Merchant Account Question

[DiscGo]

I have a friend who runs a business which largely consists of selling business consulting over the phone, & over the internet. That friend uses his family & friends identities to open merchant accounts under their names (along with that of him and his wife), to avoid limitations on his personal merchant account.

This friend has offered me and my wife $400 a piece ($800 total) per month to allow him to open a merchant account under our names for his business. He also offered to give us a notarized personal guarantee against his personal finances should something go wrong with the business. This same friend is already been paying one of my best friends, and a brother-in-law of mine (two different people) for years and they have loved the extra income.

I don't know what sort of experience you guys all have with this type of issue, but I'm trying to figure out:

Is this legal?
Should I be concerned about being accountable for a bunch of money should he flee the country?
Is this too good to be true?
etc.

Thanks in advance.

[DOSS]

If you are not part of the business and making money off of the deal I would not allow someone else to have an account in your name.. hell I would not allow anyone to have an account in my name no matter what.. he should operate his business above board and not putting income into your name to avoid fees and or taxes :)

[jman]

X2 to what DOSS said. What it comes to money and friends, I stay away. Family is different. And he may have the best intentions but you know the minute something bad happens, they will always come after you. Beware of affinity fraud

[DiscGo]

You guys are repeating what my guy has been telling me. But I sure love the idea of that extra free money each month.

[jman]

You guys are repeating what my guy has been telling me. But I sure love the idea of that extra free money each month.

Lol, I'm still waiting to cash in on my 110 million from my "friend" in Nigeria....

The whole idea has a smell to it. If it was illegal and he and you were caught, it could get you a co-conspirator verdict against you. Just throwing that out there...

[Deathcricket]

I think if you have family members who have been doing this for years and getting the cash, I would go for it. That sounds like two great references to me. plus who doesn't need a couple extra bucks each month? I'm not super familiar with the proceedure, but it sounds like the guy is a hard worker and has his account maxed out. otherwise he would do it himself.

[DOSS]

I think if you have family members who have been doing this for years and getting the cash, I would go for it. That sounds like two great references to me. plus who doesn't need a couple extra bucks each month? I'm not super familiar with the proceedure, but it sounds like the guy is a hard worker and has his account maxed out. otherwise he would do it himself.

Bernie Madoff's family made some nice $$ for a few years too... TANSTAAFL

[Deathcricket]

Bernie Madoff's family made some nice $$ for a few years too... TANSTAAFL

Not sure how that is relevant to the conversation. But one rarely gets ahead by playing by the rules.

Discgo, take the $800 and buy your wife some sexy laungerie, trust the cricket of death, he knows things.

[DOSS]

Not sure how that is relevant to the conversation. But one rarely gets ahead by playing by the rules.

Discgo, take the $800 and buy your wife some sexy laungerie, trust the cricket of death, he knows things.

Just because your family has made some decent cash off the deal it is still a questionable deal that could end up screwing a person over rather well (see Madoff - his friends and family made loads of cash -- they will soon be sued by a receivership to give a lot of that back (ponzi schemes for the win))...

but really if you have to ask if it is a good idea you already know how you feel about the situation and something doesn't seem right so trust your gut.. But Krickit is right - one rarely gets ahead by playing by the rules

[Deathcricket]

Just because your family has made some decent cash off the deal it is still a questionable deal that could end up screwing a person over rather well (see Madoff - his friends and family made loads of cash -- they will soon be sued by a receivership to give a lot of that back (ponzi schemes for the win))...

but really if you have to ask if it is a good idea you already know how you feel about the situation and something doesn't seem right so trust your gut.. But Krickit is right - one rarely gets ahead by playing by the rules

how does this screw over another person? it sounds like the dude just sets up Discgo as a "shell" merchant then runs transactions through him to avoid taxes. Or his credit limit isn't high enough to make the huge kinds of purchases he needs, so he offsets them through multiple accounts. As long as the dealer doesn't make a purchase until he has a sale through his consulting firm, there isn't many ways this can fail. IMO of course :2thumbs: plus it doesn't sound illegal, the only risk is being on the line for some pricey goods should the company fall under. Again I don't have all the details, but it sounds legit.

[DOSS]

You said it yourself this would set up a shell to avoid taxes. While I don't agree with the law it is best to follow them to avoid court


Sent from my iPhone using Tapatalk

[Iceaxe]

How do you know it's a scam? Because it's sounds to good to be true. The reason folks get caught in scams is they are blinded by greed. The only reason he wants to use you is because what he is doing is illegal.

So.... I'm not sure of the exact mechanics of what he is doing.... but sounds like its done to escape taxes by not having to report the income by staying below a limit of some type.

BUT.... one of these days the hammer will fall and those holding the bag will have to pay up.... and the hammer always falls eventually.

Bottom line..... no way in hell I'd allow someone to open an account in my name.

[DiscGo]

Thanks guys. I appreciate all of your feedback, but Iceaxe's wisdom was just what I needed. Once I read it, my eyes were completely opened. I'm not doing this.

Thanks again.

[Sombeech]

Remember Wayne Ogden? My uncle invested a bunch of money with him. But instead of getting a financial guarantee, he somehow got his house if the deal went south.

My uncle is now living in Wayne Ogden's house in South Ogden, it's a very nice house. :cool2:

If you can get some kind of guarantee in case you find he is actually adding debt to your name, or it's a big scam or something, people think that a monetary payback is the safety net. But if he declares bankruptcy, who do you think is going to pay you?

Seek other forms of payback if anything goes south, that bankruptcy cannot cancel out. And if it's a solid safety net, I'd say go with it.

But have an END GOAL, as in, don't let it roll forever. Say you only want it for 6 or 12 months and it's done. The longer you let it roll, the more of a chance for something to go wrong.

Good luck.

[tallsteve]

What do you mean by 'merchant account'? Are you talking a credit card merchant account so he can take credit cards over the phone or internet?
Also, a personal guarantee doesn't mean much if it turns out to be a scam and he gets busted. Most likely you would fall at the end of the line of folks being owed and wouldn't ever see a dime.

[Iceaxe]

If I understood the details I'll tell you where the scam or danger from the IRS is.

One current example where multiple "merchant accounts" are being used is eBay and Amazon. Two years ago the feds forced them (and similar companies) to 1099 anyone with more then 20k in internet sales. So some sellers set up multiple accounts to keep sales below the magic number and avoid paying taxes owed.

Tap'n on my Galaxy G3

[DiscGo]

Apparently this is illegal and it is called "Structuring".

http://en.wikipedia.org/wiki/Structuring

My Sister-in-law is an FBI agent and she said there is no chance of jail time, but it is a federal offense. There are big fees and you would have a criminal record if convicted.

Thanks again everyone.

[Iceaxe]

My Sister-in-law is an FBI agent and she said there is no chance of jail time, but it is a federal offense. There are big fees and you would have a criminal record if convicted.

If caught YOU also owe the back taxes, the interest and the penalty. The IRS can be ruthless in this type of case.



Tap'n on my Galaxy G3

[Iceaxe]

I love playing with numbers in this type of deal..... If you were only being paid $400 to allow someone to use you as a merchant account you are not getting a good deal.


For many financial transactions the magic number for reporting to the IRS is approximately $10K. Which means you are trying to skip out on paying about 30% in taxes, which is $3000. In most business deals you split the profit. So $1500 would be a better going rate.


And as for the 20K number the IRS forced on Amazon and eBay, my guess is that was based on the sale of most items being a 50% profit, which is a reasonable mark-up in retail sales. Which brings you back the the magic 10K the feds like to use.

:cool2:

[2065toyota]

It can be set up legally and we have done it before. I have been on both ends and there are risks involved. Most merchant accounts will only allow 1-2% of the total transactions as chargebacks plus there is always a maximum gross revenue that can run through them. The only reason they would need more merchant accounts would be to accomodate 1 or those 2 scenarios. We were paying around $1000 per month when we were running. To have a merchant account means you have to start an actual business which means IRS reporting, book keeping and corporate taxes. If you do it be prepared for worst case scenario because when it goes bad it does it fast with online stuff.