Tax Planning Before U.S. Immigration
The Challenge
An Australian couple planned a two-to-four-year U.S. move. One spouse was a U.S. citizen; the other was a nonresident who owned a property company, consulting company and family home. U.S. residency would bring those assets and worldwide income into the U.S. tax net.
The property company was valued at AUD 1.5 million and earned AUD 59,280 annually from two rentals. Without advance restructuring, the couple faced CFC taxation, mismatched foreign tax credits, duplicate payroll and permanent-establishment obligations, and U.S. tax on appreciation arising before immigration.
Our Approach
ETP recommended a pre-move check-the-box election to treat the property company as a disregarded entity for U.S. purposes. The deemed liquidation should occur before residency without U.S. tax, while stepping the rental properties' U.S. basis up to fair market value. Flow-through treatment would align with Australia's look-through rules, making local rental-income tax directly creditable against U.S. tax.
For the consulting business, we designed a U.S. S corporation as a sister to the Australian company. The couple would be employees, and the Australian company would pay an arm's-length fee while retaining a small local margin. This reduced self-employment tax exposure, avoided a second corporate tax layer, and removed the need for separate U.S. payroll and permanent-establishment infrastructure.
Creating Additional Value
The recurring benefit was measurable. At the memo's maximum 37% individual rate, AUD 59,280 of annual property income represents AUD 21,933.60 - approximately AUD 21,934 - of gross U.S. tax exposure before credits. Aligning the tax treatment and credits was designed to eliminate up to that duplicate tax each year, or up to AUD 87,734 over four years.
The basis step-up added long-term value by limiting future U.S. gain to post-move appreciation. Exact capital-gain savings were not calculable because historic basis was not provided. We also mapped Forms 8858, 5471 and 1120-S compliance and preserved flexibility for later green-card and treaty-residency decisions.
The Result
ETP created a coordinated pre-immigration plan covering ownership, entity classification, payroll, foreign tax credits and eventual exit. Under the memo's maximum-rate assumption, it positioned the clients to:
Avoiding duplicate U.S. tax exposure annually
Reset basis within an AUD 1.5 million property company, excluding pre-move appreciation from future U.S. taxable gain;
Reduce self-employment tax and avoid duplicative payroll and permanent-establishment costs through an S corporation; and
Replace CFC exposure with coordinated flow-through taxation, foreign tax credits and a clear reporting roadmap.