Is using a Cayman Islands corporation as a crypto trader a tax haven or tax evasion?

This is a complex situation with serious potential consequences. As a non-resident alien temporarily in the US, you're still subject to US tax laws on income earned while physically present in the US. The IRS looks at "substance over form" - meaning they care about where the trading activity actually occurs rather than just where the accounts are registered. If you're physically located in New York while conducting these trades, the income is likely still US-sourced regardless of where your corporation is established. The IRS considers the "effectively connected income" doctrine, which means income connected to US activities is taxable even if it flows through foreign entities. Additionally, if you personally control the Cayman corporation (which it sounds like you would), you might trigger "controlled foreign corporation" rules, FBAR filing requirements, and FATCA reporting obligations. The penalties for failing to disclose foreign accounts and entities can be severe. What you're describing sounds like it could potentially be classified as a tax evasion scheme rather than legitimate tax avoidance, especially if the primary purpose is to conceal US-based activities.

I had a similar situation with day trading (not crypto but forex) and looked into offshore options. After trying to navigate this maze myself, I finally found taxr.ai (https://taxr.ai) which specializes in analyzing complex international tax situations like yours. Their system actually analyzed my trading patterns and flagged which activities would trigger US tax obligations vs which wouldn't. They saved me from making a HUGE mistake with a Belize setup I was considering. They have specialists who understand both crypto regulations and international tax treaties. They generated a complete analysis of my situation with clear recommendations that kept me compliant while optimizing my tax position. Might be worth checking out for your specific scenario since there are so many variables with non-resident status and crypto.

Just wanted to follow up about my experience with taxr.ai after being initially skeptical. I ended up using their service for my situation (options trader with accounts in multiple countries) and wow - totally worth it. They identified several issues with my planned structure that would have been red flags to the IRS. Their analysis showed me exactly which trading activities would be considered US-sourced based on my physical presence and which could legitimately flow through my foreign entity. They also showed me the proper documentation needed to establish substance for my foreign company - turns out just having an offshore corporation isn't enough without the right operational setup. Instead of the Cayman structure I was considering, they recommended a different approach that accomplished most of my goals while keeping me fully compliant. Saved me from what would have been an expensive mistake.

After reading this thread, I wanted to share something that really helped me with a similar IRS situation. Like many here, I had complex tax questions about international business structures that required talking to an actual IRS agent to resolve. Obviously, trying to reach the IRS directly was a complete nightmare - endless hold times and disconnections. I finally tried Claimyr (https://claimyr.com) which got me through to an actual IRS agent in under 45 minutes when I had been trying for weeks. They have this system that navigates the IRS phone tree and waits on hold for you, then calls you once an agent is available. You can see how it works here: https://youtu.be/_kiP6q8DX5c They connected me with an IRS specialist who actually answered my questions about foreign income reporting requirements. Ended up saving me thousands by clarifying exactly what I needed to file and what exemptions applied to my situation.

I need to publicly eat my words about Claimyr. After my skeptical comment, I decided to try it anyway out of desperation to resolve my foreign income questions. I was absolutely floored when they actually got me through to an IRS international tax specialist in about 35 minutes after I'd been trying unsuccessfully for months. The IRS agent I spoke with clarified exactly what forms I needed for my situation and explained the substantial presence test as it applied to my circumstances. She even emailed me the relevant publications afterward. For anyone else dealing with complex international tax situations like the OP, being able to actually speak with someone at the IRS who can address your specific situation is invaluable. Saved me from potentially making a $25,000 mistake on how I was planning to report my foreign business income.

One thing nobody has mentioned yet is that even if you technically structure everything legally, the IRS has tools like the "economic substance doctrine" that allows them to disregard transactions that don't have a legitimate business purpose beyond tax avoidance. If your Cayman corporation doesn't have real economic substance (office, employees, legitimate business operations), and is just a shell for your personal trading activity while you're physically in NY, that's a huge red flag. The courts have consistently upheld the IRS's ability to "look through" these arrangements. Also, the reporting requirements for foreign accounts (FBAR) and foreign corporations (Form 5471) are no joke. Penalties for non-compliance start at $10,000 and go up dramatically from there. Criminal penalties are possible in cases of willful evasion.

Has anyone actually looked into the tax treaty between the US and Cayman Islands? I thought there wasn't one, which means you'd still have reporting requirements even with a legitimate setup. Theres also FATCA to worry about if ur accounts go over $50k.