risk is that during an audit, the IRS finds violations and negates the whole ROBS transaction. If the IRS finds fault with the ROBS arrangement and voids it, all of the rolled-over funds would become taxable distributions, forcing the individual to pay back taxes for every year since they filed the initial ROBS transaction, plus a penalty tax. Most small businesses can’t survive that. So, therefore, why would you choose anyone else other than
Walker Advisory to administer your ROLLOVER process?
Remember Walker Advisory is the only service provider that shoulders all liability and responsibility for matters that relate to the plan because we are the Fiduciaries/Trustees of the plan. Now, you, the entrepreneur, can focus on building your business and sleep soundly knowing that the IRS/DOL will not appear at your doorstep early in the morning.

Can ERPA Own 100% Of The Stock?

Can the C Corporation be owned 100% by The Entrepreneur Retirement Plan and America?


The answer is technically yes, but is generally not the best solution. We recommend that the business owner own a minimum of 5% of the stock. Although there are also ERISA compliance reasons  for the split, for tax purposes, the split ownership is in place to maintain our options for business and tax planning looking forward….not just at closing.

With the vast majority of the company owned by the plan you still allow yourself the ability to dividend profits or sales proceeds into the plan should you wish. By having some ownership individually, you keep the option alive for buying plan owned stock back into treasury and the individual owning 100% of the company without the individual having to take personal savings to consolidate their ownership in the company.

If all stock is repurchased from ERPA, the 5% stock you owned in the beginning is now 100% of the outstanding stock. At that point of transition to individual ownership, you can make S elections or other restructuring options that were not previously available.

More Than Just A Tip….

November 26, 2010 – IRS Retirement News for Employers Fall 2010 Edition – An overview of the ROBS Compliance Project is presented. The IRS states that, “ROBS plans ARE NOT considered an abusive tax avoidance transaction.”
Problems identified in the overview are administrative in nature and include:


◦ Failure to file Form 5500

◦ Failure to file federal corporate tax return

◦ Failure to issue 1099-R on rollover in ROBS plan

◦ Nonexistent or superficial business valuations

◦ Payment of implementation fees from rollover funds

◦ Benefits, Rights or Features failures

◦ Employers often do not understand that a qualified plan is a separate entity with its own set of requirements

◦ Employers in some cases have been incorrectly advised that they do not have an annual filing requirement

The question you need to ask yourselves is “do I, as an entrepreneur, want to assume all the responsibility and liability of administering a 401(k) Plan or should I place that task in the capable hands of the professionals at Walker Advisory.”
You are welcome to contact us here for more information.

What The IRS Is Looking For During A Plan Review

The IRS is, in part, looking for the following during a plan review:

  • Permanence: Does a plan receive any form of ongoing contribution?
  • Exclusive Benefit:  The plan must be operated for the benefit of the employees and their beneficiaries. Thus, as long as the plan assets used to capitalized the business are not used for personal gain and the plan is in fact operated to benefit the company’s employees and their beneficiaries, the exclusive benefit requirement should not be a problem
  • Benefits, Rights and Features Discrimination:  The IRS has not specifically found that these plans typically discriminate against rank and file employees in coverage or contributions. So the IRS instead is looking at whether the plan is discriminating in favor of “highly compensated employees.” The key issue to be reviewed here is the method by which the employer stock was offered and sold to the plan.
  • Prohibited Transactions:  The IRS will be looking at the employer stock and whether the plan paid “adequate consideration.” This is where a valuation by an independent qualified business valuator/appraiser is extremely important to confirm that the plan did not overpay for its employer stock investment. The IRS will also review the payment of plan implementation fees. The issue with the fees is to see if the plan assets were indirectly used to pay the fees. It is not possible to make a blanket policy to disqualify these types of plans because retirement plans are in fact allowed to invest in employer stock. So the IRS is left to review plans on a case-by-case basis to identify any disqualifying defects. That is why entrepreneurs find peace of mind with Walker Business Advisory Service’s ERPA (Entrepreneur Retirement Plan of America) because it is properly designed, implemented and administered.  ERPA can withstand any scrutiny that may be brought against it.
  • Compliance is not about being compliant when a plan is being formed because being compliant at the start is the easy part. Compliance is about how the plan is managed and administered over time. Time will be the best indicator as to whether the entrepreneur established the plan to be a real retirement plan or whether the plan was established solely to benefit the entrepreneur. Individuals who self-deal or engage in other prohibited transactions expose themselves to the long arm of the IRS. On the other hand, individuals who are compliant will more than likely hold up under IRS scrutiny.


For more information on specific retirement plans then you are welcome to read some of our articles.


When you are ready to discuss your plan to purchase a business with your retirement plan then be sure to contact us so that we can discuss the benefits of the ERPA plan.

Annual Stock Value Calculation for Form 5500 Reporting

For those that are invested in the Qualified Employer Securities (QES), you are required to have a stock value calculation prepared after 12/31 of each year for Form 5500 reporting purposes. When a private investment such as the QES is held by your plan this is the only way to value that investment since it is not based on the stock market.

The completed Stock Value Calculation should be sent to us no later than 6/30 of each year so that we have time to prepare the Form 5500 filing that is due by 7/31 of each year. The IRS, Department of Labor, and Pension Benefit Guaranty Corporation jointly developed the Form 5500 series returns for employee benefit plans to satisfy annual reporting requirements under ERISA and the Internal Revenue Code.

Walker Advisory will send out reminders after the first of each year to let you know it’s time to start preparing to submit your paperwork to the valuation company that you plan to use.

Trustees And Fiduciaries

All business owners and executives have the obligation and duty to their employees, shareholders, partners and families to insulate and protect their companies and operations from the legal threats that haunt businesses. By understanding the threats and risks, and by taking proactive measures to prevent lawsuits and legal disasters, you can control your own legal destiny and win the advantage in any future legal battles.

In the world of 401(k)s and other qualified plans, the Trustees and Fiduciaries assume those roles and have the same obligations and duties as do owners and executives in the corporate world. Walker Advisory insulates and protects the business owners from exposure to the long arms of the IRS and DOL (Dept. of Labor). We assume all responsibility and liability so that the business owner can focus on building his business and not have to be constantly looking over his shoulder.

If you need help on getting started to use your qualified retirement plan to purchase a business then you are welcome to contact us here.

Retirement Plan Success Follows Strong Plan Compliance

This post is granted to this website to be used with permission by Fred Whitlock and Walker Business Advisory Services.

If you are ready to discover more about how you can use your retirement plan to purchase a business, stay compliant with federal regulations, and have more protection & flexibility than other consulting options you are considering then you are welcome to contact us.

Have you ever bitten or cut into an apple only to find a worm inside? That wonderful looking piece of fruit all of a sudden becomes much less appealing. Depending on the extent of the damage caused by the worm, none of the apple may be salvageable.


In a retirement plan, compliance failures, just like the worm, can fester without being detected. The retirement plan appears to be functioning well but in reality significant problems are building. Then one day the Department of Labor or the Internal Revenue Service make an inquiry, and just like the opening of an apple, the compliance problems get exposed.


Although the best way to handle compliance issues is to address them before they begin, the reality is problems do occur. Retirement plan success requires strong plan administration designed to detect and correct compliance issues. The Entrepreneur Retirement Plan of America (“ERPA”) is such a plan.


One of ERPA’s many compliance procedures includes the review of each adopting employer’s federal income tax return. This review process has identified that around 95% of the tax returns filed initially after ERPA is adopted contain some form of error requiring a correction. Some of the errors are critical elevating to the level of a prohibited transaction. For example, when a retirement plan invests in employer stock a C corporation is required. This past year ERPA’s tax return review process identified several corporations which had made an S-Election thus converting the C corporation to an S corporation. Because of ERPA’s detect and correct approach, these S corporation issues were quickly addressed and resolved. But, had they gone on undetected for a long period of time, like having a worm in an apple, the results would have been catastrophic to the respective businesses and possibly to the lending institutions as well.


ERPA’s compliance procedures are unmatched. These procedures help insulate entrepreneurs from the long arms of the Department of Labor and the Internal Revenue Service. Lenders’ loans issued to ERPA businesses have greater security due to ERPAs compliance features because these features keep ERPA businesses compliant.

ERPA’s detect and correct compliance approach equals plan success.

Courtesy of:  Frederick S. Whitlock