Single owner of multiple businesses - How to avoid taxes - Fuck the IRS

[The Great Milenko]

Hello Business Owner Kiwis,

I have a particular question that I need to purposely keep vague in order not to power level. The example is as follows:

There exists an owner of multiple businesses. Business A ONLY sells a service/product to Business B.. Business B actually sells to end customers. The owner then wishes to sell both businesses and claims business A makes a certain revenue and profit and business B makes a certain revenue and profit.

Is this legal? I am expecting "Yes, but..." And I would like to be educated on this matter.

 

[PFM]

They're two separate independent businesses, why wouldn't you be able to sell them independently? Of course, IANAR

 

[Flabba Wabba Jabba]

Absolutely they're legal. The only time there's an issue is if there's no written agreement between the two businesses about the sale.

Just remember that businesses are legal entities, so whatever Business A sells to Business B just needs to be done properly, even if you're the owner of both. Make sure to invoice between the two entities as well, don't just bank transfer (this is a form of embezzlement in Australia, not sure about other countries).

I run a "company" that has a "tri-company" structure, where one is a governing company that holds a bank account for all revenue we receive. The second company is an IP company that holds the IP for all the products/services that we offer. We licence the IP from the IP company to the trading company, which has the ACN (Australian Company Number) that we use on our website and interact with our customers/clients with. This company sends invoices, receives money, pays wages and invoices for other companies. The governing company then sends an invoice to the trading company for the remaining profit each month and then holds it in a trust (tax-free). This system is designed since we do consulting work, we may be sued and have all assets seized in the event we lose (depending on damages), so we don't want to lose our IP/assets because of the trading company's collapse. This means we can establish a new trading company, re-sign the IP agreements and then begin trading again.

The reason why I explained that is because we are 3 people that work for all 3 companies (all shareholders and board members), so all of these agreements are signed upon as representatives of the IP company to the trading company and then the invoices from the holding company to the trading company.

Hopefully that's answered your questions, but you absolutely can have multiple businesses that you own, trading between each other; in fact, I encourage you continue this.

 

[The Great Milenko]

Absolutely they're legal. The only time there's an issue is if there's no written agreement between the two businesses about the sale.

Just remember that businesses are legal entities, so whatever Business A sells to Business B just needs to be done properly, even if you're the owner of both. Make sure to invoice between the two entities as well, don't just bank transfer (this is a form of embezzlement in Australia, not sure about other countries).

I run a "company" that has a "tri-company" structure, where one is a governing company that holds a bank account for all revenue we receive. The second company is an IP company that holds the IP for all the products/services that we offer. We licence the IP from the IP company to the trading company, which has the ACN (Australian Company Number) that we use on our website and interact with our customers/clients with. This company sends invoices, receives money, pays wages and invoices for other companies. The governing company then sends an invoice to the trading company for the remaining profit each month and then holds it in a trust (tax-free). This system is designed since we do consulting work, we may be sued and have all assets seized in the event we lose (depending on damages), so we don't want to lose our IP/assets because of the trading company's collapse. This means we can establish a new trading company, re-sign the IP agreements and then begin trading again.

The reason why I explained that is because we are 3 people that work for all 3 companies (all shareholders and board members), so all of these agreements are signed upon as representatives of the IP company to the trading company and then the invoices from the holding company to the trading company.

Hopefully that's answered your questions, but you absolutely can have multiple businesses that you own, trading between each other; in fact, I encourage you continue this.

This is helpful and it makes sense. My initial knee-jerk reaction was "this sounds illegal", but after thinking about LLCs and thinking it through I didn't think there would be an issue.

The next portion of this question is what are the differences if you want to take the companies public? Since we stated earlier that one owns Company A which only sells a product/service to your other Company B and Company B sells an end product but you only plan to take Company A public.

Sidebar: why not choose Company B instead?

I still suspect this is ok, but you better be damn sure you are transparent with your filings.

 

[std::string]

There exists an owner of multiple businesses. Business A ONLY sells a service/product to Business B.. Business B actually sells to end customers. The owner then wishes to sell both businesses and claims business A makes a certain revenue and profit and business B makes a certain revenue and profit.

Legal as long as business B is purchasing the service/product at something reasonably close to fair market value.

If you're massaging the numbers to evade taxes on either side that's actually quite illegal.

 

[Smar Mijou]

Granted there are a million different contingencies and questions depending on where you live, but alot depends on the ownership chain. Are they LLCs under a common ownership? Private companies with a board and shareholders with a majority shareholder? ( S-Corp) Or direct ownership? What sort of accounting practices have you been maintaining throughout the business ownership? For example, a record of consistent profits of X amount from business A over so many years with a sudden change right before a sale would raise huge red flags to tax auditors and the IRS. Likewise if business B was a registered S-corp with consistent profits and salaries paid out, but the year of a sale some fuckery was found that lowered the taxable income on the owner, that would probably flag an audit as well. "Hollywood accounting" is its own Gordian knot of legal fuckery and is purposefully obscured through numerous shell companies and their various profits and losses all tied to each other, and they're not usually afforded to a small business owner. The fact that it's a longstanding practice grandfathered in from the earliest days of Hollywood, and that they're usually a propaganda piece for the government is the only reason that they've gotten away with it for so long.

 

[TerribleUser09]

Why don't you look for advisor or read legal ramifications for type of business you are trying to establish? Each every one of us lives somewhere else and thus the differences in owning several entities might be detrimental.

In EU as long as the orders and invoices between entities are issued before month's clearance (in some it is 20th day of following month in others the day may differ) there shouldn't be taken any legal actions against. Neither from IRS or any other government entities. However, as @std::string mentioned, if you are trying to run away with taxes by lowering the value of commodities/service between these entities the IRS will surely take actions against you. In some countries (I can only refer to EU) the IRS keeps track of the values of commodities/services especially if they are "internally exported" to any other EU member or affiliated country for VAT return.

 

[The Great Milenko]

I prefaced the thread by saying I was being vague, so I know it is very open ended.

All fair questions, and good info in general that helps me go back and ask questions myself.