Using Retirement Assets To Finance A New Business: Compliance Is The Key

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Dear Client,

While rollover financings can help aspiring entrepreneurs in the economic downturn, they must be carefully structured and comply with IRS filing and other legal requirements to avoid IRS challenge.

Following the economic downturn, small businesses and aspiring entrepreneurs found it increasingly difficult to obtain conventional financing. Thus, it is not surprising that, in 2009, several thousands of start-up businesses were financed through retirement fund rollovers (rollover financings). According to a recent survey, most businesses financed through this mechanism has exhibited staying power and have been successful enough to hire additional employees. Rollover financings have been described as a “win-win situation” in a Forbes article because of their job creation ability.

However, even with these successes, rollover financings have become controversial—due, in large part, to IRS concerns about compliance and the potential for abuse. This article reviews the basic structure of these rollover financings, analyzes the IRS’s concerns, and details how entrepreneurs can satisfy the compliance requirements the IRS has identified. It also suggests how to deal effectively with an IRS inquiry (e.g., a compliance check or audit).

If you would like more information on this topic please download the file below which provides more details on this topic.


Dean R. Holland, CPA

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