June 26, 2019

HB 14-1033: Enacting the “Regulatory Reform Act of 2014”

On January 8, 2014, Rep. Libby Szabo and Sen. Lois Tochtrop introduced HB 14-1033 – Concerning State Agency Requirements for the Enforcement of New Regulatory Requirements on Small Businesses, and, in Connection Therewith, Enacting the “Regulatory Reform Act of 2014.” This summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

This bill enacts the “Regulatory Reform Act of 2014”. The bill makes legislative declarations about the importance of businesses with 100 or fewer employees to the Colorado economy and the difficulty these types of businesses have in complying with new administrative rules that are not known or understood by these businesses. The bill defines “new rule” as any regulatory requirement in existence for less than one year prior to its enforcement by a state agency, and “minor violation” as any violation of a new rule by a business of 100 or fewer employees where the violation is minor in nature, involving record-keeping and issues that do not affect the life safety of the public or workers. The bill provides exceptions from the definition of “minor violation” for certain types of rules.

For the first minor violation of a new rule by a business of 100 or fewer employees, the bill requires a state agency to issue a written warning and engage the business in educational outreach as to the methods of complying with the new rule. The bill requires state agencies to make information on new rules available and allows this information to be made available in electronic form. The bill is assigned to the State, Veterans, & Military Affairs Committee.

Funding a Small Business with Retirement Funds? Think Twice

AlexWenzelBy Alexander Wenzel

If you have listened to AM radio in the last three years, you may have heard advertisements for arrangements by which small business owners could use tax-deferred funds to inject some capital into their small business from their retirement funds. The IRS refers to these arrangements as Rollovers as Business Start-Ups (or “ROBS”), although the scheme is not limited to start-ups.

Structure of ROBS

One may be able to understand how the IRS feels about these arrangements by the acronym it has chosen for them. The ROBS arrangement is a fairly simple tax work-around that takes funds from an existing tax-deferred retirement account, rolls-over those funds to a new tax-deferred retirement account (the “ROBS Plan”) that has but one client (the business owner) and one investment (the small company). The ROBS Plan would acquire shares of stock in the company as an “investment”by making a nice tax-deferred injection of capital into the company. While this arrangement may be acceptable to the IRS in a narrow set of circumstances, there are some dangers to this type of funding.

Items of Concern

The IRS is most concerned with two aspects of these arrangements: (i) violations of nondiscrimination requirements of retirement plans; and (ii) faulty valuations of the small business stock traded for the capital injection.

Non-discrimination Issue: The Internal Revenue Code prohibits contributions or benefits provided under a qualified retirement plan from discriminating in favor of highly compensated employees—those who either own at least 5 percent of the company, or receive more than $80,000 in salary. The Treasury Regulations also provide that the benefits, rights, and features of a qualified retirement plan (including, in this case, the ROBS Plan) cannot be discriminatory in effect. That is, employees must be able to invest in the ROBS Plan, not just the business owner.

As is often the case, employees may not even know of the existence of a ROBS Plan, much less be able to participate in it. If either the business owner or the ROBS Plan holds more than 5 percent of the company’s equity and employees are not permitted to participate in the ROBS Plan, the ROBS Plan is in danger of violating the non-discrimination requirement.

Valuation Issue: The IRS is also concerned that the valuation of the stock issued to the ROBS Plan may be inflated. The business owner may not want to lose control of the business ownership to the ROBS Plan and may seek to sell a small percentage of the shares to the ROBS Plan at a high price not supportable by the company’s operations or financial condition. Any such transaction should be supported by a well-documented appraisal. Additionally, if the company’s only asset is the capital injected, the investment may be characterized as a “prohibited transaction” which may result in a 15 percent tax on the transaction, or even 100 percent tax if not promptly corrected.

Dangers abound with ROBS Plans, and it may be wise to pursue other avenues of funding a small business before using those hard-earned retirement funds.

Alex Wenzel is an associate attorney at Burns, Figa & Will, P.C. His practice focuses on real estate transactions and litigation, securities, and corporate formation and transactional work. Prior to becoming an attorney, Mr. Wenzel was a Presidential Writer for the White House in the Office of Special Letters and Responses. A native Ohioan, he earned his B.A. at the University of Cincinnati and his J.D. at the University of Denver.

The opinions and views expressed by Featured Bloggers on CBA-CLE Legal Connection do not necessarily represent the opinions and views of the Colorado Bar Association, the Denver Bar Association, or CBA-CLE, and should not be construed as such.

HB 13-1019: Enactment of the “Regulatory Reform Act of 2013” to Facilitate Compliance with New Rules by Small Businesses

On January 9, 2013, Rep. Libby Szabo and Sen. Lois Tochtrop introduced HB 13-1019 – Concerning State Agency Requirements for the Enforcement of New Regulatory Requirements on Small Businesses, and, in Connection Therewith, Enacting the “Regulatory Reform Act of 2013.” This summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

This bill enacts the “Regulatory Reform Act of 2013.” The bill makes legislative declarations about the importance of businesses with 500 or fewer employees to the Colorado economy and the difficulty these types of businesses have in complying with new administrative rules that are not known or understood by these businesses. The bill defines “new rule” as any regulatory requirement in existence for less than one year prior to an audit or review by a state agency, and “minor violation” as any violation of a new rule by a business of 500 or fewer employees where the violation is minor in nature, involving record-keeping and issues that do not affect the life safety of the public or workers.

For the first minor violation of a new rule by a business of 500 or fewer employees, the bill requires a state agency to issue a written warning and engage the business in educational outreach as to the methods of complying with the new rule. The bill requires state agencies to make information on new rules available and allows this information to be made available in electronic form. Assigned to the State, Veterans, & Military Affairs Appropriations Committee.

HB 13-1003: Creation of Economic Gardening Pilot Project to Provide Strategic Assistance to Some Colorado Companies

On Wednesday, January 9, 2013, Rep. Pete Lee introduced HB 13-1003 – Concerning the Creation of an Economic Gardening Pilot Project in the Colorado Office of Economic Development. This summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

The bill creates an economic gardening pilot project in the Colorado office of economic development (office). Through the pilot project, staff members of the office and small business development centers (SBDCs) who have been trained and certified in economic gardening principles and practices provide 12 months of strategic assistance to at least 20 Colorado-headquartered second-stage companies and SBDC clients selected by the state director of SBDCs in the office.

The state director reports annually on the results of the pilot project to the general assembly, and the pilot project terminates in 2016. Assigned to the Business, Labor, Economic, & Workforce Development Committee.

HB 13-1002: Requiring the Colorado Office of Economic Development to Spend Money on Small Business Development Centers

On Wednesday, January 9, 2013, Rep. Max Tyler and Sen. Cheri Jahn introduced HB 13-1002 – Concerning Moneys for Small Business Development Centers. This summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

The bill requires the Colorado office of economic development (office) to expend $500,000 in each of the 2013–14 and 2014–15 state fiscal years for small business development centers (SBDCs). Appropriations made for this purpose are declared to be in addition to any other moneys the office receives. The state director of SBDCs in the office shall expend between 10 and 15 percent of these moneys per year to increase awareness of SBDCs, and shall equitably apportion the remainder for distribution to SBDCs across the state.

If separate legislation is enacted to establish an economic gardening initiative, $200,000 of the $500,000 will be used for the economic gardening initiative.

The office is required to report to the general assembly regarding the disbursement and the measurable results of the use of those moneys. Assigned to the Business, Labor, Economic, & Workforce Development Committee.