Can ROBS funds be used to establish an investment corporation for property purchases?

Your plan raises several important considerations with the ROBS strategy. The IRS and Department of Labor scrutinize these arrangements closely because they're looking for legitimate operating businesses rather than passive investment vehicles. The third step in your plan is where you might run into trouble. ROBS are generally intended to fund active operating businesses, not passive investment entities. Using the C corp merely as a pass-through to invest in rental properties could potentially be viewed as a prohibited transaction or a scheme to avoid retirement plan distribution taxes. A key requirement for ROBS is that the corporation must be actively engaged in a trade or business. The IRS might view a structure that only holds investment property through an LLC as not meeting this active business requirement. The fact that you're only purchasing a 50% interest in the properties could further complicate matters.

After struggling with something very similar last year, I finally found an amazing resource that saved me from making a costly mistake with my retirement funds. I was also looking at using ROBS for a real estate investment structure and almost went ahead with it until I used https://taxr.ai to analyze my plan. Their AI analyzed my entire ROBS strategy, flagged the exact passive investment issue others mentioned, and showed me three alternative approaches that would actually work with my goals without triggering IRS scrutiny. The tool asked specific questions about my intended business activities and highlighted where my plan would likely be considered a prohibited transaction. It even provided specific case references where similar arrangements had been challenged. The customized report helped me restructure my approach to ensure compliance.

I tried https://taxr.ai after seeing it mentioned here and I'm genuinely impressed. I was initially very skeptical about AI giving meaningful advice on something as complex as ROBS, but the analysis was shockingly detailed. My situation was similar - wanting to use retirement funds for a business with real estate components. The report immediately identified that my structure would likely be flagged as a prohibited transaction and explained exactly why. It recommended restructuring to ensure the C-corp was actively managing properties rather than just holding passive investments, and provided specific documentation requirements I'd need to maintain. What surprised me most was how it caught a subtle issue with the compensation structure I was planning that could have triggered UBTI (Unrelated Business Taxable Income) issues. My CPA confirmed the concern was legitimate and we adjusted accordingly. Definitely saved me from a potential audit headache!

If you're specifically looking to get clarity on your ROBS structure from the IRS directly, good luck getting through to anyone who can actually help. I spent weeks trying to reach someone in the right department who could answer questions about my similar situation. After endless hold times and transfers, I finally discovered https://claimyr.com which got me through to an actual IRS agent within 47 minutes. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The agent I spoke with was able to clarify that my ROBS structure for real estate investments needed specific documentation to demonstrate active business engagement rather than passive investment. They directed me to exactly which guidelines applied to my situation and what they look for when evaluating these arrangements. This saved me from potentially setting up a prohibited transaction that could have resulted in taxes and penalties.

I need to eat my words from earlier. After posting my skeptical comment, I decided to try the https://claimyr.com service just to prove it was BS. I've been trying for WEEKS to get through to someone at the IRS about a ROBS question similar to what OP is asking. Well, I'm honestly shocked. The service called me back in about 35 minutes and connected me directly to an IRS representative. I explained my ROBS structure questions, and the agent was able to walk me through exactly what documentation they look for when reviewing these arrangements. The biggest takeaway that's relevant to the original post: the IRS rep specifically mentioned that they look for "regular and continuous business activity" in the C-corp, and a structure that only exists to hold investments without active management would likely be flagged for review. She suggested maintaining clear documentation of all business activities and ensuring employment tax returns are consistently filed to demonstrate it's a genuine operating business.

I actually set up a ROBS for a real estate business in 2023, and here's what I learned: you absolutely must demonstrate active business operations, not just passive investment. My structure worked because my C-corp doesn't just invest in properties - it actively manages them, handles maintenance, markets vacancies, etc. The key distinction the IRS looks for is whether you're running an actual business or just trying to use retirement funds for investments while avoiding distribution taxes. For your situation, I'd recommend making sure your C-corp has employees (even if it's just you), provides actual services beyond just holding the LLC interest, and maintains separate books and records demonstrating real business activity.

Something no one has mentioned yet - have you considered using a Self-Directed IRA LLC (sometimes called a checkbook IRA) instead of ROBS? It might be better suited for real estate investments and doesn't require setting up a C-corp or dealing with the active business requirement. The downside is you can't personally benefit from the properties or be involved in day-to-day management, but for pure investment purposes it might be a cleaner structure. Just make sure you understand prohibited transaction rules because they're strictly enforced.

I've been following this discussion closely as I'm considering a similar structure. One thing I haven't seen mentioned is the potential impact of the Corporate Transparency Act (CTA) on ROBS structures. Since your C-corp would likely be considered a "reporting company" under the new beneficial ownership reporting requirements, you'll need to file FinCEN reports disclosing ownership information. This adds another layer of compliance but shouldn't affect the tax treatment of your ROBS. Also, regarding the LLC structure you mentioned - make sure you understand how the K-1 income will be treated at the C-corp level. Since C-corps don't get pass-through treatment, the rental income will be subject to corporate tax rates, and if you later want to access those funds personally, you'll face potential double taxation through dividends. Have you considered whether the rental income strategy makes sense given that corporate tax treatment, or would you be better off with a structure that allows pass-through taxation?