Let’s say I’m a struggling, but very well off, businessman in the resort and hospitality industry. I have golf resorts around the world, but all of them are losing millions of dollars every year, such that it almost seems intentional. On the bright side, I don’t have to pay much (or anything) in taxes, since I’m losing money every year.
Why not run a profitable resort? Is the tax penalty for running a successful business really that much worse than the millions of dollars in losses?
How am I enriching myself here? Am I actually just laundering money? How does this stuff work?
**Edit:** Ok, this is making a lot more sense after just a few responses. Followup question, what kind of criminal charges might be brought against me, if it turns out I am actually lying about my business’s profitability and, my tax liability, and have been doing so for years?
In: Economics
*Why not run a profitable resort?*
Because that’s actually *hard* to do. It takes skill, courage and the willingness to risk it all.
*How am I enriching myself here?*
Because you’re **lying** about how much you’re making.
Example: Let’s say the rich businessman employs a family member. Say it’s his daughter. But his daughter also runs a totally separate consulting business. The rich man pays his daughter a fee for “consulting” on his project. This fee is tax deductible.
But remember, his daughter works for *both* companies. To do this, he will literally take money *out* of one of his daughter’s bank accounts and put it in *another* of his daughter’s bank accounts, and then claim he “lost” the money because it was paid as a “fee.” And his tax bill went down.
And there’s nothing stopping the daughter from giving the money back to her father — possibly in the form of another “fee” paid *to* the rich person from the “consulting business.” And then the daughter will claim *that* as a tax deductible expense. Lather, rinse, repeat.
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