The US Market Is Not One Market: What Australian Businesses Must Understand Before Expanding

For Australian businesses with global ambition, the United States often represents the defining opportunity.

It is the world’s largest consumer market, one of the deepest capital markets, and home to many of the customers, investors, strategic partners and industry ecosystems that can transform a company’s trajectory. For businesses in technology, sport, health, consumer products, professional services, education, financial services and advanced manufacturing, the US is often not simply an expansion market. It is the market that determines whether the business becomes regional or genuinely global.

Yet the same qualities that make the US attractive also make it unforgiving.

Australian businesses often approach the US with a degree of familiarity. The language is familiar. The legal heritage feels familiar. The commercial culture is recognisable. The brands, investors and institutions are globally known. On the surface, the US can appear to be a larger version of a market Australian businesses already understand.

That assumption is dangerous.

The United States is not just a bigger market. It is a different legal, tax and regulatory environment altogether. More importantly, it is not one market in any simple sense. It is a federation of states, cities, regulators, courts and commercial norms layered on top of a federal system. A business may enter through California, raise capital in Delaware, hire in New York, sell into Texas, store data in Virginia and use contractors in Florida — and each of those choices can carry different legal and commercial consequences.

This is where many Australian businesses underestimate the challenge. They do not fail because the US opportunity is too difficult. They fail because they treat US expansion as a sales project when it is also a structural, legal, tax and governance project.

The distinction matters.

A company that enters the US with the wrong structure, weak contracts, unprotected intellectual property, inadequate insurance, poor employment processes or unmanaged privacy exposure may still generate revenue. It may even grow quickly. But growth without structure can simply scale the risk. By the time the issue appears — an investor diligence request, a lawsuit, a tax notice, a product complaint, a data incident, a distributor dispute or a regulatory inquiry — the cost of fixing the problem is usually far greater than the cost of preparing properly at the outset.

Structure Is A Strategic Decision, Not An Administrative Step

The first serious question for an Australian business entering the US is not where to sell, but how to exist in the market.

Should the business operate directly from Australia? Should it form a US subsidiary? Should that subsidiary be a corporation or an LLC? Should it be established in Delaware, the state of operation, or somewhere else? Should the group structure be reorganised before a US capital raise? Should intellectual property remain in Australia or be licensed to the US entity? How should intercompany arrangements be documented?

These questions are often treated as technical matters. They are not. They influence tax outcomes, investor appetite, legal liability, operating flexibility, employee equity arrangements, state filing obligations, exit planning and the perceived maturity of the business.

For many Australian companies, a US subsidiary can be a sensible way to separate US operating risk from the Australian parent. But that protection is not automatic. A subsidiary is not a piece of paper that magically insulates the group from all exposure. It must be respected as a real entity. That means separate accounts, proper contracts, appropriate capitalisation, clear decision-making, arm’s-length intercompany arrangements and disciplined corporate governance.

Where the business is a high-growth startup seeking US venture capital, a different issue may arise. US investors, particularly venture funds, often prefer investing into a US parent company, commonly a Delaware corporation. This can lead to a “flip-up”, where the corporate structure is reorganised so that the US company becomes the parent of the group.

For the right business, this may be commercially sensible. It can align the structure with US investor expectations, simplify future funding rounds and position the company for a US exit. But it should never be treated as a cosmetic change. A flip-up can have consequences for Australian tax, US tax, shareholders, employee equity plans, intellectual property ownership and future exit proceeds. It is one of those decisions that looks simple only when viewed from too far away.

The broader point is that structure should follow strategy. A founder-led software company preparing for US venture capital does not necessarily need the same structure as an Australian manufacturer selling through US distributors. A professional services firm establishing a US client base has different issues again. A sports, entertainment or talent-related business may need to think carefully about immigration, state law, withholding, image rights, contracting and agency arrangements.

The correct structure is not the most popular one. It is the one that supports the commercial plan while managing tax, legal and operational risk.

Contracts Are The Operating System Of US Risk

In the US, contracts carry more weight than many Australian businesses expect.

A contract is not merely a record of what the parties agreed. It is a risk allocation tool. It determines who bears responsibility if something goes wrong, whether liability is capped, whether consequential damages are excluded, who owns the intellectual property, how confidential information is protected, which law applies, where disputes are heard, whether arbitration is required, whether legal costs can be recovered and what happens when the relationship breaks down.

This matters because the US litigation environment is expensive. Discovery can be broad and intrusive. Legal fees can escalate quickly. Claims that appear commercially manageable can become financially distracting. Even a strong defence can consume executive time, damage relationships and create pressure to settle.

Australian businesses should therefore treat US contracts as a commercial control system, not as administrative paperwork.

The key clauses are not boilerplate. Indemnities, warranties, limitations of liability, governing law, jurisdiction, dispute resolution, confidentiality, IP ownership, non-solicitation, termination, payment terms, audit rights and insurance obligations all need to be drafted for the transaction and the relevant US context.

This is also where businesses need to be cautious about relying on AI-generated documents or generic templates.

The issue is not that AI has no role. It can be useful for early drafting, issue spotting and helping business owners understand common contractual concepts. The problem is that a contract can sound sophisticated and still be wrong. It can use terminology that appears legal but does not achieve the intended result. It can import concepts from the wrong jurisdiction. It can omit state-specific requirements. It can include a clause that is unenforceable, commercially unrealistic or unsuitable for the industry.

In the US, the difference between a contract that looks right and a contract that works can be very expensive.

Intellectual Property Should Be Protected Before The Business Becomes Visible

For many Australian companies, the most valuable assets entering the US are not physical assets. They are brands, software, product designs, proprietary processes, client data, trade secrets, content, know-how, commercial relationships and reputation.

Those assets need to be protected before the business becomes visible.

Too many companies reverse the sequence. They launch the product, appoint a distributor, speak to investors, hire contractors, share technical information, run a campaign, build a customer base and only then ask whether their intellectual property is protected in the US. By that stage, the business may discover that a similar brand is already registered, a contractor agreement does not properly assign IP, confidential information has been shared too broadly, or a competitor has moved faster.

In the US, trade marks, patents, copyright and trade secrets each require different thinking.

A brand that is available in Australia may not be available in the US. A name that feels distinctive to an Australian founder may already be used by a US company in a related category. A trade mark search and filing strategy should therefore be addressed early, particularly where the US brand will be central to market entry.

For technology and product businesses, patent timing can be critical. Public disclosure, investor presentations, product launches and commercial negotiations can all affect the position if not managed properly. Businesses with potentially patentable technology should obtain advice before they disclose too much.

For software, content and creative assets, copyright protection may be important, but businesses should also ensure that ownership is clean. That means reviewing agreements with developers, agencies, consultants, employees and contractors. It is surprisingly common for companies to assume they own what they paid to create, only to find the legal position is more complicated.

Trade secrets require discipline. Confidential information is not protected merely because the business considers it confidential. Protection depends on practical steps: non-disclosure agreements, access controls, internal policies, employee obligations, contractor restrictions, cybersecurity practices and careful management of commercial discussions.

The principle is simple. If the US market is important enough to enter, the assets being taken into that market are important enough to protect.

Product Liability And Consumer Risk Can Change The Economics Of Expansion

For businesses selling physical products, the US requires particular care.

The US product liability environment can be far more aggressive than Australian businesses expect. Claims may arise from alleged design defects, manufacturing defects, inadequate warnings, poor instructions, breach of warranty, misleading marketing or failure to act once a product risk becomes known. Manufacturers, distributors and retailers can all be drawn into disputes, even where the business believes it acted responsibly.

This can be especially confronting for Australian companies that have strong internal quality standards and assume those standards will be enough. In the US, the question is not only whether the product was made carefully. It is also whether the design was appropriate, whether foreseeable misuse was considered, whether warnings were adequate, whether instructions were clear, whether claims made in marketing were supportable, whether warranties were properly drafted and whether the company had systems to respond to complaints or safety issues.

Before entering the US, product businesses should review packaging, warnings, instructions, safety certifications, warranties, recall procedures, supply chain contracts, distributor obligations and insurance coverage. The insurance point is critical. Australian policies may not provide the protection required for US exposure, or may contain territorial exclusions, product exclusions or limits that are inadequate for the US market.

A business should not ask only whether it can sell the product in the US. It should ask whether it is prepared for the legal consequences of selling the product in the US.

Compliance Is Fragmented, And Fragmentation Creates Risk

One of the defining features of the US market is regulatory fragmentation.

There are federal regulators, state regulators and local authorities. There are national rules, state-specific rules and city-level requirements. There are industry-specific regimes and general consumer laws. There are licensing rules, employment rules, tax rules, privacy rules, advertising rules, import rules and product safety rules.

The relevant obligations depend heavily on what the business does.

A food, cosmetics, health, medical device or pharmaceutical business may need to consider FDA requirements. A financial services or investment-related business may need to consider securities regulation. A company making environmental claims may need to substantiate those claims carefully. A consumer product business may need to consider product safety standards. An online business may need to consider privacy, automatic renewal rules, digital marketing obligations and state consumer protection laws. A business importing goods may need to consider customs, tariffs, sanctions and restricted-party screening.

This is why there is no single US compliance checklist that works for every Australian business. The right analysis depends on the product or service, the states involved, the customer base, the distribution model, the industry and the way the business earns revenue.

The problem is that many compliance risks arise before the company thinks it has “entered” the US in a formal sense. A business may create US exposure by selling online to US customers, engaging US influencers, collecting data from US residents, appointing a US sales agent, attending trade shows, hiring contractors, storing inventory, using a fulfilment provider or raising capital from US investors.

Market entry is not always marked by opening an office. Sometimes it begins with the first US customer.

Marketing, Privacy And Data Practices Need To Be US-Ready

The US is a powerful market for digital growth, but it is also a market where marketing practices, consumer disclosures and data handling can create significant risk.

Advertising must be accurate. Performance claims need support. Pricing needs to be clear. Promotional terms need to be properly disclosed. Influencer relationships need to be transparent. Subscription arrangements and automatic renewals need careful attention. Environmental claims, health claims and financial claims require particular care because they can attract scrutiny if they are exaggerated, vague or insufficiently substantiated.

This matters for Australian businesses because many enter the US digitally. They sell through a website, run paid advertising, use influencers, collect customer information, offer subscriptions, promote through social media and sell across multiple states before building a physical presence.

That model can scale quickly. It can also scale legal exposure quickly.

Privacy is another area where Australian assumptions can be misleading. The US does not operate under one simple, comprehensive national privacy regime that applies uniformly to every business. Instead, it has a patchwork of state privacy laws, federal sector-specific laws, breach notification obligations and industry-specific requirements.

California is often the best-known example, but it is not the only state that matters. Health data, children’s data, biometric information, financial information and sensitive personal information may carry additional obligations depending on how the business operates.

Privacy should therefore be treated as an operational issue, not merely a website policy issue. Businesses need to know what information they collect, why they collect it, where it is stored, who receives it, how long it is retained, how it is protected and what rights customers may have.

A privacy policy that looks acceptable on a website is not enough if the underlying systems do not match it.

Governance Protects The Business When Growth Accelerates

In early-stage expansion, governance often feels secondary to sales. That is understandable, but it is also risky.

A company entering the US needs basic corporate discipline. It should maintain proper records, document key decisions, separate group entities, keep accurate accounts, ensure contracts are signed by the correct entity, manage tax registrations, comply with employment obligations and maintain appropriate insurance.

This is not bureaucracy for its own sake. It is what protects the business when pressure arrives.

If a dispute arises, the company’s documents matter. If an investor conducts due diligence, the records matter. If a regulator asks questions, the systems matter. If a customer makes a claim, the contract and insurance position matter. If the business is eventually sold, the buyer will examine whether the US operations were built properly or improvised.

Poor governance can also create personal exposure for executives in certain circumstances, particularly where there are unpaid taxes, employment law breaches, personal guarantees, fraud, misuse of entities, commingling of funds or serious compliance failures. While corporate structures can provide important protection, they are not a substitute for responsible management.

Insurance is part of this framework. Depending on the business, relevant policies may include general liability, product liability, cyber, directors and officers, employment practices liability, professional liability and workers’ compensation. But insurance should not be treated as a cure-all. Coverage depends on policy wording, exclusions, limits, retentions, notification requirements and the nature of the claim.

Good governance does not slow growth. Done properly, it makes growth more durable.

The Businesses That Succeed Prepare Before The Market Tests Them

The US rewards ambition, but it also tests assumptions.

Australian businesses that succeed in the US usually understand that expansion is not a single event. It is a sequence of decisions that must fit together: structure, tax, contracts, IP, employment, privacy, insurance, regulatory compliance, financing and governance. None of these issues should be considered in isolation because each one affects the others.

The businesses that struggle often follow a familiar pattern. They sell first and structure later. They use Australian contracts in US transactions. They assume a template agreement will be sufficient. They leave IP protection until after launch. They hire contractors without understanding worker classification. They underestimate state taxes and sales tax. They use marketing claims that have not been reviewed. They collect data without mapping their obligations. They discover insurance gaps only after a claim.

None of these mistakes necessarily comes from carelessness. More often, they come from momentum. The company sees an opportunity, moves quickly, wins customers and assumes the infrastructure can catch up later.

In the US, that can be an expensive assumption.

The better approach is not to over-lawyer the opportunity or delay commercial progress. The better approach is to build a practical expansion framework before the business is exposed. That means identifying the highest-risk issues early, prioritising what must be fixed before launch, and creating a structure that can evolve as the US business grows.

A business entering the US does not need perfection from day one. But it does need clarity. It needs to know which entity is contracting, who owns the IP, what taxes may apply, which states matter, what the contracts say, what insurance covers, what employment obligations exist, what data is collected and what regulatory regimes are relevant.

That clarity gives management the confidence to grow without constantly discovering hidden risk.

The Real Opportunity Is Building A US Platform, Not Just Making US Sales

The US can be transformational for Australian businesses. It can provide access to capital, customers, strategic partners, talent, acquirers and industry ecosystems that are difficult to replicate elsewhere.

But the businesses that create lasting value in the US do more than make sales. They build a platform.

A platform has the right structure. It has contracts that allocate risk properly. It protects intellectual property. It understands its tax position. It has employment and contractor processes. It manages privacy and data. It has suitable insurance. It complies with relevant regulation. It keeps records. It can withstand investor diligence, customer scrutiny, regulator questions and commercial disputes.

That is the difference between entering the US and being ready for the US.

For Australian businesses, the message is not that the US is too complex. Complexity is manageable. The real issue is whether the business recognises the complexity early enough to turn it into a competitive advantage.

A well-structured Australian business can enter the US with confidence. It can move faster because the major risks have been considered. It can negotiate better because its contracts are prepared. It can raise capital more effectively because its structure makes sense. It can protect value because its IP is secured. It can respond to disputes because its documents and insurance are in order.

US expansion should not be approached with fear. It should be approached with discipline.

The companies that do this well will not see legal, tax and compliance planning as obstacles to growth. They will see them as part of the architecture of growth.

Because in the US, getting to market is only the first challenge.

The real test is whether the business has been built to survive success.

CHECKLIST: Australia – US Market Entry Checklist

The IRS enforcement environment in 2026 is moving in two directions at once. On one hand, the agency has publicly committed to higher audit coverage for large corporations, complex partnerships, and very high-income individuals. On the other hand, the IRS is operating with a materially smaller workforce than it had at the beginning of 2025.

This does not mean the IRS is stepping back from enforcement. It means enforcement is becoming more selective, more data-driven, and more focused on taxpayers and transactions that the agency believes offer the highest compliance risk or revenue potential. For many taxpayers, the risk is not simply that the IRS will open more audits. The greater risk is that, when an audit is opened, the IRS may already have substantial third-party data, foreign account information, digital asset reporting, Form 1099 data, K-1 information, and statistical comparisons against similar taxpayers.

The result is a different type of examination environment. Fewer taxpayers may be selected overall, but those selected can expect a more focused and more technically demanding audit.

The IRS’s Stated Enforcement Priorities

The IRS has continued to identify three categories of taxpayers for increased audit coverage: large corporations, large and complex partnerships, and wealthy individuals. At the same time, the IRS has stated that it does not intend to increase audit rates for small businesses and taxpayers making under $400,000, relative to historical levels.

For large corporations with assets over $250 million, the IRS has stated that it intends to increase the audit rate from 8.8% to 22.6% by the 2026 tax year. These examinations are expected to remain specialist-driven and document-intensive, with continued attention on transfer pricing, intercompany transactions, foreign tax credits, basis-shifting transactions, and complex entity structures. The IRS’s own budget materials note that large corporate examinations have an average case cycle time of approximately 36 months, which means staffing and training changes can affect examination capacity over several years.

For large and complex partnerships with assets over $10 million, the IRS has stated that it intends to increase audit rates from 0.1% to 1.0%, a nearly tenfold increase. This remains one of the most significant enforcement developments for pass-through entities. Partnerships have historically been difficult to examine because of tiered ownership, special allocations, partner-level tax attributes, capital account issues, debt allocations, and transfers of partnership interests. The centralized partnership audit regime gives the IRS a more efficient procedural path to examine and adjust partnership items at the entity level.

For wealthy individuals, the IRS has stated that it intends to increase audit coverage for taxpayers with total positive income over $10 million to 16.5% by the 2026 tax year. These examinations often extend beyond the Form 1040 itself and into related entities, trusts, private investment vehicles, foreign accounts, charitable structures, real estate activities, and pass-through income reported on Schedules K-1.

The DOGE Effect: Fewer Agents, Smarter Tools

The IRS’s enforcement plans must be read together with the agency’s staffing reductions. The Treasury Inspector General for Tax Administration reported that between January 2025 and May 2025, the IRS workforce decreased from approximately 103,000 to 77,000 employees, a 25% reduction. Those employees either separated from the agency or accepted deferred resignation or other incentive offers.

Reuters reported that IRS enforcement revenue declined by 5%, or almost $5 billion, in the fiscal year, and that the agency opened more than 120,000 fewer tax audits in 2025 than in the prior year. Reuters also reported that the IRS enforcement function lost roughly 5,000 employees heading into 2026 and is projected to lose another 5,000 in the coming year. Longer term, the agency reportedly aims to employ approximately 69,000 people by fiscal year 2027, compared with a recent peak of 103,000 employees.

Despite these reductions, the IRS has not signaled an end to enforcement. Treasury officials told Reuters that enforcement revenue increased 12% in the first five months of fiscal year 2026, which began October 1. The apparent strategy is to concentrate limited resources on cases that appear more likely to produce significant adjustments.

The mechanism for that recovery is technology. IRS leadership under CEO Frank Bisignano has doubled down on artificial intelligence and data analytics to compensate for lost staffing. The agency now uses AI-powered tools to:

• Cross-match returns against third-party data (W-2s, 1099s, brokerage records, digital asset reports, and international FATCA feeds) at unprecedented scale
• Identify statistical anomalies in deductions, income characterization, and entity allocations relative to peer benchmarks
• Flag mismatches between FBAR/FATCA reporting and income tax return positions
• Prioritize audit case selection by estimated tax recovery potential

The net effect: the IRS is auditing less, but when it audits, it arrives better prepared, with more data, and with enforcement as its objective.

International Reporting Remains A Major Enforcement Risk

Cross-border compliance remains one of the IRS’s highest-priority enforcement areas in 2026. The FATCA network now spans over 110 jurisdictions, and the IRS receives automated account-level data from thousands of foreign financial institutions. Where that data does not reconcile with FBAR filings (FinCEN Form 114) or Form 8938, the IRS’s AI matching tools will surface the discrepancy.

Penalties for FBAR non-compliance are severe. Non-willful violations carry penalties up to $16,536 per annual report (following the Supreme Court’s 2023 Bittner decision, which confirmed the per-report rather than per-account penalty standard). Willful violations carry civil penalties of the greater of $165,353 or 50% of the account balance, plus potential criminal exposure. The IRS has a six-year statute of limitations for FBAR penalty assessments.

Taxpayers with unreported or inconsistently reported foreign accounts should evaluate corrective options before the IRS initiates contact. Once an examination begins, available options may become more limited and the risk profile can change quickly.

Digital Asset Reporting Is Entering A New Phase

Digital asset enforcement is also changing. Treasury and the IRS have issued final regulations requiring brokers to report certain digital asset sale and exchange transactions beginning with transactions that take place in calendar year 2025, reported on Form 1099-DA. Brokers must report gross proceeds for transactions effected on or after January 1, 2025.

The next stage begins with basis reporting. Basis reporting is required by certain brokers for transactions occurring on or after January 1, 2026. The 2026 Form 1099-DA instructions state that, for sales effected on or after January 1, 2026, brokers are not required to report basis information for digital assets that are noncovered securities, although they may voluntarily report that information and receive penalty protection if the appropriate box is checked.

This creates a new matching environment for cryptocurrency and other digital asset taxpayers. Many early digital asset filings were prepared with incomplete cost basis records, inconsistent wallet transfer tracking, exchange migration issues, staking income questions, NFT transactions, stablecoin transactions, or DeFi activity that was not reported consistently. The IRS will now have more third-party reporting to compare against Form 1040 digital asset disclosures, Schedule D, Form 8949, and other return positions.

Taxpayers should not assume that the absence of a Form 1099-DA means there is no reporting obligation. IRS guidance states that decentralized finance brokers and some foreign brokers are not required to file Form 1099-DA or furnish statements to taxpayers. The taxpayer remains responsible for accurate reporting even when no form is issued.

Pass-Through Entities Should Expect More Scrutiny

Partnerships and S corporations remain central enforcement targets because income, deductions, credits, and basis adjustments flow from the entity to the owner. A federal adjustment at the entity level can affect multiple owners, multiple tax years, and state tax reporting.

The IRS’s stated increase in audit coverage for partnerships with assets over $10 million is particularly important for partnerships with contributed property, special allocations, tiered structures, related-party transactions, debt allocations, Section 754 elections, Section 743(b) adjustments, carried interests, or significant capital account activity. The agency’s focus is not limited to whether income was reported. It also includes whether allocations have substantial economic effect, whether basis adjustments are properly calculated, whether liabilities are properly allocated, and whether transfers of partnership interests have been correctly reported.

California taxpayers should also consider state follow-on exposure. A federal partnership adjustment can create California issues involving California-source income, apportionment, withholding, composite filings, and pass-through entity tax positions. For multistate partnerships and owners, the federal audit may be only the first stage of a broader compliance review.

High-Income Individual Examinations Are Broader Than The Form 1040

For individuals with total positive income over $10 million, the IRS’s stated audit-rate increase to 16.5% means return preparation and supporting documentation are increasingly important. High-income examinations often involve more than the individual income tax return. The IRS may examine related entities, family partnerships, trusts, foundations, foreign accounts, private investment structures, aircraft or yacht expenses, real estate losses, charitable contributions, installment sale reporting, and related-party loans.

The IRS is also likely to compare reported income against third-party reporting and broader financial indicators. A taxpayer with significant assets, visible liquidity events, substantial debt service, or large lifestyle expenditures may face questions if the reported income profile does not appear consistent with available data.

For high-income taxpayers, contemporaneous documentation is essential. Large deductions, recurring business losses, nonstandard investment structures, foreign tax credit positions, treaty positions, and related-party arrangements should be supported before the return is filed. Reconstructed records are generally less persuasive than documentation prepared at the time of the transaction.

Employee Retention Credit Claims Remain High Risk

Employee Retention Credit enforcement remains a priority, particularly for claims prepared by promoters or filed late in the program. The IRS has issued FAQs addressing new ERC compliance provisions under the One Big Beautiful Bill. Those provisions affect ERC claims for the third and fourth quarters of 2021 filed after January 31, 2024.

Under Section 70605(d) of the OBBB, effective July 4, 2025, the IRS is prevented from allowing or refunding ERC claims for the third and fourth quarters of 2021 if those claims were filed after January 31, 2024, even if the employer otherwise met the eligibility requirements. The IRS guidance also states that the law strengthens compliance enforcement by imposing penalties on certain ERC promoters who fail to meet due diligence requirements when assisting with claims.

If an ERC claim is disallowed, the IRS states that the taxpayer will receive Letter 105-C, Claim Disallowed. A taxpayer may appeal to the IRS Independent Office of Appeals if the taxpayer believes the ERC claim was timely filed on or before January 31, 2024, and was improperly disallowed under Section 70605(d).

Employers with pending or previously paid ERC claims should review the quarter claimed, filing date, eligibility analysis, payroll records, government order support, gross receipts calculations, promoter involvement, and IRS correspondence. Claims based on broad supply-chain arguments, general economic disruption, or boilerplate shutdown narratives remain especially vulnerable.

Abusive Transactions Remain on the IRS Radar

Syndicated conservation easements, micro-captive insurance arrangements, monetized installment sale structures, and other listed or high-risk transactions remain enforcement priorities. Taxpayers who participated in these arrangements should not assume that the passage of time eliminates risk. Listed transaction reporting failures, promoter investigations, extended statutes, and penalty assertions can significantly increase exposure.

In many of these cases, the IRS may examine not only the claimed tax benefit, but also the taxpayer’s reporting obligations, reliance on professional advice, valuation support, transaction documents, and communications with promoters or advisors. Privilege and document production issues should be considered early, not after the examination is underway.

What Taxpayers Should Expect If Examined

The character of IRS examinations has changed. Audits that once began as broad information-gathering inquiries are now more likely to begin with a defined enforcement objective. Examiners may have already reviewed third-party reporting, foreign account information, digital asset records, K-1 reporting, and peer comparisons before contacting the taxpayer.

Initial Information Document Requests may therefore be more specific and more demanding. Taxpayers should expect requests for original records, contemporaneous workpapers, transaction documents, account statements, basis schedules, foreign reporting support, and communications relevant to the return position. For cross-border taxpayers, an income tax issue can quickly become an information reporting issue, and an information reporting issue can lead to broader questions about unreported income, foreign tax credits, GILTI, Subpart F, PFICs, treaty positions, or FBAR compliance.

Taxpayers should also consider privilege before responding to an IRS notice. Communications with a CPA are generally not protected in the same way as communications with legal counsel. Sensitive matters involving offshore reporting, promoter transactions, digital assets, high-dollar partnership positions, or potential penalties should be reviewed carefully before documents are produced.

Practical Preparation For 2026

The most effective risk management is proactive. Taxpayers in the IRS’s priority categories should review open tax years before receiving an IRS notice. That review should focus on material filing positions, missing or inconsistent information returns, foreign account reporting gaps, digital asset reporting issues, partnership basis matters, large deductions, related-party transactions, ERC claims, and state follow-on exposure.

Taxpayers should also reconcile returns against information the IRS is likely to receive independently. This includes Forms W-2, Forms 1099, Schedules K-1, brokerage statements, Form 1099-DA, FATCA data, mortgage interest reporting, charitable contribution acknowledgments, payroll tax filings, and state tax filings. Because the IRS is using statistical and machine-learning techniques in audit selection, mismatches and outlier positions are more likely to be identified.

International taxpayers should maintain organized workpapers for FBAR filings, Form 8938, Form 5471, Form 8865, Form 3520, Form 3520-A, PFIC reporting, foreign tax credit calculations, GILTI, Subpart F, Section 962 elections, treaty-based return positions, foreign pensions, and foreign trust analysis. The IRS’s active LB&I campaigns show continued attention to FATCA reporting, offshore private banking, foreign earned income exclusion claims, and Forms 5471.

Digital asset taxpayers should review exchange histories, wallet transfers, cost basis records, staking income, airdrops, NFTs, stablecoin transactions, DeFi activity, lost wallets, and prior-year reporting consistency. Gross proceeds reporting began with 2025 transactions, and basis reporting for certain covered digital asset transactions begins with transactions occurring on or after January 1, 2026.

Taxpayers with ERC claims should separately review eligibility and timing. Section 70605(d) prevents the IRS from allowing or refunding ERC claims for the third and fourth quarters of 2021 after July 4, 2025, if the claims were filed after January 31, 2024. Employers should retain payroll records, gross receipts calculations, government order analysis, copies of amended payroll tax returns, IRS correspondence, and any promoter engagement materials.

Final Thoughts

The 2026 enforcement environment is not defined by audit volume alone. The IRS is smaller than it was at the start of 2025, but it is relying more heavily on data matching, artificial intelligence, third-party reporting, and targeted case selection.

Taxpayers with clean records, consistent reporting, and contemporaneous documentation are in a stronger position if selected for examination. Taxpayers with foreign reporting gaps, digital asset reporting issues, unsupported pass-through positions, high-income return anomalies, or promoter-driven ERC claims should evaluate those risks before the IRS contacts them.

When Australian business owners talk to me about entering the US, the conversation usually starts where it should – growth. 

A bigger market, deeper capital, more customers, stronger partnerships.

The opportunity is real. What is often underestimated, though, is how quickly momentum can slow due to tax and reporting issues that were never properly mapped at the start. In the US, you are rarely dealing with one simple compliance system. Federal rules are only part of the picture. State tax, registration and sales tax obligations can arrive much earlier than many businesses expect.

One of the first things I usually encourage clients to think through carefully is the entity itself. 

Too often, the structure is treated as something that can be tidied up later. In practice, that can be an expensive mistake. A C corporation files Form 1120 and is taxed separately. A partnership files Form 1065 and pushes tax items out to the owners through Schedule K-1. A single-member LLC is generally disregarded for US income tax purposes unless it elects to be taxed as a corporation. On paper that may sound technical, but commercially it matters a great deal, because the wrong structure can create complexity long before the business has properly found its feet.

If an Australian group is looking at a US LLC, I would be especially careful. Where a foreign-owned US disregarded entity has reportable related-party transactions, Form 5472 can come into play, and it is filed with a pro forma Form 1120. The penalty for missing that filing starts at $25,000. That is exactly the kind of issue that catches decent businesses off guard—not because they are doing anything aggressive, but because nobody warned them early enough that the reporting obligation existed in the first place.

The state-tax piece is where many founders realise that the US is less one market and more fifty overlapping systems. Sales tax, state income tax, franchise tax and registration obligations can arise in different ways and at different times. Even the “business-friendly state” conversation needs a bit of nuance. Texas has franchise tax, Florida has corporate income/franchise tax, and many states now apply economic nexus rules that can pull remote sellers into registration and collection once thresholds are met.

Financial reporting deserves a little more attention than it usually gets at the start as well. In a public company context, SEC reporting can mean ongoing Form 10-K and Form 10-Q filings. More broadly, US financial reporting still revolves around GAAP. In practice, the challenge is often not understanding the theory, but ensuring the US numbers can be reported cleanly and consistently within the wider group without constant rework.

Hiring in the US is another area where practical business decisions and compliance meet very quickly. Employers generally need to withhold federal income tax and Social Security and Medicare taxes from wages, and most employers also need to deal with unemployment taxes at both federal and state levels. On top of that, worker classification matters. The IRS looks at the full relationship and the degree of control, not just what the contract happens to call someone. That is why I always say that calling a person a contractor is not the same thing as them actually being one.

Once the US business starts moving money across borders, the international rules need to be treated seriously. US persons with foreign financial accounts may have an FBAR filing obligation once aggregate balances exceed $10,000, and intercompany charges between an Australian parent and a US operation need to satisfy the arm’s-length standard. The best time to think about that is before the structure goes live, not halfway through an audit trail reconstruction exercise.

The good news is that none of this is unmanageable. 

But it does reward businesses that treat tax and financial reporting as part of commercial strategy, rather than as admin to be cleaned up later. 

The businesses that usually do well in the US are not always the ones that move fastest. They are often the ones that enter with the clearest structure, the best discipline and the fewest surprises. In my experience, that is where good advice still pays for itself.

CHECKLIST: Australia – US Market Entry Checklist

Taking your Australian business to the United States is an exciting milestone, but it comes with a steep learning curve—especially regarding human resources and employment law. 

In Australia, businesses rely on a familiar, centralised system governed by the Fair Work Act 2009. However, the US operates under a highly decentralised, federalist system. For Aussie expats and expanding enterprises, this means adapting to overlapping federal, state, and local regulations that can vary wildly depending on your exact location. Here is your essential guide to understanding the US labour landscape.

Navigating A Fragmented Legal Landscape

In the US, federal employment laws establish the baseline protections for workers nationwide. Statutes like the Fair Labor Standards Act (FLSA) set minimum wage and overtime rules, while the Civil Rights Act and Americans with Disabilities Act (ADA) strictly prohibit workplace discrimination.

However, federal laws are merely the floor. Individual states—and even local cities—can enact significantly stricter protections. For instance, while the federal minimum wage is set at US$7.25 per hour, states like California and New York enforce much higher minimum wages, along with enhanced paid sick leave and wrongful termination protections. Cities like San Francisco and Seattle have even more restrictive local rules. An Australian company operating in both Texas and California will face starkly different compliance landscapes, making a state-by-state HR compliance strategy absolutely essential.

The “At-Will” Culture Shock

One of the biggest paradigm shifts for Australian employers is the US at-will employment doctrine. Unlike Australia, which mandates minimum notice periods and redundancy entitlements, most US jurisdictions allow employers to terminate a worker at any time, for any reason (or no reason at all), provided the reason is not illegal.

While this flexibility allows businesses to scale their workforces rapidly, it is not an absolute rule. Crucial exceptions exist that can easily lead to wrongful termination lawsuits:

• Contractual Protections – Executives or unionised workers often negotiate “just-cause” termination clauses or severance agreements.
• Public Policy – You cannot fire someone for whistleblowing, refusing to commit fraud, or exercising a legal right like filing a workers’ compensation claim.
• Implied Contracts – Promises made in employee handbooks or during interviews can inadvertently create implied contracts, requiring employers to follow progressive disciplinary steps before firing. To protect your business, always include clear at-will disclaimers in offer letters and handbooks, and meticulously document your reasons for any termination.

The Benefits Gap: Healthcare and Retirement

Securing top talent in the US requires understanding that employee expectations differ vastly from those in Australia.

Healthcare Is An Employer Obligation

The US lacks a universal public system like Medicare. Because access to healthcare is heavily tied to employment, offering competitive, employer-sponsored health insurance is a fundamental necessity if you want to attract and retain quality staff.

The 401(k) vs. Superannuation

Instead of compulsory 11% superannuation contributions, the US utilises a voluntary defined-contribution system known as a 401(k). Employees contribute pre-tax income, and while it isn’t legally mandated, competitive employers usually match these contributions by 3% to 6%.

Navigating Payroll Taxes And Contractor Risks

US payroll taxes are a multi-tiered system. Rather than dealing with a single entity like the ATO, employers must withhold and match Federal Insurance Contributions Act (FICA) taxes, which fund Social Security (6.2%) and Medicare (1.45%). Additionally, employers are liable for both federal and state unemployment taxes (FUTA and SUTA), with state rates fluctuating based on your specific industry and history of layoffs.

Finally, if you plan to hire freelancers, tread carefully. The IRS and Department of Labor strictly enforce worker classification laws. Misclassifying an employee as an independent contractor can trigger severe fines, back-pay claims, and lawsuits. Ensure you have well-drafted independent contractor agreements that clearly define the project scope, payment terms, and the worker’s independent status.

Conclusion

Expanding into the American market is not a one-size-fits-all endeavour. By implementing centralised HR compliance systems, understanding local legislative nuances, and consulting with US labour attorneys, Australian businesses can successfully mitigate risks and build a thriving stateside workforce.

CHECKLIST: Australia – US Market Entry Checklist

Expanding into the US can be a growth-defining move for an Australian business — new customers, deeper capital markets, a bigger talent pool. But there’s one reality that catches founders off guard: in the US, immigration isn’t a “formality.” It’s a regulated operating system. If you treat it like admin, it will eventually treat you like a compliance event.

At a high level, three agencies shape most employment- and investment-based pathways:

• USCIS (US Citizenship and Immigration Services) – adjudicates petitions and many work-authorisation processes inside the US
• DOL (Department of Labor) – protects US wage and working-condition standards (especially for employer-sponsored roles)
• DOS (Department of State) – issues visas at US embassies/consulates outside the US

When these agencies don’t align — or when documentation isn’t airtight — the cost is rarely “just delay.” It can disrupt onboarding, derail projects, and create legal exposure you don’t want attached to your US launch.

The E-3 Visa: Australia’s Unfair Advantage (When You Can Use It)

For many Australian companies and professionals, the E-3 is the cleanest entry point. It’s available only to Australian citizens working in a specialty occupation (typically requiring at least a bachelor’s degree or equivalent).

Why it’s so attractive:

• A dedicated annual cap (10,500) that has historically not been reached
• Lower friction and cost compared to many alternatives
• Renewable in two-year increments with the ability to extend repeatedly (so long as eligibility remains)

A major practical benefit: spouses of E-3 holders can obtain work authorisation (EAD) and work broadly in the US. For many families, that single feature makes the E-3 dramatically more livable than other work visas.

The key constraint: E-3 is not “dual intent.” In plain English: it’s designed as a temporary visa. You generally need to maintain the narrative (and supporting facts) that you intend to return to Australia. That doesn’t make a future green card impossible, but it does mean you need a plan — and you need to time it properly.

When E-3 Doesn’t Fit: The Other Work Visa Lanes

If the role or candidate doesn’t qualify for E-3 — or if permanent residency is part of the strategy — the next options depend on your structure and the person’s profile.

H-1B: The Well-Known Option (And The Lottery Problem)

H-1B also targets specialty occupations, but it’s open to all nationalities — which is why it’s heavily oversubscribed. Most applicants face a lottery due to annual caps (commonly referenced as 65,000 plus an additional 20,000 for certain US master’s degree holders).

Why companies still use it:

• Dual Intent (clearer alignment with future green card planning)

The downside many families feel most:

• Spousal work rights can be more limited and situational than E-3 (some H-4 spouses can qualify for an EAD under specific conditions, but it’s not as straightforward as E-3/E-2 in practice).

L-1: Ideal For Intracompany Transfers (If You Have The Structure)

L-1 is often the most logical pathway when you have a real operating company in Australia and you’re transferring someone to a US entity.

• L-1A for executives/managers
• L-1B for specialised knowledge staff
• Requires the employee to have worked for the overseas entity for at least one year within the preceding three years (in most cases)
• Dual intent is permitted

This visa often works best when your corporate structure and role definitions are clean — and when your organisational chart supports what you’re claiming.

O-1: For Top-Tier Profiles With Evidence To Match

The O-1 is for individuals with extraordinary ability (business, science, arts, etc.). There’s no annual cap, and extensions can continue as long as the work remains eligible.

But this is not a “strong resume” visa — it’s an evidence visa. Think:

• major awards or significant recognition
• published material about the person
• critical roles in distinguished organisations
• judging, original contributions, high salary, and other recognised criteria

If the story is “they’re excellent,” O-1 is hard. If the story is “their excellence is documented by third parties,” O-1 becomes very viable.

The E-2 Visa: The Founder/Operator Pathway

For entrepreneurs and owner-operators, E-2 can be a powerful route. Australia is a treaty country for E-2, and the visa is designed for people who will develop and direct a US business they’ve invested in.

Key points that matter in real life:

• You generally need to own at least 50% (or otherwise control the enterprise)
• The investment must be substantial and genuinely at risk (committed and exposed to loss)
• There’s no fixed minimum, but in practice investments often sit in a broad range (commonly US$100k–$500k+, depending on the business model)
• The business can’t be “marginal” — it should be capable of supporting more than just the investor’s household over time

Like the E-3, a major family advantage is that E-2 spouses can obtain open work authorisation.

Compliance That Actually Matters: LCAs, Files, And Timelines

For E-3 and H-1B, one recurring compliance anchor is the Labor Condition Application (LCA). This is where the employer certifies (to the DOL) that the worker will be paid appropriately (prevailing wage rules) and that hiring them won’t undercut local working conditions.

A few operational truths:

• Processing timelines vary – E-3 can often be relatively quick; H-1B and some USCIS petitions can take longer due to caps, scrutiny, and workflow
• Your file is your defence– job descriptions, wage rationale, organisational charts, degree equivalency support, and consistent HR records matter more than people expect
• Tracking expiry dates isn’t optional – late renewals create avoidable risk and business interruption

The Tax Trap: Immigration Status ≠ Tax Status

This is the part that blindsides many Australians.

Your visa category does not determine US tax residency. The IRS applies the Substantial Presence Test, which is based on days in the US over a rolling period. It’s entirely possible to be on a temporary visa and still become a US tax resident, meaning worldwide income may enter the US tax net.

That can pull in items Australians don’t expect to be “in play,” including:

• investment income from Australia
• complex treatment questions around superannuation
• reporting regimes that can apply to foreign accounts and entities
• state tax exposure (often the nastiest surprise), especially in places like California and New York, which operate with their own rules and don’t “care” as much about treaty outcomes as people assume

The US–Australia tax treaty can help mitigate double taxation, but treaties don’t automatically make complexity disappear — they often just change how you need to document and position the outcome.

The Mistakes That Create Expensive Problems

A few patterns show up again and again in US market entries:

• Misclassifying Employees As Contractors To “Simplify Payroll”
  This can trigger issues with the DOL and IRS, and it’s a fast way to attract scrutiny.
• Building The US Plan First And Asking Immigration To “Make It Work” Later
  Better approach: design the role, entity structure, and timeline with the visa pathway in mind.
• Overstays And Timing Errors
  Overstaying by more than 180 days can trigger a three-year re-entry bar, and one year can trigger a ten-year bar. Those are business-ending outcomes for the wrong person at the wrong time.

A Practical Way To Think About It

If you’re entering the US, treat immigration and tax as two parallel workstreams:

1. Immigration Workstream – right visa, right evidence, right timing
2. Tax Workstream – residency modelling, entity/payroll setup, cross-border reporting, state exposure

When those two streams are coordinated early, the US expansion feels controllable. When they’re not, businesses find themselves reacting — and reaction is always more expensive than design.

General information only — not legal or tax advice. US immigration and tax outcomes depend heavily on facts, timing, and documentation.

CHECKLIST: Australia – US Market Entry Checklist

Most Australian businesses don’t fail in the United States because the market rejects them. 

They fail because the structure underneath them wasn’t built for the way the US actually works.

From a distance, the US looks like one market. 

In practice, it’s a federal system sitting on top of fifty separate state regimes, each with its own tax rules, registration requirements, employment laws and compliance triggers. What works neatly in Australia can become awkward very quickly once you have people on the ground, customers in multiple states, or inventory crossing state lines.

That’s why the first mistake is usually asking the wrong question.

The question isn’t “Should we set up in Delaware?”
The real question is “What are we actually building in the US?”

If the plan is to test the water,  a small team, early customers, limited capital at risk and a structure that needs to stay flexible. If the plan is to scale, raise capital, issue equity to US hires and keep exit options open, the structure needs to look like something the US market already understands.

Most Australian businesses end up in one of those two lanes, whether they realise it or not.

Where the ambition is serious growth, the default answer is often a US C-Corporation. 

Not because it’s clever, but because it’s familiar. US investors, banks, lawyers and employees all know how to deal with it. Equity can be issued cleanly. Option plans work the way people expect. Governance is recognisable. Due diligence is faster because the shape of the company makes sense to the people looking at it.

The trade-off is that C-Corps come with formality and tax layering. There is corporate tax at the company level and tax again when profits are distributed. Board processes matter. Records matter. But that discipline is usually the price of admission if you want to play properly in the US growth market.

At the other end of the spectrum sits the LLC, which often gets sold as the “simple” option. And in the right circumstances, it can be. LLCs offer limited liability, fewer rigid corporate rules and a lot of flexibility in how economics and control are documented.

The catch though and it’s a big one for Australians is that simplicity in the US domestic context doesn’t always translate neatly across borders. The way an LLC is treated for US tax depends on elections and ownership, and foreign owners can find themselves pulled into US tax filings and reporting in ways they didn’t anticipate. Add state-level fees and compliance, and the “easy” structure can become anything but if it hasn’t been thought through properly.

That doesn’t make LLCs wrong. It just means they need to be chosen deliberately, not by default.

Then there are the structures that sound familiar but rarely fit. S-Corporations are popular with small US businesses, but they generally don’t work for Australian expansion because of tight ownership and equity restrictions. Partnerships can be excellent for joint ventures and specific commercial arrangements, but when foreign partners are involved, withholding and reporting obligations in the US can quickly outweigh the flexibility they offer.

What often gets missed entirely in early conversations is whether a US subsidiary is even the right first step. Some Australian businesses initially operate in the US as an Australian entity registered at the state level, particularly where activity is limited or transitional. In other cases, a clean US subsidiary is essential from day one to contain risk, satisfy customers or prepare for an eventual sale. There’s no universal rule but the choice has real consequences for liability, tax exposure and how easy it is to unwind or exit later.

Another blind spot is the assumption that incorporation solves everything. 

It doesn’t. In the US, obligations are driven less by where you’re incorporated and more by where you actually operate. 

Hire people in one state, warehouse goods in another, sell software into several more, and you can quickly find yourself dealing with multiple tax authorities and registration regimes. Sales tax in particular has a habit of appearing earlier than expected, especially for digital and e-commerce businesses.

And then there’s the question that almost always gets left until too late, how does the money come home?

Funding a US operation, charging for IP, repatriating profits and documenting intercompany arrangements are not clean-up exercises. 

They’re foundational. The longer they’re left, the more value gets trapped behind structures that weren’t designed to move it efficiently.

The same applies to people. The moment you hire in the US, everything becomes real, payroll, employment compliance, benefits, insurance, and expectations around equity. 

This is another reason growth-oriented businesses often gravitate to C-Corp structures early, US employees understand them, and equity incentives actually work the way they’re supposed to.

The pattern, after years of watching Australian businesses expand into the US, is fairly consistent. The companies that do well are not the ones with the cleverest structures. They are the ones that chose a structure that matched their ambition, accepted the discipline that came with it, and put the foundations in place before momentum made change difficult.

The ones that struggle usually weren’t reckless. They were just early optimists. They picked something that worked “for now” and assumed they’d fix it later. In the US, later tends to arrive during fundraising, diligence or a dispute when flexibility is at its lowest and the cost of change is at its highest.

General information only. Not advice. But if you’re planning a US expansion, it’s worth remembering this, the market is big, forgiving and full of opportunity but it has very little patience for structures that don’t match the story you’re trying to tell.

CHECKLIST: Australia – US Market Entry Checklist

Why This Matters?

Many Australians arrive in the US with sensible portfolios at home such as ASX listed exchange traded funds, listed investment companies, unit trusts or managed funds, and sometimes investments held through family trusts or private companies. In the US those vehicles can fall under the Passive Foreign Investment Company (PFIC) regime. That regime can impose punitive tax, interest charges, and heavy reporting. In addition, attribution rules can make you a PFIC shareholder even when you do not hold the shares directly. Understanding the touchpoints early allows you to restructure intelligently and avoid unnecessary cost and compliance friction.

What Is A PFIC?

A foreign corporation is a PFIC if it meets either of two tests in the Internal Revenue Code. The income test looks for at least seventy-five per cent of gross income being passive. The asset test looks for at least fifty per cent of assets that produce or are held to produce passive income. 

In practice many non-US pooled funds are PFICs for US purposes. These include mutual funds, exchange traded funds, listed investment companies, and some investment companies. 

Classification of Australian unit trusts depends on US entity classification rules and the facts. Many widely held, manager controlled vehicles are not treated as trusts for US tax and end up analysed as corporations, but this is fact specific.

Default Taxation And The Main Elections

If no election is made, PFICs are taxed under the excess distribution regime. Excess distributions and gains are allocated back over your holding period, taxed at the highest historic rates for each year, and layered with an interest charge that is not deductible. Two elections can improve outcomes.

• Qualified Electing Fund Election – You include your share of the PFIC ordinary earnings and net capital gain each year. The practical hurdle is that you need a PFIC annual information statement from the fund. Australian funds rarely provide it.

• Mark To Market Election – If the PFIC stock is marketable you mark to fair value each year. Increases are ordinary income and decreases are ordinary loss subject to limits. Marketable stock requires regular trading on a qualified exchange or market with published quotations. The ASX typically satisfies the regulatory criteria.

New US Residents And The Helpful Basis Rule

When an individual first becomes a US person and makes a timely Mark to Market election the regulations allow a basis step up. For Mark to Market purposes your adjusted basis is treated as the greater of cost or fair market value on the first day of US residency. That ring fences pre immigration appreciation from the Mark to Market computation. Other basis rules may still apply for non-Mark to Market purposes, so records matter.

Once A PFIC Always A PFIC And Purging

PFIC taint follows the stock. If the company was ever a PFIC during your holding period the stock remains PFIC stock until you make an appropriate election or purge. The law allows a purge by recognizing gain as of the last PFIC year. Planning before arrival is powerful. Disposing of PFICs before US residency or arranging elections in time can avoid years of complexity.

Reporting And Form 8621 With Small Holder Relief

A US person who is a direct or indirect shareholder in a PFIC generally files Form 8621 each year if they receive distributions, recognize gain, report a QEF or Mark to Market inclusion, make certain elections, or otherwise hold PFIC stock that triggers reporting under the statute. The instructions also explain who counts as an indirect shareholder.

There is limited relief. You may omit Part I of Form 8621 for a section 1291 fund if the aggregate value of all PFICs is not more than twenty-five thousand US dollars at year end or fifty thousand US dollars for joint filers and you had no excess distributions or gains. For indirect PFIC stock a five thousand US dollar per fund threshold applies. This is a Part I exception only. Other parts still apply if you made QEF or Mark to Market elections or had income. In most expat cases with meaningful balances or any distributions or sales Form 8621 is still unavoidable.

Attribution Rules And Why You Can Be A Shareholder Without Holding The Shares

Attribution rules sit in section 1298. Key points follow.

• Partnerships Trusts and Estates – PFIC stock owned by these entities is considered owned proportionately by partners and beneficiaries.
• Corporations – Normally attribution up from a corporation requires owning at least fifty per cent of that corporation by value. However, if you are a shareholder of a PFIC the fifty per cent limitation is waived for purposes of looking through that PFIC to its lower tier holdings. As a result, a PFIC that holds other PFICs can push those up to you even if you own only a small percentage of the top company.
• Options – Options to acquire stock are treated as ownership. Successive attribution applies so treated ownership can be pushed further up the chain.

What This Means For Australians?

Family Trusts That Are Not Grantor Trusts

A US beneficiary may be an indirect PFIC shareholder when distributions are attributable to PFIC income or gains. The Form 8621 rules indicate that a US beneficiary of a foreign non grantor trust generally does not complete Part I unless they have made a QEF or Mark to Market election or had an excess distribution or gain. When those occur, reporting applies.

Private Companies

If you own at least fifty per cent of an Australian private company that itself holds PFIC stock, attribution can push PFIC ownership up to you. If the company is itself a PFIC, look through can apply to its lower tier holdings without the fifty per cent threshold.

CFC Overlap Which Can Be Useful

If you control an Australian company and it is a controlled foreign corporation for US purposes, the CFC overlap rule prevents the same entity from being both a CFC and a PFIC with respect to you during the period you are a US shareholder. It is treated as a CFC only. This is often helpful for active businesses that might otherwise drift into PFIC status due to large cash or portfolio assets. It does not rescue widely held funds.

Treaty Relief Is Limited For PFIC

The US Australia income tax treaty contains a saving clause that allows the US to tax its citizens and residents as if the treaty did not exist subject to limited exceptions. As a practical matter the treaty does not neutralize PFIC outcomes for US residents.

Common Australian Holdings And Practical Choices

ASX listed exchange traded funds listed investment companies and managed funds usually require PFIC analysis. If you intend to keep them, consider Mark to Market if the marketability criteria are met. For new US residents, a timely Mark to Market election can use the first day basis rule. Otherwise, the default excess distribution regime is often costly.

1. Unit Trusts Require A US Classification Analysis First – Many manager-controlled widely held unit trusts are analyzed as corporations but not always. PFIC status hinges on corporate status.
2. Superannuation Requires Separate Analysis – US treatment is complex and can involve trust or deferred compensation concepts. Even where the Form 8621 instructions provide limited references for certain foreign pensions, the saving clause and lack of robust mutual pension recognition mean that PFIC exposure inside super is not automatically fixed. Specialized advice is essential.
3. Direct Shares On The ASX Are Not PFICs – For many expats shifting from funds to directly held portfolios or to US domiciled exchange traded funds that provide global exposure is the cleanest approach.

Pre-Immigration And Early Residency Planning

1. Prepare an inventory and classification of all non-US vehicles before moving. Confirm US entity status and PFIC status.
2. Decide whether to exit PFICs before the move or to plan for a QEF or Mark to Market election where possible. For listed vehicles Mark to Market is often the pragmatic choice. For Australian funds QEF is rarely available.
3. Use the Mark to Market first year rule where available to ring fence pre arrival gains.
4. Map attribution through family trusts partnerships and private companies. Document the chain so you know who files Form 8621 and when.
5. Do not rely on treaty relief to soften PFIC outcomes.

In Summary

For Australian expats building a life in the US the PFIC regime is more of a compliance hazard than an investment edge. Where possible migrate to US domiciled exchange traded funds even for global exposure or build separately managed or directly held share portfolios. If you truly need to keep ASX funds, a timely Mark to Market election usually provides a better long term result than the default excess distribution method. The most costly mistakes are assuming unit trusts cannot be PFICs missing indirect ownership through family structures and overlooking the first year Mark to Market basis relief.

This is general information only and not tax advice. For client matters confirm facts entity classification and filing positions against the current year rules and instructions.

Navigating U.S. tax rules can be complex, especially for foreign-owned U.S. businesses. One key form to know about is Form 5472. This guide explains who needs to file it, deadlines, and tips to stay compliant.

Who Needs To File Form 5472?

If your business fits any of these categories, you need to file Form 5472:

• 25% Foreign-Owned U.S. Corporation – If a U.S. corporation is at least 25% foreign-owned and has reportable transactions with its foreign shareholder(s), it must file Form 5472. A “25% foreign-owned” corporation means one or more foreign shareholders directly or indirectly own at least 25% of the company during the tax year.
• Foreign Corporations Operating In The U.S. – A foreign corporation conducting trade or business in the U.S. must file Form 5472 for reportable transactions with related parties. “Related parties” include direct and indirect 25% foreign shareholders or entities connected through ownership or control.
• Disregarded Entities (DEs) – If a U.S. disregarded entity (e.g., a single-member LLC) is fully owned by a foreign person, it must file Form 5472, even if it doesn’t need to file an income tax return.

Deadlines For Filing Form 5472

• Calendar-Year Corporations – If your corporation’s tax year ends on December 31, Form 5472 is due April 15 of the following year.

Example: For a tax year ending December 31, 2024, the filing deadline is April 15, 2025.

• Fiscal-Year Corporations – For businesses operating on a fiscal year (e.g., ending June 30), Form 5472 is due on the 15th day of the third month after the tax year ends.

Example: If your tax year ends on June 30, 2025, the filing deadline is September 15, 2025.

Important: Missing these deadlines can result in penalties.

Need More Time? Extension Options

You can request a 6-month extension by filing Form 7004. This moves the deadline for Form 5472 to October 15 (for calendar-year filers). However, keep in mind:

• Taxes owed are still due by the original deadline (e.g., April 15 for calendar-year taxpayers).
• Extensions only apply to filing, not payments.

Special Rules For Foreign-Owned Disregarded Entities

• Filing Requirements – Even if a foreign-owned U.S. disregarded entity (DE) doesn’t owe income tax, it must still file a pro forma Form 1120 with Form 5472 attached. The pro forma return acts as a cover page and only requires basic details like the entity’s name and address.
• Submission Method – Unlike most forms, DEs cannot file electronically. You must send Form 5472 by fax or mail to the IRS at the designated address or number (available on the IRS website).

Penalties For Non-Compliance

Failure to file Form 5472 or maintain proper records can lead to penalties of $25,000 per failure, with more added if non-compliance continues. To avoid these costs, stay on top of deadlines and keep detailed documentation.

Conclusion

Filing Form 5472 correctly and on time is essential for foreign-owned U.S. businesses. Know your deadlines, request extensions if necessary, and ensure compliance to avoid penalties.

The US has similar payroll tax requirements to Australia. From withholding taxes on wages, to payment of payroll taxes assessed on wages paid, and lodgement of employee forms, there is a range of compliance requirements that your company must fulfill.

There are a wide variety of payroll tax considerations, including tax withholding and taxes payable on the amount of wages. These taxes are levied to fund social security, Medicare, unemployment and disability benefits, and other State and Local requirements.

Withholding Taxes

• Employers are responsibility for withholding taxes from wages and paying this to the Federal government.
• Some States also require withholding taxes to be withheld in relation to the income taxes on employee wages.
• Employers must typically make regular payroll tax deposits and file quarterly payroll tax returns with the IRS.
• State and Local tax agencies often have their own reporting and payment requirements.
• Withholding taxes go towards the individual employee’s income tax obligations.

Payroll Tax Requirements

Federal Insurance Contributions Act (FICA) Taxes

• Funds social security and Medicare.
• Social security tax rate is 6.2% for the employee plus 6.2% for the employer.
• Medicare tax rate is 1.45% for the employee plus 1.45% for the employer.
• Additional Medicare is payable at 0.9% for the employee when their wages exceed $200,000 in a year.

Federal Unemployment Tax Act (FUTA) Taxes

• Funds state workforce agencies and unemployment insurance.
• FUTA is payable by the employer and is calculated at 6% on the first $7,000 paid to each employee.
• Payment of state unemployment taxes can often be used as a tax credit to bring the FUTA tax rate down to as low as 0.6%.

State Payroll Taxes

• State Payroll Taxes may apply depending on the location of your business.
• The most common State tax is State Unemployment Tax (SUTA), which is payable by the employer.

Local Payroll Taxes

• Additional payroll taxes may be payable based on the zip code, county or municipality where your business is located.

Employee Forms

• At commencement of employment, employees fill out a Form W-4. This guides employers on how much income tax to withhold.
• At the end of each year, employers must provide employees with Form W-2, which reports the employee’s annual wages and tax withholdings.
• On commencing employment, employers are required to verify an employee’s eligibility to work in the US. This is typically done through the I-9 Form.

Other Payroll Considerations

• Workers Compensation Insurance
• State Disability Insurance
• Paid Leave
• Health Care Costs for Employees
• Retirement Plan Contributions 
• Reimbursements and Stipends

Penalties For Missed Or Late Payments

The IRS may charge a late fee for employment taxes that are not paid on time. This is called a “Failure to Deposit Penalty”.

Payroll tax penalties are:

• 1-5 days late: 2% of the overdue payment
• 6-15 days late: 5% of the overdue payment
• Over 15 days late: 10% of the overdue payment
• More than 10 days from first notice: 15% of overdue payment

Other Employee Benefits

Other Employee Benefits you may be required, or choose, to pay, can include:

Retirement Plans

One of the tax advantageous retirement savings plans is known as a 401(k). Under this plan you would pay a percentage of each paycheck into your employee’s retirement savings account instead of directly to them.

Health Insurance

Employers must offer affordable health insurance that provides minimum value of 95% to full time employees (working 30hrs or more a week) and their children (until they turn 26).

Stock and Stock Options

Stock and stock options can be offered as a form of equity compensation.

The US has a complex tax system, with multiple taxes, including income taxes, often being imposed on a State level as well as a Federal level. Some types of taxes also apply locally, meaning that even within the same State you can pay very different taxes to other parts of the State.

• The US Corporate tax system operates on a Federal, State and Local system. This means taxes and other compliance costs may be charged from all three levels.
• Filing requirements, lodgement deadlines, and available deductions or credits often differ between locations.
• Due to the complexity of Local variances, compliance with the Local tax laws requires specialised Local knowledge for the area or areas in which your business operates.
• To optimise your corporate tax strategy, it is recommended that you consult with experienced tax professionals who have a Local understanding of US taxes, as well as international taxes.
• Tax returns are typically based on a calendar year.

Choosing Your State

Since every State has different laws, it can be important to select the right State for your business operations. You will be required to register in every State that you operate in, however if you have no particular business requirement for which State or States you operate in, then it can be advantageous to select a State that has more well known and simple tax laws.

For instance, Delaware has no state income tax, a fairly straight forward tax system, and well-known corporate laws across the US.

Types of Taxes

Income Taxes (Federal And State)

• The Federal tax rate for companies is 21% 
• 44 States levy corporate income taxes. These taxes vary from 0% to 11.5%, with some states assessing taxes on a flat rate and others using tax brackets in the same manner that individual income taxes are assessed.
• 43 States levy state income taxes, 41 tax wage and salary income, New Hampshire exclusively taxes dividend and interest income and Washington only taxes capital gains income. Seven states don’t impose any individual income taxes. Some states use a flat income tax rate, while others have a graduated tax rate depending on the individual’s income.

Sales Taxes (State And Local)

• Sales taxes are similar to GST or VAT in certain parts of the world. However, as sales taxes are only imposed on a State level, the rates vary between 0% and 7.25% depending on the State.
• There are also various Local governments within 35 States that impose an additional sales or use tax, which ranges from 1% to 5%.

Property Taxes (State And Local)

• Local authorities such as cities, counties, and school boards, typically impose property taxes on the value of the property, including the land and the structure on the land.
• Each State imposes different parameters on property taxes.
• Property taxes can also be payable on purchase and/or sale of property.
• Most States have a “homestead” exemption which reduces or eliminates the cost of property tax on your primary residence, subject to a variety of qualifications or limits, which vary State to State, or even within States.

Payroll Taxes (Federal, State And Local)

• Federal payroll tax is paid by both the employer and the employee.
• Some States and Local authorities also require some form of payroll tax to be paid. The most common type is State Unemployment Insurance (SUTA tax), which is payable by the employer.

Franchise Of Privilege Tax (For Doing Business In A State)

• Some States require certain business organisations to pay a franchise tax, otherwise known as a privilege tax, for doing business in the State.
• This tax is typically calculated on the net worth of capital held by the entity.
• Some States use an economic and physical presence test to determine whether a business is taxed, while others have no written interpretation of the basis of their test for determining who is required to pay the franchise tax.

Gross Receipts Tax (State)

• Some States apply a gross receipts tax on a company’s gross sales, without consideration of deductions for expenses.
• Gross receipts tax applies to businesses, regardless of whether sales relate to business-to-business transactions or business-to-consumer transactions.

Business Licenses (State, Local, With Some Federal Regulations)

• Business licences or permits may be required on a Federal, State, or Local level.
• Business licenses can take some time to be processed, and they should be completed prior to commencing operations. The complexity of the application depends on your industry, as well as the locality managing the license.
• Licences and permits typically need to be renewed on a regular basis.

Due to the complexity of the wide variety of Local, State, and Federal taxes, it is important that you obtain qualified advice regarding your business. If your business expands into additional locations you will need to get updated advice regarding the new location in which you are operating.