Tax treatment, help friend to sell products

Technical topics regarding tax preparation.
#1
cl2018  
Posts:
340
Joined:
14-Dec-2018 10:38am
Location:
United States
Taxpayer wants to help his friend sell certain products. He will have related funds in and out of his personal account. Should he report the transactions in tax return, assuming He will remit net profit to his friend leaving himself zero profit. Thanks!
 

#2
Posts:
1716
Joined:
28-Jul-2017 12:08pm
Location:
Somewhere out there...
Seems like a bad idea for lots of reasons - why doesn’t his friend have a bank account?
 

#3
cl2018  
Posts:
340
Joined:
14-Dec-2018 10:38am
Location:
United States
HenryDavid wrote:Seems like a bad idea for lots of reasons - why doesn’t his friend have a bank account?

His friend is out side of the country and has no bank account here. What are the major reasons for being a bad idea? Thank you!
 

#4
Posts:
6043
Joined:
22-Apr-2014 3:06pm
Location:
WA State
cl2018 wrote:
HenryDavid wrote:Seems like a bad idea for lots of reasons - why doesn’t his friend have a bank account?

What are the major reasons for being a bad idea?


Well, for starters....
cl2018 wrote:His friend is out side of the country and has no bank account here.


If his friend doesn't want to register and do the things to properly set up and report the business he's running, your client ends up running the risk of bearing the consequences for anything else the friend has chosen to do that is improper.
Again...a bad idea.
~Captcook
 

#5
cl2018  
Posts:
340
Joined:
14-Dec-2018 10:38am
Location:
United States
CaptCook wrote:
cl2018 wrote:
HenryDavid wrote:Seems like a bad idea for lots of reasons - why doesn’t his friend have a bank account?

What are the major reasons for being a bad idea?



Well, for starters....
cl2018 wrote:His friend is out side of the country and has no bank account here.


If his friend doesn't want to register and do the things to properly set up and report the business he's running, your client ends up running the risk of bearing the consequences for anything else the friend has chosen to do that is improper.
Again...a bad idea.


Thank you!
 

#6
Noobie  
Posts:
1134
Joined:
22-Apr-2014 1:35pm
Location:
Jacksonville, FL
Sounds dang close to money laundering...

Also a lot like tax fraud in the sense that you are assisting a person with getting around the tax law/reporting of income by being the middleman/woman.
 

#7
Posts:
8156
Joined:
4-Mar-2018 9:03pm
Location:
The Office
It is not that hard for a foreign individual to form a US LLC or US corporation, obtain an EIN, and open a US bank account for said LLC or corporation.
 

#8
cl2018  
Posts:
340
Joined:
14-Dec-2018 10:38am
Location:
United States
Noobie wrote:Sounds dang close to money laundering...

Also a lot like tax fraud in the sense that you are assisting a person with getting around the tax law/reporting of income by being the middleman/woman.


Thank you for the warning. I agree the taxpayer should avoid such practice.
 

#9
cl2018  
Posts:
340
Joined:
14-Dec-2018 10:38am
Location:
United States
ManVsTax wrote:It is not that hard for a foreign individual to form a US LLC or US corporation, obtain an EIN, and open a US bank account for said LLC or corporation.


Thank you for the input!
 

#10
Posts:
5702
Joined:
21-Apr-2014 7:21am
Location:
The Land
Sounds dang close to money laundering...Also a lot like tax fraud in the sense that you are assisting a person with getting around the tax law/reporting of income by being the middleman/woman.

I don’t know if I’d go that far. I’ve seen these situations before…some foreign person or entity doesn’t do what ManV suggests in Post #7 and routes everything through a bank account in the name of it’s U.S. salesperson. The ones I’ve seen are pretty legit. Usually its because the foreign person doesn’t know the rules, or doesn’t yet want to take a full-fledged plunge (i.e. it might not work out in the U.S., so let’s not invest a bunch in structuring, etc.). I do suppose though, that what we’re dealing with here is a low level foreign operator. Regardless, these situations make me very uncomfortable. If the U.S. person gets audited, the first thing the IRS asks for is bank statements. And then we have to explain ourselves. The last time we had one of these, we told the client to stop doing it the way the foreign enterprise was doing it. Foreign entity ended up doing it the right way.
 

#11
cl2018  
Posts:
340
Joined:
14-Dec-2018 10:38am
Location:
United States
Jeff-Ohio wrote:
Sounds dang close to money laundering...Also a lot like tax fraud in the sense that you are assisting a person with getting around the tax law/reporting of income by being the middleman/woman.

I don’t know if I’d go that far. I’ve seen these situations before…some foreign person or entity doesn’t do what ManV suggests in Post #7 and routes everything through a bank account in the name of it’s U.S. salesperson. The ones I’ve seen are pretty legit. Usually its because the foreign person doesn’t know the rules, or doesn’t yet want to take a full-fledged plunge (i.e. it might not work out in the U.S., so let’s not invest a bunch in structuring, etc.). I do suppose though, that what we’re dealing with here is a low level foreign operator. Regardless, these situations make me very uncomfortable. If the U.S. person gets audited, the first thing the IRS asks for is bank statements. And then we have to explain ourselves. The last time we had one of these, we told the client to stop doing it the way the foreign enterprise was doing it. Foreign entity ended up doing it the right way.


Thanks for sharing your experience!
 

#12
Posts:
2612
Joined:
24-Jan-2019 2:16pm
Location:
North Shore, Oahu
cl2018 wrote:Should he report the transactions in tax return, assuming He will remit net profit to his friend leaving himself zero profit. Thanks!


It depends.

What are the circumstances and facts as to why the taxpayer would be volunteering these services and not receive any money for the services rendered (and not considering the money going into his bank account as "his" money)?
 

#13
cl2018  
Posts:
340
Joined:
14-Dec-2018 10:38am
Location:
United States
ItDepends wrote:
cl2018 wrote:Should he report the transactions in tax return, assuming He will remit net profit to his friend leaving himself zero profit. Thanks!


It depends.

What are the circumstances and facts as to why the taxpayer would be volunteering these services and not receive any money for the services rendered (and not considering the money going into his bank account as "his" money)?


Since he talked to me initially, he has changed his mind and now he would simply buy from his friends the goods and sell the goods for his own profit. I am not sure why he initially volunteered to help his friend.
 


Return to Taxation



Who is online

Users browsing this forum: Google [Bot], Google Adsense [Bot], wale89 and 100 guests