Why Nevada and Wyoming Aren’t the Tax Havens You May Think They Are

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Form a company in Nevada or Wyoming and never pay taxes! Right? WRONG! And now not only may forming a company the wrong way in the wrong state cost you a lot in extra taxes, penalties and interest, you might also get a criminal charge.

The feds may question whether you have a legitimate reason for setting up the business. And then, as far as other states are concerned, whether you have sufficient reason for declaring nexus in the state.

The IRS is getting more demanding when it comes to proof that there is a business purpose for the business. Otherwise they say you can’t have the tax tail wagging the economic dog. (Actually a Tax Court said that.) In other words, there is an economic purpose for setting up a business or, even more common, an economic purpose for upstreaming income from one company to another.

If you don’t have an economic purpose and your tax strategy is found to actually be a non-disclosed tax shelter scheme, you can actually face jail time. These guys are getting serious!

So, before you set up your business structure in a tax-free state like Nevada or Wyoming, make sure you legitimately have both a business/economic purpose for the business and you have nexus in the state. That means qualifying as more than just having a business set up there, but actually have a business with physical presence, employees, products and the like. You don’t need all of those items, but you certainly need some valid proof of Nevada nexus to prove that the business should be there.

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