The MSO Deferral Plan is Engineered Like an F1 Car

MSO Deferral Plan: Built to the Rules. Engineered for Performance.

At first glance, a Formula 1 (“F1”) race car and an MSO (Management Services Organization) Deferral Plan may seem to have little in common. In reality, they are built around the same fundamental principle:

Performance depends on getting every critical component right—and making sure all
those components work together as one integrated system.

“An F1 race car and the MSO Deferral Plan reflect the same engineering discipline: understanding the rules and designing components to work together within them. In both, innovation comes from applying specialized knowledge to the design and execution of the complete system,” said Todd Mezrah, CEO of Mezrah Consulting and developer of the MSO Deferral Plan strategy.

An F1 car is not governed by one simple rule declaring the car “approved.” Instead, Formula 1 operates under an extensive technical framework governing the engine, tires, aerodynamics, chassis, fuel system, electronics, weight, safety systems, and numerous other components. The complete car must comply with the rules, but compliance is demonstrated largely through the inspection, measurement, testing and monitoring of its individual systems and components.

The MSO Deferral Plan works in much the same way.

There is no single provision of the Internal Revenue Code (“IRC”) called the “MSO Deferral Plan.” Nor should one expect an IRS ruling approving the strategy as a single packaged concept.

Instead, the MSO Deferral Plan is an integrated tax, corporate and compensation architecture composed of multiple established components, each governed by its own body of tax law, regulations, administrative guidance and judicial authority.

The F1-MSO Parallel

Different Components. A Stronger Outcome.

Compliance is Built Component by Component  

Key Insight

An F1 car must function as an integrated system and comply with the rules governing the complete vehicle. The MSO deferral Plan requires the same attention to both its components and their integration. It’s corporate structure, compensation, arrangement, funding and administration must work together, with individual components. The overall arrangement needs to be disciplined and evaluated under applicable tax and legal requirements.

The analogy becomes particularly useful when considering how sophisticated structures are reviewed.

A Formula 1 team cannot simply point to a compliant engine and conclude that the entire car is
compliant. The engine may satisfy its technical requirements while another component violates a completely different rule.

The same principle applies to an MSO Deferral Plan.

•  The plan itself must comply with IRC § 409A;
• The MSO fee must be economically supportable; (IRC 482 - transfer pricing)
• The reasonable compensation analysis must withstand scrutiny; (Note: determined by a third party)
• The corporate structure must be properly created and operated;
• The transition from one corporate structure to another must be properly executed; and
• Sufficient basis must exist to maximize deductions (losses) and economics to the shareholder.

Each element has its own job.

No Single Component Carries the Strategy

Consider an F1 car with a world-class engine but improperly designed aerodynamics. The car may have enormous power yet still fail to perform or fail technical inspection.

The same is true of an MSO Deferral Plan.

• A technically perfect § 409A document does not cure an unsupported MSO fee.

• A transfer-pricing analysis does not replace a reasonable compensation analysis.

• A valid Corp deduction does not necessarily maximize shareholder economics.

The strategy isn’t successful due to only one working component; it’s successful because every material component works independently and collectively.

That distinction is important.

The Better Question

Critics of an innovative strategy sometimes ask:

“Has the IRS approved the MSO Deferral Plan?”

That may be the wrong question.

Formula 1 regulators do not approve every possible configuration of a race car before engineers design it. Instead, teams build cars within an established regulatory framework and must demonstrate that the resulting machine and its parts comply with the applicable technical rules.

The more relevant question for an MSO Deferral Plan is therefore:

Does each component of the structure comply with the tax and legal authority
governing that component, and do those components operate together
consistently?

The foundation should rest upon existing statutory, regulatory, administrative, and judicial authority governing the individual transactions and relationships that make up the structure. The MSO Deferral Plan is engineered to satisfy this standard, with elegance.

Engineered, Not Improvised

Formula 1 cars are extraordinary because engineers operate at the edge of what is possible while remaining within an extraordinarily detailed set of rules.

The same philosophy applies to sophisticated tax and executive benefit planning. Innovation does not mean ignoring established laws. It means understanding the rules deeply enough to engineer a structure that operates within them.

The MSO Deferral Plan is not a single, isolated tax strategy. It is a collection of established tax, corporate, and compensation disciplines engineered to work together.

And much like an F1 car, the quality of the finished product ultimately depends upon the quality of the engineering behind every component. At Mezrah Consulting, we are the masterful engineers that make the MSO Deferral Plan possible with innovation, creativity, compliance, and continuous discipline.

Please note the above discussion is not intended to be inclusive of all tax code sections that may apply. Mezrah Consulting and its affiliates are not tax professionals, and this document should not be considered tax advice or guidance.

For more information, email Mezrah Consulting at connect@mezrahconsulting.com
or call (813) 367-1111. Visit our website at mezrahconsulting.com to learn more.

Who We Are

Mezrah Consulting, is a national consulting firm based in Tampa, Florida, with more than 30 years of expertise in executive benefits and compensation consulting for over 300 companies throughout the U.S. As subject matter experts, we specialize in designing, funding and administrating nonqualified executive benefit plans while uncovering value and mitigating risks. Our proprietary cloud-based fintech platform, mapbenefits®, provides enterprise plan management for plan participants and plan sponsors. Our focus is on sharing ideas that enable companies and key personnel to accumulate and preserve wealth on a tax-favored basis through innovative solutions and protect their business strategies and financial performance.

Confidentiality

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Securities and investment advisory services offered through Integrity Alliance, LLC, Member SIPC. Integrity Wealth is a marketing name for Integrity Alliance, LLC. Mezrah Consulting is not affiliated with Integrity Wealth.

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