Examinations of Rollovers as Business Start-Ups (ROBS) Arrangements: A Guide to Surviving IRS Scrutiny

Introduction

In recent years, thousands of aspiring entrepreneurs have tapped into their existing retirement savings to finance the start-up or acquisition of a new business.

Industry experts estimate that since 2005 more than 10,000 start-up businesses have been capitalized through rollover arrangements. One of the most common techniques involves rolling over a prior individual retirement account (IRA), 401(k) account, or employee stock ownership plan (ESOP) account into a newly established 401(k) plan that is sponsored by the start-up business and then investing the rollover funds in the stock of the new corporation.

These complex arrangements, commonly referred to as “rollovers ...