- What Is An ERSOP® Plan?
- What Is The IRS' Attituted Towards These Plans?
- What About IRAs?
- Why Can't I Use A Self-Directed IRA?
- What Distinguishes The PLAN From The TRUST From The INVESTMENTS?
- Will I Need A 401(k) For My Employees?
- Why Does SDCC Charge A Flat Fee?
- Why Does SDCC Neither Pay Nor Accept Commissions Or Finders Fees?
- Why Does SDCC Not Serve As Trustee?
- Why Does SDCC Not Sell Investments?
- How Does One Choose An Accountant?
Money in most IRAs may be rolled over into an ERSOP® plan and then invested in “qualifying employer securities.” Basically, only an inherited non-spousal accounts may not be rolled over. into an “eligible individual account plan.”
Our clients are, as the name suggests, entrepreneurs. As such, each is “an officer, director (or an individual having powers or responsibilities similar to those of officers or directors)” and therefore a “disqualified person” as defined in Internal Revenue Code. Further, since an IRA is specifically excluded from the definition of an “eligible individual account plan” (as defined in ERISA § 407(d)(3)), any entrepreneurial investment of funds held within “self-directed IRA” would not be exempted from being a prohibited transaction as defined in the Internal Revenue Code. However, once those “self-directed IRA” funds are rolled over into an ERSOP® Plan, those same funds may then be invested in any entrepreneurial way. “Self-directed IRA” investments must be passive or they are a distribution subject to taxes and penalties.
The Plan is the document setting forth rules of eligibility, participation, contributions, benefits, discrimination, vesting, distributions and retirement. The powers and duties of the Trustee may be included in the Plan document but are often in a separate TRUST document. The Trust Fund (or the INVESTMENTS) is (are) the sum of the contributed and rolled over money under the terms of the PLAN held by the Trustee. The TRUST document describes the permitted investments. The ERSOP® plan TRUST document provides for the greatest variety of investments including “qualifying Employer securities.”
Because ERISA states that the transaction is exempt from being a prohibited transaction “if no commission is charged with respect thereto . . .” If we charged a variable fee instead of a flat fee for service, the IRS could assert that the variable fee was a commission, and therefore the investment of the funds into the stock of your new corporation was a distribution subject to taxes and penalties.
Because ERISA states that the transaction is exempt from being a prohibited transaction “if no commission is charged with respect thereto . . .” to which the IRS adds “to or from a ‘disqualified person’.” We are defined in the Internal Revenue Code as a “disqualified person” because we provide services to the plan. If the IRS found during an examination (IRS audit) of your plan that we had paid or received a commission by any name, the IRS could assert the investment of the funds into the stock of your new corporation was a distribution subject to taxes and penalties. A franchisor must disclose any commissions paid or received in its FDD and if it is so disclosed in the FDD it would thereby be disclosed to the IRS. Therefore, anyone who pays or receives a commission in respect to establishing these plans are putting their clients at risk with the IRS.
We believe that there is an irreconcilable conflict of interest between the design and administration of the PLAN and the sale of investments to the TRUST fund.