US tax avoidance question regarding Real Estate?

Question

Is it possible to have money in a Cayman (or any other tax haven country) account and lend that money to an LLC here in the states to purchase real estate? What would be the tax benefits of doing so? I would imagine the interest payments that are paid to this Cayman company are a tax decuction here and could lower the tax liability of the US LLC.

at set of foreign investors would comprise the fund in the Caymans. these are not US citizens. i am a US citizen and I am investing this money for them. paying some of the profits as interest payments must be better than having them bring their money here to the states and having all the profits hit with tax with no interest expense.

Answer 1

There would be no tax benefit in doing this. Interest payments are always a deductible business expense, it doesn't matter where the lender is located.

If you own the foreign company you will have massive headaches and reporting requirements to contend with here in the US. And any income it generates is fully taxable to you since you are a US citizen. Even if it's not taxed by The Caymans, you still pay US taxes on your world-wide income.

Answer 2

Who has the money in the other country?
Who has the LLC?

If this is the same person or a related party it's not going to work....

The individual would have to claim the interest income they received (having the money in a foreign account does not make it either untaxable or untraceable). In addition to reporting the existence and balance in the account each year on the form TD F 90-22.1, the money being wired to and from the account will be recorded by the banking industry and to the federal government via FINCEN reports.

Answer 3

The setup you propose does not pass the smell test. Your questions sounds like you are trying to find a convoluted way to make US money look like Cayman islands money. If so, it would be tax fraud and not a wise move.