Different contributor here. Please permit me to assist. You asked:
What I was thinking of doing is starting in management consulting firm in a tax-free country and have each Corporation pay about 50 K a year in consulting fees. After miscellaneous expenses I would probably divert about 80 K year and earnings to say a Bermuda Corporation. So if I understand this correctly, the 80K a Bermuda Corporation earns Corporation would not pay tax on that amount as long as the funds did not enter the US.
A: Here's the deal. The IRS can tax the income produced by a Controlled Foreign Corporation (CFC) to its domestic owners. A CFC exists where more than 50% of the corporation stock is owned by U.S. persons, and a shareholder
is liable for taxes on the income if he/she is at least a 10% shareholder in the CFC.
The means by which multinational corporations avoid the CFC result is because their employees are located in a foreign nation, income is derived from foreign sources, and the foreign corporation is not owned more than 50% by the domestic corporation parent.
For an individual
with a small corporation, such as yourself, you could easily expect to pay $25,000 per year to maintain a CFC in a tax haven jurisdiction, because you will have costs associated with trustees and management, etc. which will have to be offshore. If you retain control by some indirect mechanism, then the IRS can decide that you really are the sole or majority shareholder, and you will be subject to tax on the corporate earnings, even if you didn't receive them.
There is no means of avoiding this outcome, except by spending large sums of money to set up and maintain the offshore presence, which is why this type of solution is only available to large business organizations. It's just not cost effective for any small business owner -- UNLESS, you choose to move to the tax haven nation, and operate your business from the foreign location. Then, you can take advantage of the foreign earned income
, which can offset nearly $100,000 in annual income based upon your foreign residency.
Based on your description of your circumstances, there is no way to make your contemplated transaction
economically feasible (unless you are prepared to deny that you have any ownership interest
in the corporation, on your Form 1040
, Schedule B
-- which would be felony tax evasion, and so I can't recommend this to you, for obvious reasons).
may change in the very near future, with all of the "fiscal cliff," nonsense, and the strong desire to try to repatriate foreign income into the USA. But at this time, the best move for you, may be to just wait and see what happens with the tax laws
Hope this helps.