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Form 1120 instructions discussed by a ROBS CPA

ROBS CPA, Form 1120 CPA. Form 1120 instructions

Most of the post ROBS transactions deal with Form 1120 and the Form 1120 instructions. Need a free consult for a ROBS C Corporation? Call me. (910) 399-2705.

I’m a ROBS CPA mostly because this website draws from a larger audience than a traditional brick and mortar CPA firm, making ROBS specialization worth the steep learning curve. ROBS requires you to be a C Corporation and file Form 1120, U.S. Corporation Income Tax Return, following the Form 1120 instructions. I read the 1120 instructions every year, sad but true, but also use a professional tax software program, ProSeries. The Form 1120 instructions are a hard read, even for a ROBS CPA. The stylized technical writing, intimidating nomenclature and an assumed knowledge of multiple tax issues make it hard to pull out what you actually need from the instructions. I’ll cover some ROBS FAQs plus a few pointers not found in the 1120 instructions.

Other Guidance for ROBS C Corporations

Prohibited transactions with a ROBS C Corporation follow ERISA guidelines. Why? Your 401K master plan is a ERISA compliant retirement program maintained by the Department of Labor and enforced by the IRS.

Additional cost with ROBS and C Corporations

  • There’s the setup costs.
    • You should factor these into your cash flow plan.
    • The cheapest I’ve heard? $3500. Usually $5000.
    • The there’s ROBS 401K compliance:
      • Custodian
      • Annual C Corporation valuation.
      • Filing Form 5500.
      • Your ROBS setup provider company typically charges $1500-$1800 a year for the above.
  • Because of the complexity of preparing Form 1120, and the difficulty of the 1120 instructions, you’ll need a CPA to prepare Form 1120.
    • Cost depends on complexity.
    • C Corporations are rare in small business today. However the 2017 Tax Cut act and treatment of employee fringe benefits may change that.
    • Make sure your CPA handles C Corporations.
    • Even a ROBS CPA might not be an expert with your type of business.
  • Additional consulting with your ROBS CPA for the C Corporation.
    • Maybe $500 more in the first year than say an S Corporation.
      • This cost decreases dramatically once you’ve mastered all the quirks of your company.
    • CPAs specialize. So while I handle C Corporation for house flippers, for example, I’d pass on an oil exploration C Corp.
  • Double taxation.
    • Depends on the skill of your ROBS CPA.
    • I do proactive December tax positioning with my C Corps.
      • With the new flat 21% corporate tax rate, I expect some clients will pay the 21% and keep the remainder of the profit in the C Corporation. That could be for expected operating capital or expansions.

Why are CPAs scared of ROBS?

There was a white paper in 2008 stating the IRS would audit every ROBS C Corporation. They don’t do that and I’ve seen ROBS C Corporations mis-handled in a way that would terrorize me, if it was my C Corporation. So I help Clients handle their C Corporation and Form 1120 to IRS standards. Certainly the IRS is capable of detecting most C Corporation errors. But it may not have enough resources to target every non compliant ROBS company.

“I don’t feel ROBS is much of a red flag anymore if you adhere to the Form 1120 instructions and handle the ERISA 401K Master Plan properly.”
– Gary Bode, ROBS CPA

You don’t want to be a C Corporation if you can avoid it?

A S Corporation has better tax loopholes and Partnerships are a better way to attract investors. In my opinion, you’d only want to be a C Corporation if you expect to go public.

However, please read below. My opinion is changing.

Advantages of a C Corporation

Employee fringe benefits are directly paid by the C Corporation. That’s a big deal as healthcare gets more expensive. With planning C Corporation double taxation can be avoided.

What the Form 1120 instructions don’t tell you

  • You should keep corporate minutes for every major decision.
    • If you’re audited the IRS will ask for them.
    • Minutes are also a good way to track ideas.
  • You have to be meticulous, detail oriented person to run a ROBS Corporation.
    • Not everyone can satisfy the IRS.
  • Once you’re a C Corporation it’s hard to change into what would be ideal business entity, like say a S Corporation or Partnership.
  • The Form 1120 instructions only cover Form 1120.
    • You or your ROBS CPA must understand lots of issues particular to your type of operations.
      • Even a relatively simple job like depreciation has to learned through other IRS sources outside the Form 1120 instructions.

Do you need a ROBS CPA?

The answer to most accounting a tax work is “it depends.” The same is true here. I suggest talking with ROBS CPAs. I think they all offer a free consult like we do. Try reading the 1120 instructions.  Need a free consult with a ROBS CPA? Call us at (910) 399-2705.

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