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jpod

ROBS

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Putting aside all of the other complications and concerns with ROBS, let's assume the structure has already been finalized and implemented.  Now, the C corporation that is owned by the Plan goes to a lender to borrow money to finance its inventory, general operations, what have you.  The lender is happy to lend the money to the corporation as long as the principals - i.e., the individuals whose Plan accounts own the stock - will guarantee the loan.  Would providing that guarantee be a pt?  

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By the way, please assume that the guarantor is a party-in-interest and/or disqualified person with respect to the plan.  Is it an "indirect loan or extension of credit" to the plan?

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2 hours ago, jpod said:

Putting aside all of the other complications and concerns with ROBS, let's assume the structure has already been finalized and implemented.  Now, the C corporation that is owned by the Plan goes to a lender to borrow money to finance its inventory, general operations, what have you.  The lender is happy to lend the money to the corporation as long as the principals - i.e., the individuals whose Plan accounts own the stock - will guarantee the loan.  Would providing that guarantee be a pt?  

Yup!  We simply will not deal with a plan that is involved in a ROBS.  Let others try to solve the inevitable screw ups that are almost 100% guaranteed; we have better things to do than deal with clients who don't listen to us in the first place. FWIW.

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18 minutes ago, Larry Starr said:

Yup!  We simply will not deal with a plan that is involved in a ROBS.  Let others try to solve the inevitable screw ups that are almost 100% guaranteed; we have better things to do than deal with clients who don't listen to us in the first place. FWIW.

My policy as well.  Life's too short to deal with this.   

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My client is the potential lender, and it just wants to get comfortable that the potential borrowers/guarantors have considered all the issues.  The basis for my concern is the decision in Peek v. Commissioner.  While it involved an IRA investment, and the Tax Court's broad opinion is questionable in my view, if one accepts the Tax Court's view then I don't know how to distinguish it from a ROBS situation.  Yet, many commentators believe it shouldn't apply in a ROBS situation.  Thoughts? 

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Thinking of this in an ESOP context - I don't think the principals can guaranteed the loan, it can only be secured by the stock of the leveraged company, right? So isn't this kind of a parallel situation?

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In a typical leveraged esop situation there is a statutory exemption unique to esops that would enable a guarantee to be given if it would otherwise be a pt.

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3 hours ago, jpod said:

My client is the potential lender, and it just wants to get comfortable that the potential borrowers/guarantors have considered all the issues.  The basis for my concern is the decision in Peek v. Commissioner.  While it involved an IRA investment, and the Tax Court's broad opinion is questionable in my view, if one accepts the Tax Court's view then I don't know how to distinguish it from a ROBS situation.  Yet, many commentators believe it shouldn't apply in a ROBS situation.  Thoughts? 

Then they need to hire competent counsel to advise them.  For example, Derrin Watson is on this site with a forum. There are others, but if they are a lender, they need their own counsel to advise them.

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Thanks Larry Starr for the suggestion.  I consider myself to be somewhat competent counsel, but as we here often do I was turning to this Board to see if someone who does ROBS work all the time had some inside baseball knowledge about the Peek case and its application to ROBS. 

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Lawrence, thanks for the citation.  Unfortunately, the facts of that PTE are way different than mine.  In that case, because of the plan asset rule, the LLC was ignored and therefore the guarantee was deemed to be a direct extension of credit between the DP and the Plan (rather than an indirect extension of credit).  

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9 hours ago, jpod said:

Thanks Larry Starr for the suggestion.  I consider myself to be somewhat competent counsel, but as we here often do I was turning to this Board to see if someone who does ROBS work all the time had some inside baseball knowledge about the Peek case and its application to ROBS. 

JPOD: sounds like a perfect situation to look for specialist counsel to give you a second opinion.  I think your concern is well placed and worth a second opinion form someone who can provide the needed info.  FWIW.  It is important enough (I would think) to look for an opinion you can count on.  All our opinions would be difficult to use in court if needed!

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