"If I don't do that, they basically avoid paying taxes on the benefit of living in a company-owned house, which I'm pretty sure is tax fraud."

I'm sorry, but now I'm confused. Do you have a home privately owned, and these people are charging their own business entity rent for the use. Or, do you have a residential property owned by their business (titled to it) and they live in it as renting from their business (the landlord). Or, they are reporting this value as unreimbursed partner expense. Or as Office in Home.