In Chapter 3 of my Best Selling book ‘Over Exposed!’, I dived into the Nevada C-Corp. While this topic was covered in depth in my book, I believe it’s essential to explore for those who haven’t had the opportunity to read the book.
If you thought the corporate shield was misunderstood, then you can’t even imagine the confusion around the infamous “Nevada Corporation!” Unraveling the myths of the corporate shield in Chapter 6 was enlightening, but the distinctive nature of a Nevada Corporation demands further scrutiny.
What is all the fuss?
We are now crossing over from the simply misunderstood to just a scam. Here is the real story. The Nevada Corporation Scheme is NOT about asset protection. It is about tax avoidance and tax evasion! This is why there has been such a buzz because anything that promises lower or NO taxes gets some serious attention! We have a rule – Tax Planning and Asset Protection NEVER go together! That’s it! NEVER, and I mean NEVER! So the minute you hear anyone tell you they have an asset protection program that will create more deductions or where you won’t have to pay any taxes until you ‘take the money out,’ RUN–and fast!
The Nevada Corp is just like any other corporation. There is NOTHING SPECIAL about it. It is just a corporation registered in Nevada—that’s all! It has only gotten so much attention because some unethical promoters decided to use it in an unethical way.
Here is their scam:
Let’s say you have a business with $200,000 of net income. You pay taxes on that $200K at the net personal tax rate of, let’s say 35%, leaving you with $70,000 in taxes. Their scheme says, to create four Nevada Corporations. Charge off your $200,000 in profits to these 4 (phony) consulting companies and pay only the Corporate Tax rate (which is only 15% up to the first $50,000 of income, which is why you need 4 phony Nevada Corps).
By doing this, you will have 4 Nevada Corps, each with $50,000 of income, taxed at a rate of 15% for a total tax of $30,000. That is a $40,000 tax savings each year! And by the way, we will only charge you one year of savings ($40,000) to set this all up for you. Sounds good, right? WRONG!
The problem with this little scheme is that it relies on YOU lying! First of all, you need to lie about what the four companies do and make up phony companies to shift income (definitely not allowed by the IRS). Second, you need to lie about the fact that you own all of these companies, because if you don’t, then the IRS rules would require you to consolidate the earnings of all four companies, and your tax rate would be HIGHER, not lower, than your personal rate. Finally, in their plan, you are encouraged to lie about the deductions that these four companies have so that you can still get the money out for you to spend without triggering a double tax!
Even if you followed their plan, and even if you did have four separate jobs you could have those four companies do, they are C-corporations, and that means there are two taxes, corporate and personal. What that means is that AFTER you pay your 15% corporate tax, the balance is distributable to you as a dividend and still included on your personal return. Thus, you are paying MORE TAX – NOT LESS (unless you lie).
I am not sure about you, but I do not advise clients to enter into planning that is based on them needing to lie for it to work! The ONLY reason these promoters chose Nevada is because Nevada allows the formation of corporations without requiring you to list the shareholders, which makes it easier to LIE. And that is ALL that the Nevada Corp Scam is all about!
So what is the lesson? Simply stay away! There is no reason you need to do a Nevada Corp unless you live and work in Nevada, and even then there is no special benefit to you. Anyone pitching these to you is only putting you at risk by doing so because when you are eventually found out, it is not the promoter who will be responsible for the back taxes, penalties, and fees, or the possible jail time – it will be YOU.
We can help you take control of your own asset protection planning.
Call to schedule a legal consultation with an asset protection lawyer at (888) 773-9399
By: Brian T. Bradley, Esq.
