Professional opinion sought

[Judge Roy Bean]

With the realization that nothing here is to be construed as legal or professional tax accounting advice, I would like to ask this august body if the ol' Judge's concern about this er, "scheme" being legal is justified.

Scenario: A US-based LLC is established for the purposes of forming multiple LLP's to develop commercial (retail) properties. The LLC will be the General Partner in those and the Limited Partners could be as many as necessary to buy and build the desired commercial facility. The GP (the US LLC) retains 51% of each of the LLP's. They indicated they can't operate as a REIT because there won't be enough participants.

The offeror is saying that the limited partners will not realize any taxable gains until they sell their interest or the LLP pays out any profits. That sounds legitimate.

The problem I'm having is the LLC's partnership in an off-shore component that the LLP's will pay "management fees" to. Obviously, those fees affect the potential P/L, but can a US-based LLP deduct such things being paid to an off-shore company in which the General Partner has an interest?

This is making my head hurt.

Thoughts?