> ## Documentation Index
> Fetch the complete documentation index at: https://docs.talcottforge.com/llms.txt
> Use this file to discover all available pages before exploring further.
# Key Case Law
> Important court decisions that shape ROBS compliance requirements.
## Ellis v. Commissioner (2015)
**Citation:** 787 F.3d 1213 (8th Cir. 2015)
**Topic:** Founder compensation from a ROBS-funded company
### What Happened
Mr. Ellis formed a company using his IRA through a ROBS structure. As General Manager, he had full authority to direct the company's operations - including setting his own compensation. He paid himself a salary from the company, which was funded almost exclusively by his IRA.
### What the Court Ruled
The salary payments were a **prohibited transaction** under IRC 4975(c)(1)(D) and (E) because Ellis could unilaterally direct payments to himself with no independent oversight. The court found this constituted indirect self-dealing with plan assets.
### What This Means for You
Ellis does **not** mean you can't pay yourself a salary. You must pay yourself - you're a W-2 employee. The ruling is specifically about **unchecked self-dealing**: the ability to direct your own compensation without any governance controls.
**The compliance standard:**
* Set compensation at **market rates** for your role and industry
* **Document** compensation decisions through board resolutions
* Maintain standard corporate governance - this doesn't require independent board members at formation, but it does require documentation
***
## Peek v. Commissioner (2013)
**Citation:** 140 T.C. No. 12 (2013)
**Topic:** Personal guarantees on business debt
### What Happened
Mr. Peek and Mr. Fleck used their IRAs to form a company and purchase an existing business. The purchase included a \$200,000 promissory note from the company to the sellers. Peek and Fleck **personally guaranteed** the note, secured by deeds of trust on their personal residences.
### What the Court Ruled
The personal guarantees were an **indirect extension of credit** between the founders (disqualified persons) and the plan under IRC 4975(c)(1)(B). The court rejected the argument that the guarantee was to the corporation, not the plan - because the plan owns the corporation, an extension of credit to the corporation is an indirect extension of credit to the plan.
### The Consequence
The IRAs were **disqualified as of January 1** of the year the guarantees were signed. The entire account balances were treated as taxable distributions. When the business was later sold for approximately \$1.6 million, the capital gains were fully taxable - they lost the tax-free IRA treatment entirely.
### What This Means for You
**Never personally guarantee any loan on behalf of your ROBS-funded business.** This is one of the clearest prohibited transaction rules. It applies to all forms of personal guarantees - bank loans, SBA loans, vendor credit, equipment financing, anything.
If your business needs debt financing, the **corporation** must qualify on its own merits without your personal guarantee.
***
## Key Takeaways
| Rule | Source | Summary |
| ---------------------------------------------------------------- | ---------------- | ---------------------------------------------------------------------------------------- |
| Pay yourself a reasonable, documented salary | *Ellis* | Salary is required, but it must be at market rates with board documentation |
| Never personally guarantee business debt | *Peek* | Any personal guarantee is a prohibited transaction that disqualifies the plan |
| Independent board members are a best practice, not a requirement | *Ellis* analysis | Most ROBS startups begin with founder as sole director |
| "Indirect" transactions count | Both cases | You can't route around prohibited transaction rules through intermediaries |
| The plan asset regulation doesn't override 4975 | *Ellis* | Even if the company is an "operating company," indirect self-dealing is still prohibited |
Full list of what you can and cannot do under ROBS.