The IRS Scrutinizes 401(k) Cash for Small Business

Tapping retirement money is a great way to fund a startupif it doesn't violate tax rules

As the credit crisis has made it tougher for small businesses to get funding, some would-be entrepreneurs have exploited a loophole that lets them finance a startup with 401(k) retirement funds without facing any taxes or penalties. Now the technique is catching the attention of the IRS, which plans to step up audits of such transactions. "We are seeing problems," says Monika Templeman, acting director of employee plans at the IRS. "It is open to abuse."

To continue reading this article you must be a Bloomberg Professional Service Subscriber.