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      MSO Deferral Plan™

      An Income Deferral Solution for S Corp and C Corp Majority Shareholders

      MSO Deferral Plans Logos FINAL

      An Innovative Solution for a Traditional Challenge

      Majority owned S Corps and C Corps can establish a Management Services Organization (MSO) C Corp to streamline corporate operations, improve corporate governance, protect assets, optimize succession planning, and maximize tax efficiency. An MSO can also provide the business owner with the ability to defer income and accumulate wealth on a tax-favored basis by having the MSO C Corp sponsor a deferred compensation plan. How does all this work? 

      The Challenge Majority Shareholders Face

      Traditional executive deferral plans don't work for majority shareholders/owners because of pass-through taxation.

      For S Corp owners, income can "boomerang" back (image to the right). For C Corp majority shareholders, profits can face double taxation.

      How can owners/shareholders create a more strategic path for income deferral, tax-favored accumulation, and long-term planning?

      MSO boomerang effect
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      The MSO Deferral Plan™ Solution

      The MSO Deferral Plan™ is an NQDC strategy built around an MSO.

      The MSO provides services to the operating company. The operating company pays a documented management fee to the MSO. A portion of that fee may be treated as reasonable compensation, which eligible owners or executives can defer into an MSO-sponsored deferred compensation plan.

      MSO Deferral Plan Strategy Use Cases

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      S Corp & PTE

      Shareholders

      Income deferral for S corporation and pass-through entity shareholders with tax-favored wealth accumulation.
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      C Corp

      Shareholders

      Income deferral for C corporation shareholders with the potential to eliminate double taxation. This strategy is also ideal for distributing trapped cash inside of a C corporation.
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      M&A

      Transactions

      Opportunity for the seller to defer earn-out proceeds from a business sale and providing PE Sponsors (buyers) with an enhanced value proposition through an LTIP. 

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      Captive

      Terminations

      Tax-favored strategy for terminating an 831(b) captive insurance company. 

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      Executive

      Retention

      Deferred retention plan (e.g., LTIP), based on years of service or company performance to help attract and retain executive and management talent. 

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      Estate & Wealth

      Planning 

      Long-term wealth accumulation and legacy planning on a tax-favored basis. 

      The Tale of Two Hats

      Associated Responsibilities to:
      Shareholder as Participant | Shareholder as Company

      Participant Hat

      • Elect compensation (salary, bonus, etc.) and amount to defer
      • Choose distribution (aka payout) timing elections (retirement, separation of service, specificized date)
      • Choose Investment elections (asset allocation, diversification, rebalancing)
      • Select distribution options (spread payouts, change in control, disability)
      • Make re-deferral elections
      Shareholder-Owner in MSO

      Company Hat

      • A DCP is a “promise to pay” future benefits, creating a liability equal to the deferral amounts + tax.
      • Acquire asset (COLI) based on projected deferral amounts to offset the liability.
      • Company is responsible for:
        • Issuing W-2 compensation through MSO payroll
        • Payroll administration, including FICA withholding
        • Funding strategy
        • Balance sheet liability management
        • COLI ownership

      The MSO Deferral Plan's Structure

      Client operating company - Mezrah Consulting

      Operating Company

       
      The existing S Corp, C Corp, or pass-through entity continues operating the business.  
      1
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      Establish MSO

       
      An MSO C Corp is established to provide management or operational services to the operating company. 
      2
      Touching dollar signs- iStock-494940062

       

      Management Fee

       

      The operating company pays the MSO a fee for services provided. The fee should comply with  IRC § 482  and be supported by documentation and a third-party reasonable compensation analysis.  
      3
      Reasonable Compensation

       

      Reasonable Compensation

       

      A portion of the MSO fee may be treated as reasonable compensation for the owner(s) and/or executives.
      4
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      Deferred Compensation Plan

       

      Eligible participants may elect all or part of their to participate in a nonqualified deferred compensation plan that is compliant with 409A and sponsored by the MSO.

      5
      Screenshot 2025-09-23 110922

       

      Plan Administration & Support

       
      The plan is designed, funded, implemented, and administered through the mapbenefits technology platform. Appropriate monitoring of the structure provides for reporting, accounting, and financial management.  
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      The MSO Deferral Plan's Advantage

      The graphic below illustrates the economic advantage of the MSO Deferral Plan over a PTE investing after-tax income into taxable securities. Assumes a 37% PTE tax rate and 3.8% Net Investment Income Tax (NIIT) on taxable securities, 21% MSO C Corp tax rate, compensation deferral of $2 million annually for 7 years, 7% rate of return and a 15-year accumulation period.

      The 105% advantage is the difference between the cumulative after-tax benefits of each strategy based on the financial assumptions applied over the combined 15-year accumulation and 15-year payout periods.

      MSO Vs PTE 5.25

      Trusted MSO Advisors & Partners

      The MSO Deferral Plan strategy brings together experienced providers to support each stage of the process with the expertise and professionalism the strategy demands. Guardian Tax Consultants (GTC) is our trusted partner for MSO tax and compliance matters.
       
      Learn more about GTC and its service model by visiting their website:
      GTC Logo

      Schedule a Meeting

      Learn more about how an MSO Deferral Plan can help S Corp and C Corp majority shareholders defer income.

      Schedule a Meeting

      Partnership

      Interested in becoming an MSO Deferral Plan Partner? Learn more about the benefits of partnership in this dynamic strategy.

      Become a Partner