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      MSO Deferral Plan™

      Solution for S Corp and C Corp Majority Shareholders to Defer Income

      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 better manage corporate operations and 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?

      PTE Tax Position Boomerang Chart
      MSO Deferral Plan Chart
      1 Fee amounts must be determined by a third party in accordance with the rules and regulations governing MSOs.
      2 S Corp tax rate may be higher after accounting for state-specific tax rates. 

      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. 
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      M&A

      Transactions

      Opportunity to defer earn-out proceeds from qualifying business sales. 

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      Captive

      Terminations

      Tax-favored strategy for 831(b) captive terminations. 

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      Executive

      Retention

      Long-term deferred compensation strategy to attract and retain key executives. 

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      Estate & Wealth

      Planning 

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

      The Dual Benefits of the MSO Deferral Plan

      • Defers pass-through income and the associated income tax. 

      • Provides tax-deferred growth until distribution. 
      • Offers flexibility in how and when benefits are received. 
      • Aligns taxable income with retirement or lower-income years. 
      • Enhances long-term wealth accumulation and capital preservation. 
      • Provides greater flexibility in managing business cash flow.
      • Helps retain key executives through a meaningful long-term benefit. 
      • Aligns executive benefit planning with broader tax and succession objectives. 
      Shareholder-Owner

      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.  
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      Establish MSO

       
      An MSO C Corp is established to provide management or operational services to the business. 
      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.  
      Reasonable Compensation

       

      Reasonable Compensation

       

      A portion of the MSO fee may be treated as reasonable compensation for the owner or executive.
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      Deferred Compensation Plan

       

      Eligible participants may defer all or part of their reasonable compensation into a nonqualified deferred compensation plan sponsored by the MSO.

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      Plan Administration & Support

       

       The plan is designed, funded, administered through the mapbenefits platform, and monitored over time with the appropriate structure, reporting, and documentation.  

      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 Tax & Compliance 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:
       

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      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