Increasingly, U.S. citizens are choosing to live outside the United States. This trend is driven by various factors including political and social concerns, economic factors, quality of life and health care, and even taxation. Expatriating taxpayers who seek counsel often expect the adviser to know not only the intricacies of the U.S. system but also the in and outs of the country to which they are immigrating. For most tax professionals, it’s difficult to stay abreast of the latest changes in the tax code of one jurisdiction, let alone two, or possibly even more.

The purpose of this case study is to help practitioners understand the issues and be able to spot potential pitfalls their clients may not be aware of (perhaps because they didn’t ask the right question in the AI large language model of choice) before they begin their new life abroad or return home. The key is to understand what a client wants and then build a plan that supports their vision for an international lifestyle.

Case facts

K is an Australian resident alien working for a U.S. company on an E–3 (a type of work visa expressly for Australians with special skills). He has been living in the United States for nearly four years. While living in the United States, he met N, a U.S. citizen. The same–sex couple are contemplating moving to Australia or else living the digital nomad life, meaning traveling while working remotely. They’re not sure how long they will live outside the United States or, ultimately, where they will settle down.

K has an Australian bank account, foreign (i.e., non–U.S.-domiciled) mutual funds he inherited from an aunt who died last year, and an Australian superannuation account. The latter is a type of retirement account that Australian employers must pay into and employees can also make contributions to. K’s consists largely of additional nonconcessional (i.e., after–tax) contributions he has made into the account on his own. He also has restricted stock units (RSUs) that will vest if he stays on with his current employer. He has been saving tax–deferred money in his U.S. employer’s qualified plan up to the company match. The rest of his savings he has either put in a U.S. bank account or invested in funds through a U.S. brokerage firm.

N works for the same company as K and also has RSUs that will vest if he remains employed by the company. N, like K, is also a saver. He has maxed out his tax–deferred contributions to his company’s 401(k), made nondeductible contributions to an individual retirement arrangement (IRA), and then converted those after–tax contributions to a Roth account, as well as maxed out contributions to his health savings account (HSA).

In addition to health insurance, their employer offers life insurance, dental and vision insurance, and short– and long–term disability coverage. They are not sure if their company would let them both work remotely in Australia since the company doesn’t have a presence there currently. However, they would be willing to terminate employment, particularly if they can find comparable employment in Australia, and make up for the forfeited RSUs.

Planning issues

The most important issue that needs to be addressed is where K and N see themselves living long term (see the sidebar, “The ‘No–Regrets’ Predeparture Checklist for K and N“). At this stage in their lives, they do not want to settle down in any one place, but that could change over time as they enter a later season in their lives. K has ties to Australia, and N has ties to the United States. Would K ever consider relocating back to the United States? Would N ever want to move back to the United States, or does he envision a permanent expat lifestyle?

The United States is nearly unique in that it imposes a citizenship–based tax, which means that its citizens’ or permanent residents’ worldwide income is subject to taxation, regardless of the individual’s tax residency. For either one, there are immigration issues that would need to be addressed. Given that this couple have no set plans on where they want to live (i.e., there is period uncertainty), flexibility in the plan is of the utmost importance, but this also makes for a murky situation that will require periodic revisitation.

Another financial consideration for these two is their earnings potential. The likelihood of their finding work that pays as well as what they are making in the United States is highly remote.

From a tax perspective, not many jurisdictions around the world have as favorable a tax regime as the United States’. Currency–conversion and exchange–rate considerations would factor in as well. 

Finally, the United States has some of the lowest–cost financial products (management expense ratios, brokerage fees, and custodial fees) in the world, not to mention the world’s most liquid capital markets.

K‘s tax situation (departing US resident alien)

Looking at the couple’s financial situation through a tax lens, because K is tax–resident in the United States, his worldwide income is subject to taxation by the U.S. government.

K must adhere to the requirements of FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR).

He must also contend with passive foreign investment company (PFIC) rules due to the foreign mutual fund he inherited from his aunt in the prior year. Once K terminates U.S. residency, PFIC reporting ceases for him. However, he must assess if a “deemed sale” election is necessary in his final U.S. return to close out the tax liability.

K has an Australian superannuation account. There could be a potential pitfall here. The IRS generally does not view superannuation as a “qualified” plan. It is often treated as a foreign grantor trust (requiring Form 3520, Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts, and/or Form 3520–A, Annual Information Return of Foreign Trust With a U.S. Owner) or an employees’ benefits trust (Sec. 402(b)), meaning growth may not be tax–deferred in the United States.

K will need to devise a plan for his qualified account: Does he keep it, or should he take a lump–sum distribution before leaving the United States?

The RSUs should be straightforward, assuming they vest while he is tax–resident in the United States and taxes are paid. If he moves back to Australia after that and still holds the RSUs, he should plan for Australian capital gains tax on any unrealized gains after he reestablishes Australian tax residency. Upon an individual’s becoming an Australian tax resident, Australia typically grants a “cost base reset” (step–up) to market value for non–real property assets. This prevents double taxation on appreciation that occurred while he was a U.S. resident.

Because K is on an E–3 visa and not a green card holder, he avoids the “covered expatriate” exit tax rules (Heroes Earnings Assistance and Relief Tax (HEART) Act of 2008, P.L. 110–245). The tax preparer must determine the filing status for the departure year (dual–status return vs. full–year resident) and filing requirements for the “sailing permit” (Form 1040–C, U.S. Departing Alien Income Tax Return) or Form 2063, U.S. Departing Alien Income Tax Statement.

N‘s tax situation (US citizen/new Australian resident)

N’s worldwide income would be subject to U.S. federal taxes (possibly even state and local taxes), regardless of where he ultimately establishes tax residency, because he is a U.S. citizen. He may also be subject to foreign taxes, depending on the jurisdiction and his tax residency status within that country. He could look to any tax treaty between the United States and his new country of residence and/or claim a foreign tax credit (FTC) or foreign earned income exclusion (FEIE) on his federal tax return. The challenge here is that he must manage the calendar mismatch: The U.S. tax year is Jan. 1 to Dec. 31, while the Australian tax year is July 1 to June 30. This complicates FTC cash flow.

N must also come up with a plan for his tax–advantaged accounts. If he intends on reestablishing tax residency in the United States at a later time, then he is probably better off leaving the accounts alone and not taking distributions. If he has no intention of returning to the United States, then he may want to take distributions before leaving the United States and consider any attendant tax consequences related to taking a distribution (e.g., early–withdrawal penalty). The U.S.–Australia tax treaty does not recognize the tax–free status of Roth IRAs or HSAs. Australia views these as foreign trusts; earnings are taxable upon withdrawal or potentially even year over year.

If N enters Australia on a temporary visa (common for spouses pending permanent residency), he may qualify as a “temporary tax resident.” Temporary residents are exempt from Australian tax on most foreign–source investment income. This strongly favors keeping his assets in the United States rather than moving them to Australia.

If N invests in Australian mutual funds (unit trusts) locally, they will likely be classified as PFICs on his U.S. tax return. He generally should stick to U.S.-domiciled funds or shares of individual Australian companies to avoid punitive U.S. tax rates.

Other considerations

It is not likely that their U.S. employer will accommodate their working remotely. Therefore, the couple will need to plan for the loss of employee benefits upon termination of employment. Will their new employer provide comparable benefits, and what national social security and health benefits, if any, will be provided in their new country of residence?

From an estate–planning perspective, how will assets be transferred should they die while living outside the United States? Would their respective estates owe any transfer taxes either in the United States or in their country of residence?

The value of the cross-border adviser

As this case demonstrates, it is not enough to know the tax code of one jurisdiction, or even two separately. The value lies in understanding the interaction and mismatches between the systems (e.g., U.S. treatment of superannuation vs. Australian treatment of Roth IRAs). The plan must address the “period uncertainty” of their stay, balancing the flexibility of U.S. assets with the tax realities of Australian residency. Advisers must help clients navigate not just tax but the friction of moving financial lives — including currency exchange, estate planning, and benefits gaps.

K and N represent a growing demographic of mobile clients. By proactively addressing pitfalls like PFICs, disregarded tax–advantaged accounts, and immigration timing, the CPA financial planner transforms from a tax preparer into an essential architect of their international lifestyle.

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The ‘no-regrets’ predeparture checklist for K and N

This checklist provides practical “takeaways” from the column. It translates the complex technical issues into actionable steps for clients.

Phase 1: Three to six months before departure (the “strategic” phase)

• Assess incoming immigration status (N)
  • Action: Consult an Australian tax solicitor to see if N qualifies for a temporary visa (e.g., Partner Visa Subclass 820) rather than immediate permanent residency.
  • Why: If eligible, N is exempt from Australian tax on foreign investment income, allowing him to keep his U.S. brokerage accounts without punitive Australian taxation. If N does not meet the eligibility requirements to claim temporary tax-resident status, then other measures may be necessary to mitigate Australian taxation of his taxable U.S. brokerage accounts.
• The “Roth and HSA” decision (N)
  • Action: Calculate the projected tax cost of liquidating the Roth IRA and HSA now versus holding them in Australia.
  • Why: Australia does not recognize the tax-free status of these accounts. Keeping them often results in annual Australian tax on the growth (viewed as foreign trust income), eroding their value.
• Address “sailing permit” requirements
  • Action: K must determine if he needs to file Form 2063 (if no taxes are owed) or Form 1040-C (if income is reportable) to get a certificate of compliance from the IRS before leaving.
  • Note: This requires an appointment at an IRS Taxpayer Assistance Center, often weeks in advance.
• Superannuation review (K)
  • Action: Locate any “lost” superannuation using Australian Taxation Office (ATO) online services via myGov.au.
  • Action: Review the U.S. tax status of his fund. If it is a retail fund with personal contributions, it may require Form 3520 reporting. If it is a purely employer-funded “super guarantee” fund, he may be able to claim an exemption under Rev. Proc. 2020-17. However, if a rollover of the superannuation is contemplated, it might be best to proceed once K establishes tax residency in Australia so as to avoid U.S. taxes.

Phase 2: One month before departure (the “tactical” phase)

• Reset cost basis (K)
  • Action: Document the market value of all non–real estate assets (shares, digital assets) on the date of departure.
  • Why: When K resumes Australian tax residency, he generally gets a “cost base reset” to market value. This documentation is his defense against
• Bank accounts and digital access
  • Action: Open a multicurrency account (e.g., Wise, OFX) to handle initial transfers.
  • Action: Change two-factor authentication (2FA) methods for U.S. banks from SMS (which may not work in
    Australia) to an app-based authenticator or hardware key.
• Estate-planning gap
  • Action: Create a simple “bridge” will or directive.
  • Why: Their U.S. wills may be valid in Australia but cumbersome to probate. A new Australian will is eventually needed, but they need coverage for the transition period.

Phase 3: Post-arrival (the “compliance” phase)

• Apply for TFN (tax file number)
  • Action: N must apply for a TFN immediately upon entering Australia with a valid visa. Without it, banks and employers will withhold tax at the top marginal rate (45%).
  • Action: Determine whether a Sec. 6013(g) election makes sense for Americans abroad with a nonresident partner.
• Manage the “foreign tax credit lag”
  • Action: Prepare for cash flow variance. U.S. taxes are calendar year; Australian taxes are July 1–June 30.
  • Why: N may owe U.S. tax in April before he has paid Australian tax in June, creating a temporary mismatch in foreign tax credits.
• Avoid “toxic” investments
  • Action: N should not buy Australian mutual funds (unit trusts) or ETFs without CPA approval.
  • Why: These are PFICs on his U.S. tax return, triggering punitive tax and complex reporting (Form 8621, Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund), effectively negating the benefit of local investing.

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Contributors

Ryan Firth, CPA/PFS, GFP Fellow, is a financial planner with Mercer Street Personal Financial Services in Houston, and Ashley Murphy, CFP, GFP, is a principal and wealth strategist with Arete Wealth Strategists in Minneapolis-St. Paul, Minn., and founder and executive director of Global Financial Planning Institute in Minneapolis. For more information about this column, contact thetaxadviser@aicpa.org.