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Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 7226
Experience:  15years with H & R Block. Divisional leader, Instructor
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If I live in the US and set up a lending institute in the Cayman

Resolved Question:

If I live in the US and set up a lending institute in the Cayman Islands the profit from interest on loans made in the US, would this be taxable by the US? I understand that my salary overseeing the operation would be taxable, but how about the remaining earning if kept in the Cayman Corporation, until withdrawn.
Submitted: 9 months ago.
Category: Tax
Expert:  Robin D. replied 9 months ago.

Robin D. :

Hello and thanks for trusting me to help you today. I am a tax adviser with over 15 years of experience.
You are correct your salary and any distributions would be taxable to you in the US.
A controlled foreign corporation is any foreign corporation in which more than 50 percent of the total combined voting power of all classes of stock entitled to vote is owned directly, indirectly, or constructively by U.S. shareholders.
If a foreign company is determined to have subpart F income, then the earnings and profits of the corporation will be taxable each year to the shareholders owning 10% or more determined by direct ownership (or the attribution rules discussed in I.R.C. Section 958(a)).

Robin D. :

Under this the US person would not be taxed again when the distributions were made from the foreign corp.

Robin D. :

It is possible that the foreign corp amounts would still be taxable to you even if not withdrawn.

Customer:

Could you explain what "subpart F income" is?

Robin D. :

Subpart F was enacted by Congress to limit the deferral of U.S. taxation of certain income earned outside the United States by controlled foreign corporations (“CFC”). One of the purposes of Subpart F is to prevent CFCs from structuring transactions in a way that are designed to manipulate the inconsistencies between foreign and U.S. tax systems to inappropriately generate low or non-taxed income on which U.S. tax may be permanently deferred.

Customer:

Could the reason that it is to be used as funds to relent give any legitimate reason for not dispensing them, and thus no need to pay US taxes until they are withdrawn by the shareholders? The loaning of the funds would be to the general public and not to shareholders or others that have interest in the corporation.

Robin D. :

No that reason is not the purpose. The loans could be to the general public where the corporation is located and the reporting would not change. It is the ownership and control of the US person that dictates the requirement.

Customer:

Meaning the proceeds or profits are not distributed due to sole reason to have additional funds to make more of a profit in the long run. Of course, once finally distributed, I would understand that the funds would than be taxed.

Robin D. :

That is not always the case. This even true when a taxpayer receives dividends. Those dividends are not always distributed and may be reinvested but that does not take them out of taxation.

Robin D. :

If you would like I will gladly opt out and see if another expert would like to take over your concerns.

Robin D. :

And continue the discussion

Robin D. :

Perhaps they have a different way of explaining that is clearer.

Customer:

Actually you did an excellent job for I understand it will be taxed on the profits. Thank you for your advise!

Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 7226
Experience: 15years with H & R Block. Divisional leader, Instructor
Robin D. and 5 other Tax Specialists are ready to help you

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