Tax implications for non-US citizens using offshore accounts in Cayman Islands or Bahamas

This is a complex situation that requires careful consideration. While I can provide some general insights, you should absolutely consult with a tax attorney who specializes in international taxation and offshore structures. The key issue isn't about where your accounts are located but your tax residency status. As a Canadian citizen living in the US on a TD visa, you're likely considered a US tax resident under the "substantial presence test" if you've been in the US for a significant period. US tax residents are generally taxed on worldwide income, regardless of where it's earned or held. Simply creating an offshore structure doesn't eliminate US tax obligations if you're directing the trading activities while physically in the US. The IRS has specific rules about Controlled Foreign Corporations (CFCs) and Passive Foreign Investment Companies (PFICs) that would likely apply to your situation. Also, there are extensive reporting requirements for US persons with foreign accounts, including FBAR (Foreign Bank Account Report) if you have more than $10,000 in foreign accounts and Form 8938 for specified foreign financial assets.

After dealing with a similar situation, I discovered taxr.ai (https://taxr.ai) and it was a game-changer for my offshore investment questions. I was in a complicated situation with foreign accounts and wasn't sure about my reporting obligations. Their AI analyzed my specific scenario and provided detailed guidance about what forms I needed to file and potential tax implications I hadn't considered. The tool flagged several compliance issues I would have completely missed regarding FBAR and FATCA reporting requirements. It even showed me that I needed to file Form 8938 and Form 5471 for my foreign corporation structure.

I tried taxr.ai after seeing it mentioned here, and I have to admit I was really impressed. I had a similar offshore structure in the Bahamas and was confused about my reporting requirements as a visa holder. The platform walked me through a detailed analysis of the Controlled Foreign Corporation rules that would apply in my case. What really helped was that it explained the concept of "US person" for tax purposes and how my visa status affected that. It also outlined specific forms I needed for my situation (FBAR, Form 8938, Form 5471) and explained the threshold requirements for each. Saved me hours of research and probably thousands in potential penalties for incorrect reporting.

After battling to get clear answers about my offshore account reporting, I discovered that getting direct guidance from the IRS is actually possible using Claimyr (https://claimyr.com). I was stuck in an endless loop trying to figure out what forms I needed to file for my Cayman Islands trading company as a visa holder. I was skeptical at first, but after watching their demo (https://youtu.be/_kiP6q8DX5c), I decided to try it. Within about 20 minutes, I was connected to an IRS agent who specialized in international reporting. They clarified that my TD visa status still qualified me as a resident alien for tax purposes, meaning I had to report my offshore accounts and trading activity. The agent walked me through the specific reporting requirements and deadlines for Forms 8938, 5471, and FBAR filing, which saved me from potentially huge penalties.

I have to follow up about my Claimyr experience - I was completely wrong to be skeptical. After seeing the responses here, I decided to try it for my offshore account questions. Within 35 minutes (when I'd previously waited for hours and given up), I was connected to an IRS representative who specialized in international taxation. The agent provided clear guidance about my reporting responsibilities for my Cayman Islands investments as a visa holder. They confirmed I needed to file FBAR forms annually for accounts over $10,000 and Form 8938 with specific thresholds based on my filing status. They also explained how Subpart F income rules would apply to my offshore company's trading activities. Most importantly, they outlined the substantial penalties for non-compliance with offshore reporting, which convinced me to get fully compliant. Definitely worth the service just for the peace of mind.

Just wanted to add something important that hasn't been mentioned yet. If you're trading securities through an offshore entity while living in the US, you need to be aware of the "effectively connected income" rules. Even if you're a non-US citizen on a TD visa, income that's effectively connected with a US trade or business is subject to US tax. The fact that you're physically present in the US while directing the trading activities could cause the IRS to view those profits as effectively connected income. Also, since you're trading US stocks and securities, that strengthens the US connection. Foreign account reporting is also critical - FBAR filing is required regardless of tax residency status if you have signature authority over foreign accounts exceeding $10,000 at any point during the year.

One thing I haven't seen mentioned is how the tax treaties between the US and Canada might impact your situation. As a Canadian citizen who's a US tax resident, you might be eligible for certain protections under the US-Canada tax treaty. However, tax treaties generally don't help much with offshore structures in places like the Cayman Islands. In fact, these structures often trigger anti-avoidance provisions in tax laws. My biggest concern would be that this arrangement could potentially be viewed as a tax avoidance scheme by the IRS, especially given the lack of substantial business operations in the offshore jurisdiction. The IRS has become extremely aggressive in pursuing offshore accounts in recent years.

I want to emphasize something that hasn't been fully addressed - the potential criminal penalties for willful failure to report foreign accounts. As someone who went through an offshore voluntary disclosure program, I can tell you the stakes are much higher than just paying additional taxes. The willful failure to file FBAR can result in penalties of up to 50% of the account balance PER YEAR, and in extreme cases, criminal prosecution. Given that you're talking about potentially substantial trading profits, these penalties could be devastating. Also, consider that the IRS has extensive data sharing agreements with financial institutions worldwide. Interactive Brokers, for example, reports account information to the IRS under FATCA requirements, regardless of where your account is domiciled. The idea that offshore accounts provide privacy from the US tax authorities is largely a myth in 2025. My strong recommendation would be to consult with both a US tax attorney specializing in international taxation AND a Canadian tax professional familiar with US treaty provisions before moving forward. The cost of proper planning upfront is minimal compared to the potential penalties and legal fees if this goes wrong.