You lost me. Suppose from here, where I am, in the US I set up a foreign corporation, and it buys a nice house in NY State. I move in as a 'renter'.
Then too soon the IRS notices that I am living high on the hog, e.g., in a nice house, but paying very little in income taxes.
Similarly if the garage of the house has a half dozen 'super cars' worth $1 million or so each. And maybe the interior decorating of the house is drop dead gorgeous, cost $1+ million, which the IRS could notice if they could can inside, maybe with a search warrant, or even just interview a maid I hired to run a vacuum cleaner, and then get a search warrant.
So, the IRS and their lawyers start after me?
Okay, maybe I pay a 'fair' rent for the house and pay it to the offshore company. My understanding is that that doesn't work because that company needs a US branch office that has to file US taxes. So, the IRS could get my banking records and see the rent checks I paid. Okay if could arrange that somehow the US branch office made $0 earnings each year so that it owed no US taxes, maybe.
Or, maybe I 'work' for the US branch office, and they pay me a salary, and I pay my rent to them. Hmm. But the rent would have to come from ordinary income, after tax?
Or, use part of the house for my business and pay part of the rent as an ordinary business expense from my pre-tax revenue? Maybe for a little of the house, say, a home office, that would be okay with the IRS, but that leaves maybe the other 90% of the house the IRS would insist that I pay for in some sense out of taxable ordinary income.
Or maybe be an employee of the US company and hired as a 'house sitter' keeping the house safe and, thus, don't pay rent? The IRS might just tell a judge that this whole setup is tax fraud and let me have an extended 1 on 1, in person, tutoring session with Bernie Madoff?
Or maybe the US company could sell me the house for, say, $1000, and somehow I would convince the IRS that my little house, that cost $10 million to build, is something a person paying so little in taxes could afford? I could get the IRS and a tax court judge to agree with that?
Maybe I'd like 2000 acres of New Hampshire woods around the house. Okay, maybe the US company buys the woods as an investment and lets me and my kitty cats make some use of the woods, the stream that flows through, the lake from a dam on the stream, etc.?
I guess basically I'm lost on how I could live in a $10 million house and still convince the IRS that am within the law.
Or, maybe a corporation owns the house but has a lot of debts otherwise so in total is next to worthless, and I buy the corporation for $1, keep the $10 million house, and do something, somehow I don't mind doing, about the debts of the corporation. E.g., maybe my business loaned the corporation $10 million that the corporation used to buy/build the house. Then the corporation is worth essentially $0. Then I buy the corporation for $1. I keep the house. For the debt, my business calls that a loss.
You lost me. Suppose from here, where I am, in the US I set up a foreign corporation, and it buys a nice house in NY State. I move in as a 'renter'.
Then too soon the IRS notices that I am living high on the hog, e.g., in a nice house, but paying very little in income taxes.
Similarly if the garage of the house has a half dozen 'super cars' worth $1 million or so each. And maybe the interior decorating of the house is drop dead gorgeous, cost $1+ million, which the IRS could notice if they could can inside, maybe with a search warrant, or even just interview a maid I hired to run a vacuum cleaner, and then get a search warrant.
So, the IRS and their lawyers start after me?
Okay, maybe I pay a 'fair' rent for the house and pay it to the offshore company. My understanding is that that doesn't work because that company needs a US branch office that has to file US taxes. So, the IRS could get my banking records and see the rent checks I paid. Okay if could arrange that somehow the US branch office made $0 earnings each year so that it owed no US taxes, maybe.
Or, maybe I 'work' for the US branch office, and they pay me a salary, and I pay my rent to them. Hmm. But the rent would have to come from ordinary income, after tax?
Or, use part of the house for my business and pay part of the rent as an ordinary business expense from my pre-tax revenue? Maybe for a little of the house, say, a home office, that would be okay with the IRS, but that leaves maybe the other 90% of the house the IRS would insist that I pay for in some sense out of taxable ordinary income.
Or maybe be an employee of the US company and hired as a 'house sitter' keeping the house safe and, thus, don't pay rent? The IRS might just tell a judge that this whole setup is tax fraud and let me have an extended 1 on 1, in person, tutoring session with Bernie Madoff?
Or maybe the US company could sell me the house for, say, $1000, and somehow I would convince the IRS that my little house, that cost $10 million to build, is something a person paying so little in taxes could afford? I could get the IRS and a tax court judge to agree with that?
Maybe I'd like 2000 acres of New Hampshire woods around the house. Okay, maybe the US company buys the woods as an investment and lets me and my kitty cats make some use of the woods, the stream that flows through, the lake from a dam on the stream, etc.?
I guess basically I'm lost on how I could live in a $10 million house and still convince the IRS that am within the law.
Or, maybe a corporation owns the house but has a lot of debts otherwise so in total is next to worthless, and I buy the corporation for $1, keep the $10 million house, and do something, somehow I don't mind doing, about the debts of the corporation. E.g., maybe my business loaned the corporation $10 million that the corporation used to buy/build the house. Then the corporation is worth essentially $0. Then I buy the corporation for $1. I keep the house. For the debt, my business calls that a loss.
I'm trying to understand.