Skip to main content
Running a ROBS-funded business means running a 401(k) plan. That comes with real compliance obligations under the Internal Revenue Code (IRC) and ERISA, and violations carry steep financial penalties. Ongoing administration is part of the product, not an afterthought.

​
Why Compliance Matters

ViolationPenalty
Prohibited transaction (IRC 4975)15% excise tax on the amount involved, per year
Uncorrected prohibited transactionAdditional 100% tax on the amount involved
IRA disqualification (IRC 408(e)(2))Entire account balance treated as taxable distribution
Late Form 5500 filing**250/day∗∗penalty,upto250/day** penalty, up to 150,000
The IRS Employee Plans Compliance Unit actively audits ROBS transactions using examination guidance from IRS Memo 2008-01-021. Compliance is not something to figure out after the fact.

​
Your Compliance Obligations

​
At Formation

  • C-Corporation properly formed and in good standing
  • 401(k) plan documents properly adopted
  • Stock issued at adequate consideration (par value for new businesses)
  • Rollover processed as trustee-to-trustee transfer

​
Ongoing

  • Annual Form 5500 filing - required for all 401(k) plans with assets
  • Annual plan valuation - fair market value of plan assets including C-Corp stock
  • Reasonable compensation - your salary must be at market rate, documented by board resolution
  • No prohibited transactions - quarterly self-audit recommended
  • Corporate governance - maintain meeting minutes, document major decisions

​
What Talcott Forge Handles

  • Compliance deadline tracking and reminders
  • Form 5500 data collection and filing support
  • Quarterly prohibited transaction review
  • Document generation for governance actions
  • Cap table maintenance and valuation tracking

Prohibited Transactions

What you can and cannot do

Form 5500

Annual filing requirements

Key Case Law

What courts have ruled

Glossary

Key terms defined