ROBS C-corporation Structure — Mail Station
What ROBS is
A Rollover for Business Startups (ROBS) arrangement is a federally-recognized mechanism that allows an entrepreneur to use retirement-account funds (typically a 401(k) rollover) to capitalize a new business, without triggering the early-withdrawal tax penalty. The arrangement requires a specific legal structure:
- The entrepreneur forms a new C-corporation.
- The C-corp adopts a new 401(k) plan.
- The entrepreneur rolls over their existing retirement funds into the new C-corp’s 401(k) plan.
- The 401(k) plan then purchases stock in the C-corp, capitalizing the business with the rollover funds.
Required structural features
The ROBS arrangement carries several IRS / DOL compliance constraints that materially affect how the operator’s compensation is structured:
- The operator must be a W-2 employee of the C-corp. The IRS treats the operator as a true employee, not a self-employed contractor. Compensation flows through payroll and is reported on a Form W-2.
- The operator must simultaneously be a shareholder. The C-corp’s stock is held through the 401(k) plan, with the operator as the participant.
- The W-2 wage must be reasonable for the services rendered. This is the operative compliance constraint: the wage cannot be arbitrarily set high (which would dissipate corporate capital and trigger prohibited-transaction concerns) or arbitrarily low (which would violate the reasonable-compensation rule).
- Distributions / dividends are separate from wages. Any distributions on stock owned by the 401(k) plan flow back into the plan, not directly into the operator’s pocket. Wages are the operator’s accessible income.
Why the structure constrains income imputation
For purposes of FC §4058 child-support calculation:
- The W-2 wage is the operative §4058(a) annual gross income for the operator’s labor.
- Stock dividends or plan-level returns are not freely accessible income — they remain inside the qualified plan, subject to ordinary retirement-account treatment.
- Pre-tax / post-tax distinctions on the W-2 wage flow through to FC §4059 deductions in the usual way.
Any imputation theory that ignores the ROBS structural constraints — for example, an attempt to add back stock value as if it were salary, or an attempt to treat the C-corp’s gross revenue as the operator’s gross income — misapplies the §4058 framework. The W-2 wage is what counts. Earning capacity imputation under §4058(b) requires the moving-party showing under In re Marriage of Bardzik, In re Marriage of Regnery, and Mendoza v. Ramos, and the structural realities of the ROBS arrangement constrain what figure can plausibly be imputed.
Common rebuttal points
When opposing counsel attempts to inflate Charley’s effective income above the W-2 wage:
- “Add-backs” of business operating expenses (lease, equipment, supplies) are not income to the operator — those are corporate expenses.
- Personal expenses paid by the corporation are taxable W-2 wages already, by federal law; they cannot be double-counted as additional imputed income.
- The C-corp’s retained earnings are not the operator’s income — they remain corporate capital subject to the ROBS plan-stock arrangement.