Jeff Kulhay 10 months, 3 weeks ago
I have a C-corp that was partially funded with a ROBS transaction by a business partner. At this time the individual who owns the 401k portion of the shares would like to sell his shares and roll the $$ back into an IRA he can invest into other things. Currently we are being told by a tax attorney that we absolutely must be beholden to the 5500 valuation per share as the cost for the corp to purchase the shares back from the 401K plan. The problem is that 1) the company can’t afford to do this and 2) the individual who owns the 401K shares is adamant that he is ok taking less than the 5500 valuation states is the value per share.
Can you give me some guidance in this situation? This tax attorneys stance doesn’t make much sense to me because if the company goes out of business the individual would lose 100% of his money but he can’t willingly take .50 on the dollar if he so chooses? Also, he could have an IRA invested in the stock market lose 50% of its value and it is allowed to be invested there and he can sell at that price without penalty.
Jeff WhiteModerator10 months, 3 weeks ago
This is a great question! Technically the tax attorney is right. You’re beholden to what the valuation is, but it must be a current valuation. You can’t pay out money based on what the original 5500 valuation was, because your money wouldn’t be increasing or decreasing. If your current valuation is at a certain level then there isn’t any taking less money in that scenario. You have to pay out the right amounts on the valuation at the time you need to sell the shares. Otherwise the business would be getting a huge benefit without paying taxes or withdrawal penalties, which is a big no-no and you’d fail any potential ROBS audit by the IRS in the future.
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