C Corp funded by 401k

Technical topics regarding tax preparation.
#1
pikamoo  
Posts:
14
Joined:
27-Mar-2018 9:44pm
Location:
Chicago
A client of mine informed me (this close to filing deadline of course) that he started a new business with his 401k via a ROBS transaction. This is the first time I've encountered this type of corporation and I am not sure if there is anything special that needs to be done with the C Corp return. Everything I've read about these has to do with prohibited transactions and risks involved.

The only activity in 2017 has been an extremely high franchise fee and other startup costs.

The structure is as follows:

H owns 10%
W owns 10%
401k owns 80%
H owns 100% of 401k

I am seeing the return as a regular tax return with $0 income and amortized startup expenses, however as I've said I have never encountered a Corp where a 401k plan is an owner. Is the only special case here that the 401k trust is shown as an owner of stock on Sch G? I see this scenario:

Sch G p1:
401k trust 80%

Sch G part 2:
H 100% (he owns 10% directly + 80% indirectly from 401k trust + 10% indirectly from H)
W 100% (she owns 10% directly + 90% indirectly from H)

All help is greatly appreciated

Edit: Is the legitimate employee requirement going to be an issue since this Corp was in start-up phase and still is technically in this phase into this year?
 

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