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protection from incorrectly applying the plan's terms, nor from operating the plan in a discriminatory manner. When a plan sponsor administers a plan in a way that results in prohibited discrimination or engages in prohibited transactions, it can result in plan disqualification and adverse tax consequences to the plan's sponsor and its participants. Accordingly, promoters who emphasize or "promote" based on a favorable DL are, at a minimum, engaging in deceptive trade practices.
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withdrawal funds to the ROBS plan in a tax-free transaction. Since the IRS pronouncement concerning this potentially discriminatory approach, most ROBS plans have included all participants and have provided broad-based participation for all employees. The ROBS plan then uses the rollover assets to
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In many cases, the broker will apply to IRS for a favorable determination letter (DL) as a way to assure their clients that the IRS approves the ROBS arrangement. The IRS issues a favorable DL if a plan's terms meet
Internal Revenue Code requirements. A favorable DL does not give plan sponsors
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Preliminary results from the ROBS Project indicate that, although there were a few success stories, most ROBS businesses either failed or were on the road to failure with high rates of bankruptcy (business and personal), liens (business and personal), and corporate dissolutions by individual
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Secretaries of State. Some individuals who started ROBS plans lost not only their retirement assets, accumulated over many years, but also their dream of owning a business. As a result, much of their retirement savings were depleted or 'lost', often even before they had begun trading.
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After the ROBS plan sponsor purchases the new company's employer stock with the rollover funds, the sponsor amends the plan to prevent other participants from purchasing stock. Since the 2008 announcement from the IRS such amendments are rare.
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After the DL is issued, these amendments may violate the Code qualification requirements, and raise problems with coverage, discrimination and, potentially, violations of benefits, rights and features requirements.
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transaction, are, according to the IRS, "questionable" because they may solely benefit one individual – the individual who rolls over his or her existing retirement
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or other retirement funds to pay for new business start-up costs, for business acquisition costs or to refinance an existing business. In 2008, the
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and the U.S. Criminal Code: Offer, Acceptance, or
Solicitation to Influence Operations of Employee Benefit Plan (18 U.S.C. Section 1954).
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311:"Employee Plans Compliance Unit (EPCU) - Completed Projects - Project with Summary Reports – Rollovers as Business Start-Ups (ROBS)"
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ROBS plans are an alternative for start up franchises or businesses to receiving an
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set up the ROBS Compliance
Project to monitor such arrangements.
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in which current or prospective business owners use their
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must be set up in order to roll the 401(k) withdrawal.
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279:"Guidelines regarding rollovers as business start-ups"
226:when the assets are rolled over into the ROBS plan
237:American Association of Franchisees and Dealers
203:There are many potential problems with ROBS.
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142:ROBS plans, while not considered an abusive
48:introducing citations to additional sources
277:Julianelle, Michael D. (October 1, 2008).
151:purchase the stock of the new business. A
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38:Relevant discussion may be found on the
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158:Promoters and facilitators, such as
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352:Individual retirement accounts
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118:) are arrangements in the
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164:small business financing
132:Internal Revenue Service
347:Internal Revenue Code
190:New business failures
185:ROBS Project findings
44:improve this article
321:on 31 December 2012
222:Failure to issue a
219:Valuation of assets
242:401(k) IRA matrix
199:Specific problems
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55:Find sources:
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323:. Retrieved
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315:www.irs.gov
224:Form 1099-R
341:Categories
325:17 January
253:References
138:Background
100:March 2020
70:newspapers
40:talk page
231:See also
160:Roth IRA
295:6 March
84:scholar
247:403(b)
124:401(k)
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282:(PDF)
168:ERISA
91:JSTOR
77:books
327:2022
297:2020
148:401k
116:ROBS
63:news
179:SBA
128:IRA
46:by
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261:^
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