In 2009, the Employee Plans Unit of the IRS initiated a ROBS (rollovers for business startups) Compliance Project to monitor general compliance among ROBS plans. (See our July 2010 newsletter for a detailed discussion of the ROBS strategy.) The IRS found many ROBS plan sponsors were under the mistaken assumption they were not obligated to file an annual report/return (Form 5500-EZ), at least for the first year or few years after the plan was implemented.
Simplified reporting through Form 5500- EZ is available when an individual (alone or with his/her spouse) owns the entire business and the qualified retirement plan provides benefits to no one other than the owner (and/or the owner’s spouse). Moreover, a special exemption from the filing requirements applies when the value of the plan assets at the end of the year does not exceed $250,000.
In a ROBS arrangement, the qualified retirement plan invests in employer stock, and while the shares held by the plan may be held as earmarked investments of the owner’s account, it is the plan and not the individual that is the owner of record. The entire business, then, is not owned by the individual, and the ROBS plan does not qualify for Form 5500-EZ or the filing exemption. Consequently, in virtually all cases, a ROBS plan is obligated to file an annual Form 5500.