If you’re thinking about using your retirement funds to finance a franchise, you have good reasons to pay attention to compliance well beyond tax time. A ROBS franchise business can be a powerful tool to start or grow your brand without debt or interest payments. But as many business owners learn the hard way, ROBS compliance requirements extend far beyond simply filing tax returns.
At SAS, we’ve worked with hundreds of multi-location brands and franchise owners, and one thing is consistent: real compliance is practical and year-round. In this blog, we’ll walk through the key areas you need to understand for ROBS tax compliance in 2026 and beyond.
What A ROBS Franchise Business Is And Why Compliance Matters
A ROBS, which stands for Rollover as Business Startup, is a way to use funds from an existing retirement account to fund a new business tax-free by rolling those funds into a newly established C corporation and then buying stock in that corporation with the plan assets.
What makes ROBS popular with franchise buyers is that it lets you tap into retirement savings without the interest, monthly payments, or credit requirements that come with traditional loans. But the trade-off is that a ROBS plan brings with it an ongoing set of IRS and Department of Labor rules that must be followed for the plan to remain compliant.
Since the retirement plan now owns stock in your C corporation, a ROBS arrangement must comply with both retirement plan guidelines and corporate rules for the life of the business.
ROBS Tax Compliance Is Only The Starting Point
Most new ROBS owners know that they need to file corporate tax returns and report income appropriately. But that’s really just the beginning of what’s required.
At a minimum, a ROBS plan will have these tax and reporting obligations:
- Filing federal and state corporate tax returns each year
- Reporting payroll tax filings for all employees
- Filing the annual retirement plan return (Form 5500, where required)
- Reporting reasonable compensation paid to owners and officers
ROBS arrangements are monitored closely because they involve retirement plan assets being used to invest in a closely-held business. In fact, the IRS has a dedicated compliance project focused on ROBS plans to identify noncompliant arrangements and ensure proper administration.
The Real ROBS Compliance Requirements Most Owners Miss
Once a ROBS is setup, it creates an ongoing responsibility to operate both a business and a retirement plan at the same time. The IRS and Department of Labor expect that retirement plans be run properly every year, not just in the setup phase.
Here are the key areas that ROBS owners will need to comply with.
Operating The Retirement Plan Like A Real Retirement Plan
One of the biggest misunderstandings is thinking the 401(k) plan exists only to fund the business. In reality, once the ROBS is established, that plan must be operated just like any other employer retirement plan.
That means the plan has to follow ERISA rules, maintain proper documentation, and avoid prohibited transactions. You cannot casually move money in or out of the plan or treat plan assets like a personal checking account. Every action involving the plan has to be defensible and properly recorded.
Understanding Annual Reporting And Form 5500
Many owners are surprised to learn that a ROBS plan usually comes with an annual reporting obligation called Form 5500 or Form 5500-EZ. This form is not a tax return. It is an informational filing that tells regulators how the retirement plan is being operated and what it owns.
The form reports things like plan assets, participant counts, and the value of the company stock held by the plan. Even if the business did not make a profit that year, this filing may still be required.
Missing or late filings can trigger penalties, and the IRS actively monitors these forms. For someone doing this for the first time, the key takeaway is that this filing exists every year and should be planned for well in advance.
Why Business Valuations Matter Every Year
Due to the fact that your retirement plan owns shares in a privately held company, someone has to determine what those shares are worth. That is where annual business valuations come in.
This does not mean your business needs to be sold or audited. It simply means you need a reasonable, supportable estimate of the company’s fair market value. This value is used for plan reporting and helps show that the retirement plan is being treated fairly.
If revenue is flat or the business is still growing, it can feel unnecessary. But from a compliance standpoint, valuations are one of the clearest ways to demonstrate that the plan is being administered correctly.
Employee Eligibility And Participation Rules
Another area that catches owners off guard is employee participation. Many ROBS businesses start with only the owner on payroll, so it feels like a non-issue. Over time, however, franchises hire staff, managers, and sometimes corporate-level employees.
Retirement plan rules require that eligible employees be given the opportunity to participate in the plan under nondiscriminatory terms. You cannot design the plan to benefit only the owner once eligibility thresholds are met.
Hiring decisions, job classifications, and payroll structure can all affect plan compliance. Planning ahead avoids difficult and expensive fixes later.
Reasonable Compensation And Payroll Discipline
Owners of ROBS businesses must pay themselves reasonable compensation for the work they perform. This is both a tax issue and a compliance issue.
Paying too little can raise red flags, while paying too much can strain cash flow and complicate plan reporting. Compensation should reflect the role, responsibilities, and market standards for similar franchise operations. Reasonable compensation should be supported and reviewed regularly as the business grows.
Why ROBS C Corp Compliance Becomes Harder As You Add Locations
Franchise businesses grow. It’s one of the things that makes them exciting and rewarding. But growth also adds layers of complexity to your compliance obligations.
A ROBS structure requires that your franchise operate as a C corporation, which itself has annual reporting requirements with federal and state authorities and requires good record-keeping, consistent payroll practices, and accurate documentation of corporate actions.
When you add new locations, payroll reporting, employee retirement plan participation, and even state-specific filings can vary from place to place. Coordinating all of this without a plan in place will lead to headaches at year-end and potentially unwanted attention from regulators.
How We Help ROBS Franchise Businesses Stay Compliant
If you’ve used or are considering a ROBS to fund your franchise, great. It’s a powerful tool when done right. But keep in mind that ROBS compliance requirements stretch well beyond filing your taxes. From retirement plan reporting and business valuations to ongoing C corporation administration, there’s a year-round workload that comes with maintaining compliance in 2026 and beyond.
The good news is you do not have to manage it alone. With thoughtful planning and the right team beside you, a ROBS can be both a financing solution and a framework for sustainable growth.
At SAS, we specialize in helping ROBS franchise businesses navigate the full range of compliance obligations, not just ROBS tax compliance.
We know that franchise owners are juggling many priorities. Having a trusted partner who understands both the accounting and compliance side of ROBS lets you focus on operating your business with confidence.
If you’re ready to plan your compliance strategy for the year ahead, our team is here to help you every step of the way.
