Critique my tax solution (digital consultant, ~80k profit/yr)

[MisterE]

I’m a US citizen and I need to ensure certain consulting income is not attributed directly to me. Unfortunately, being paid under the table is not an option. The payments will be made via credit card (Stripe) or via ACH. In both cases, the payments will be from legitimate US entities which will require a tax ID for reporting purposes.

I have a plan and I would appreciate any critiques or suggestions for improvement. I numbered the discrete parts of the plan below for quick reference for anyone who’s gracious enough to critique my plan.

1. Have a friend, also a US citizen, form a single member LLC (most likely Florida or Texas due to no state income tax).

2. Use a paid registered agent company that also offers a virtual address and virtual mailbox services to cover those requirements.

3. Have my friend obtain a legitimate tax ID for the LLC via the IRS website, using themselves and their personal tax ID as the “responsible party” for IRS tax purposes.

4. Have my friend open a bank account for the business using the LLC’s tax ID (and their personal tax ID if necessary).

5. I will create an email address that’s related to their name or the LLC name.

6. I will personally register for online banking using the email I setup, careful to use TOR or VPN when accessing it.

7. Since the bank will have a virtual address on file, I will ultimately be forwarded a debit card issued to the LLC, which I will use to obtain the proceeds of the consulting via withdrawals at ordinary stateside ATMs (possibly having another friend make those withdrawals).

8. Have my friend use the LLC’s tax ID and bank account info to open an account with Stripe and accept credit cards.

9. Each year I will instruct my friend to take any relevant tax information to a trusted accountant whose bill I will pay (in cash from the proceeds of the consulting) and I will also reimburse the tax owed by my friend on the revenue that’s from by the LLC. (I’d also compensate my friend according to however we agree at this time.)

10. I also have another friend who lives in Canada that may be a willing participant—in that case the LLC would instead be a Canadian entity and it would ultimately have a Canadian bank account. Since I’m more familiar with the laws of the US, I consider this a backup plan unless there’s a really compelling reason to go with this.

11. I’m aware that some people on the forums may offer setups like this as a service, particularly in offshore destinations. This setup will need to be in place for at least 8 years though, and not knowing the details of the people or entities involved seems like a serious risk and liability.

12. Am I better off finding a law firm to do this for me? No clue where to even start looking for one that would do this.

I appreciate it if you made it this far and would really really appreciate any advice, feedback, criticism, or suggestions on my plan. Thank you!

 

[aquarius]

Well I am not an expert on US taxes but I do know that any US citizen is generally already screwed at birth tax wise. I wouldn't want to be your friend in this construction.

If as you indicate this has to be in place for at least 8 years, find a good lawyer and (international) tax consultant to build you a solid structure that is smart but compliant.

 

[CaptK]

Im confused all you are doing is setting up the same structure that you have already.
So there is no benefit as you said you will pay the tax.
As I understand all your doing is trying to limit your tax threshold by using your friend. Even if you use Head of house threshold its not gonna really be worth it.

 

[JustAnotherNomad]

That doesn’t sound like a good plan, no.
Your friend could do what he wants with the money and the tax burden would still be significant.

 

[MisterE]

Im confused all you are doing is setting up the same structure that you have already.
So there is no benefit as you said you will pay the tax.
As I understand all your doing is trying to limit your tax threshold by using your friend. Even if you use Head of house threshold its not gonna really be worth it.

Thank you for your reply.

I have no problem paying the taxes; my main goal is to ensure that the income is not reported on my personal tax ID in any way while staying off any radar and minimizing any legal exposure.

I've seen the ads and the service providers who will offer a do-it-all solution for offshore structures, but frankly there's not a lot of information on who I'd be dealing with and I have concerns about that. My concerns are being lumped in with other more unsavory clients (i.e., engaged in illegal activity) because if they draw attention to the firm or service provider that I use, then suddenly I'd be under that same lens despite having a legitimate business. I've also known my fair share of lawyers and law firms that haven't even lasted for 2 years, so that's a concern.

That doesn’t sound like a good plan, no.
Your friend could do what he wants with the money and the tax burden would still be significant.

Thanks for replying, I've definitely considered your point.

They're a trusted friend who would be earning a percentage, much like any attorney or service provider on here offers, except that I know this person directly and trust them.

I would be the only one with a debit card and check book, and only I would know the online banking login/pass—shoot, they probably wouldn't even know which bank the account is at. They could try to screw me, sure, but that's why they get paid at the end of the year and that's why I'll take care of the tax bill. If they take the money before that time then I guess they can deal with the IRS when the tax bill arrives.

More to the point though, I know this person and I'll be the only "client" in this scenario. My greatest concern is with law firms or service providers being vulnerable due to their other clients. While my income is legit and plenty of the service providers on here seem extremely knowledgeable and skilled, other clients may be involved in unsavory businesses which could draw unwanted attention, even though my consulting wouldn't do that on its own. Also, since this needs to last 8 years and I've known this person for decades, my confidence is high that this will actually last. I've known law firms that are gone after 2 years, then I need to set everything up again with someone else.

I really am trying to minimize my big picture exposure.

 

[Sols]

You may run into trouble if your bank asks why your friend is sending you money every month. Your friend may also run into trouble with his bank.

The bank may end up reporting you to the IRS or FinCEN, as the scheme you describe is not normal behaviour expected of a customer. This might not happen on day 1 or even year 1, but if you plan to run this for eight years, I would say the risk of someone eventually getting suspicious is high enough to be a concern.

There is also gift tax to consider, although that's payable by the donor and there is a general life-time limit over 11 million USD, but still has to be reported to the IRS.

my main goal is to ensure that the income is not reported on my personal tax ID in any way

Why? If you are under investigation for tax fraud or other financial crimes, you may already be flagged with your bank to keep tabs on you and be extra diligent about suspicious behaviour. This depends on state and severerity.

 

[JustAnotherNomad]

It just really doesn’t sound like a good plan. Why do you want to avoid being associated with the business? You may want to ask in the mentor forum as I think there are certain things that can only be discussed there (I’m not a member, so can’t really say if it’s worth it).

The US has strict laws against “structuring,” which is splitting payments to avoid reporting. Even if the money is from legitimate sources, you may be committing a crime when you split payments. If something as innocent as that can be a crime, I really wouldn’t be surprised if your intended structure could land you in jail. I’d certainly prefer working with a reputable US lawyer. Someone who has been around for a while. You could look into things like circular company ownership, so that a business wouldn’t have a UBO. But I’m not sure if that would help you.

 

[MisterE]

You may run into trouble if your bank asks why your friend is sending you money every month. Your friend may also run into trouble with his bank.

Thanks for replying!

It won't actually appear that my friend is sending me any money at all. The money will end up in the LLC's bank account, which I'll have the debit card for. As soon as money gets deposited, I can withdraw it in cash via ATM. Since I'll have the only debit card, I'll effectively be the only one with access to do that and the statements will just show legitimate deposits from US companies followed by ATM withdrawals.

Why? If you are under investigation for tax fraud or other financial crimes, you may already be flagged with your bank to keep tabs on you and be extra diligent about suspicious behaviour. This depends on state and severerity.

Nothing quite that severe, but my income is being monitored.

What kind of setup do you recommend to mitigate the issues you discussed?

 

[JustAnotherNomad]

The money will end up in the LLC's bank account, which I'll have the debit card for. As soon as money gets deposited, I can withdraw it in cash via ATM.

That’s not normal behavior. Banks are required by law to report anything out of the ordinary. It’s not unlikely that your company would be flagged and reported eventually, they have software for that. And I doubt your friend would be willing to go to jail for you.

 

[CaptK]

Thanks for replying!

It won't actually appear that my friend is sending me any money at all. The money will end up in the LLC's bank account, which I'll have the debit card for. As soon as money gets deposited, I can withdraw it in cash via ATM. Since I'll have the only debit card, I'll effectively be the only one with access to do that and the statements will just show legitimate deposits from US companies followed by ATM withdrawals.



Nothing quite that severe, but my income is being monitored.

What kind of setup do you recommend to mitigate the issues you discussed?

Unfortunately you are stuck with a Nominee who is detached from you. It's the only way to ensure your safety.

 

[Sols]

It won't actually appear that my friend is sending me any money at all. The money will end up in the LLC's bank account, which I'll have the debit card for. As soon as money gets deposited, I can withdraw it in cash via ATM. Since I'll have the only debit card, I'll effectively be the only one with access to do that and the statements will just show legitimate deposits from US companies followed by ATM withdrawals.

So the bank will open a bank account for an LLC whose sole member and manager is your friend, but for some reason the LLC distributes its profits to someone else through ACH or checks.

If you use a debit card linked to the company and withdraw cash and the cash is issued in your friend's name, it's less traceable. But that's probably not going to be sustainable for eight years. The world is increasingly cash-hostile. Are you going to pay your mortgage or rent in cash? Buy a car in cash?

High-value cash transactions are reportable. The limit now is 10,000 USD in a single or several linked transactions. For most people, that's not an issue. John Doe getting one of those reports because he paid for a car in cash is fine, as long as it matches his income level on his tax returns. But for you as someone who is already being monitored, it's a much greater concern.

The structure you have proposed is risky and I would worry that reports, whether from a car seller or bank, will find their way to the IRS, FinCEN, or whoever it is that's monitoring you.

What kind of setup do you recommend to mitigate the issues you discussed?

I'm boring and in favour of being compliant. I don't know your exact situation but I'd look for a way to earn money legitimately. Run a nice, clean business within the confines of the law. Report everything that needs to be reported.

If your business permits, maybe consider moving outside of the US and engage only in non-US transactions. You can't avoid US taxes but you can avoid the day-to-day monitoring.

 

[MisterE]

So the bank will open a bank account for an LLC whose sole member and manager is your friend, but for some reason the LLC distributes its profits to someone else through ACH or checks.

The LLC doesn't distribute profits to someone else via ACH or checks—the LLC profits are withdrawn periodically by me using the company debit card.

If the LLC has s legitimate bank account and tax ID then it's also possible to obtain a business credit card (for my exclusive use) and use that as a means of non-cash payments. The credit card's monthly statement would be paid via the LLC's bank account.

Run a nice, clean business within the confines of the law. Report everything that needs to be reported.

The business is clean and 100% legal, not even a gray area, it's just the darn income monitoring that's got me concerned.

engage only in non-US transactions

Your other suggestions are possible, but regrettably that one is not.

That’s not normal behavior. Banks are required by law to report anything out of the ordinary. It’s not unlikely that your company would be flagged and reported eventually, they have software for that. And I doubt your friend would be willing to go to jail for you.

So, if I just removed my friend from the equation, then let's say it was just me doing this. I create an LLC, work hard, get paid, pay my taxes.

If I prefer living on cash and paying for expenses in cash and I decide to withdraw my earnings in cash periodically, then you're saying I'd be flagged or I'd stick out because that behavior isn't normal?

I'm not trying to be combative or rude, just genuinely asking if this would look strange to someone else who's just looking at it from the outside. Thanks for keeping up the thread!

Unfortunately you are stuck with a Nominee who is detached from you. It's the only way to ensure your safety.

This friend is suitably detached that nothing official links us, we didn't even attend a common school or anything like that.

What I fail to see is how a service provider or even a law firm can truly "ensure my safety" but I would like to know. A contract with someone who does this sort of thing isn't worth much unless I'm prepared to enforce it, which I'd need to abandon my anonymity in order to do. Plus, as I mentioned in another reply, if the firm happens to service someone else engaged in illegal activity then I could end up a target because of that or, at the very least, I'd end up with problems if the firm ceases operations.

 

[JustAnotherNomad]

If I prefer living on cash and paying for expenses in cash and I decide to withdraw my earnings in cash periodically, then you're saying I'd be flagged or I'd stick out because that behavior isn't normal?

Generally yes. At least I wouldn’t be surprised if it happened, especially if you frequently withdraw large sums. But I can’t say how high the risk is in your specific case.

You’ll want to google “structuring” and “suspicious activity report” (SAR).

 

[Sols]

The LLC doesn't distribute profits to someone else via ACH or checks—the LLC profits are withdrawn periodically by me using the company debit card.

If the LLC has s legitimate bank account and tax ID then it's also possible to obtain a business credit card (for my exclusive use) and use that as a means of non-cash payments. The credit card's monthly statement would be paid via the LLC's bank account.

Payment cards are personal. In addition to the company's name, there is the name of a natural person on the card. That's either you or your friend. The natural person's name isn't always printed on the card, but is either in the card data or in the bank's records.

If it's your name on the card, you're leaving a trace at every ATM and physical point of sale.

If it's your friend's name on the card, it's harder to trace the cash withdrawals to you (ATM footage). However, it aggravates the severity of the crimes you're committing here for if/when you are caught. Something to include in the risk calculation.

In either case, you have the problem of living on 80,000 USD per year in cash only.

Ultimately, it's hard to quantify the risks since there are so many unknown factors. Your main problems are the behaviour is atypical and may get reported by someone, somewhere.

 

[MisterE]

it's hard to quantify the risks since there are so many unknown factors

How can I mitigate/minimize the risks?

 

[CaptK]

This friend is suitably detached that nothing official links us, we didn't even attend a common school or anything like that.

What I fail to see is how a service provider or even a law firm can truly "ensure my safety" but I would like to know. A contract with someone who does this sort of thing isn't worth much unless I'm prepared to enforce it, which I'd need to abandon my anonymity in order to do. Plus, as I mentioned in another reply, if the firm happens to service someone else engaged in illegal activity then I could end up a target because of that or, at the very least, I'd end up with problems if the firm ceases operations.

Your structure is the same as a nominee service so if you are confident on the friend then go ahead.

 

[Spinat]

How can I mitigate/minimize the risks?

take this to the mentor group and I'm sure you will find many more opportunities.

 

[Sols]

How can I mitigate/minimize the risks?

Unfortunately, as I mentioned, I'm in favour of doing things by the book so my view on mitigating the risks is to ensure they aren't risks to begin with. Assess what your current situation permits you to do and do that. Maybe you can appeal, make amends, or work out a deal with whoever is monitoring your income?

If we were talking closer to seven figures, I would say go speak with SDTC (South Dakota Trust Company) or similar, and see if you can use one of their ironclad trusts to legally separate yourself from the income somehow. But for the amounts mentioned here, I think the setup and maintenance costs will eat up too much to be worthwhile. Although I suppose a phone call and some emails won't hurt. Other states than South Dakota also have strong trust laws now; SD were just first.

Your structure is the same as a nominee service so if you are confident on the friend then go ahead.

I think this statement might be a bit misleading. The activity of being a nominee is in many jurisdictions limited to fiduciaries or other licensed, regulated financial or legal service practitioners. Conducting fiduciary/legal services without being duly licensed can land you in a lot of problems. The friend here would risk jail and fines — for more than just being an accomplice in this overall scheme.

 

[CaptK]

Unfortunately, as I mentioned, I'm in favour of doing things by the book so my view on mitigating the risks is to ensure they aren't risks to begin with. Assess what your current situation permits you to do and do that. Maybe you can appeal, make amends, or work out a deal with whoever is monitoring your income?

If we were talking closer to seven figures, I would say go speak with SDTC (South Dakota Trust Company) or similar, and see if you can use one of their ironclad trusts to legally separate yourself from the income somehow. But for the amounts mentioned here, I think the setup and maintenance costs will eat up too much to be worthwhile. Although I suppose a phone call and some emails won't hurt. Other states than South Dakota also have strong trust laws now; SD were just first.


I think this statement might be a bit misleading. The activity of being a nominee is in many jurisdictions limited to fiduciaries or other licensed, regulated financial or legal service practitioners. Conducting fiduciary/legal services without being duly licensed can land you in a lot of problems. The friend here would risk jail and fines — for more than just being an accomplice in this overall scheme.

He has been given the viable options that we could all think of. As I stated earlier offshore is his best option but he scared of factors he can't control. He could use his friend as the UBO on the offshore so therefore serving the purpose he requires and also elevating his concerns.