Killing Trusts Softly: Can Australia Abate Trump Duties With Aussie Super Funds?

In this second article in the 'Killing trusts softly' series, Marsha Laine Dungog, Jennifer S. Silvius and David Laanemaa discuss the evolving US tax treatment faced by Australian superannuation funds for US persons and Aussie investors alike.

You can also read part 1, Killing trusts softly: The Australia-Canada-US trust paradox.

This article was first published in Tax Notes International, Volume 120, Number 1, on October 6, 2025.

Nine months have passed, and Australia has yet to hit its stride when it comes to relations with the United States.

It started in January, when U.S. tennis player Madison Keyes won her first singles championship at the Australian Open, in Melbourne. Even though Australians won the mixed-doubles category, this singular grand slam win foreshadowed the next nine months of U.S.- Australia relations. Indeed, over the past few months, the United States has unilaterally embarked on changing the course of international world trade without the usual diplomatic courtesies and formalities traditionally afforded to trusted allies, including Australia.

Opening volley

On February 1 President Trump issued three executive orders¹ imposing heavy tariffs on Mexico, Canada, and China, showing that it was not in fact business as usual in Washington. Then on April 2 Trump issued Executive Order 14257, which sought to recalibrate the ongoing trade imbalance between the United States and the rest of the world by introducing tariffs on an unprecedented scale not attempted by any sitting U.S. president since Woodrow Wilson.^2]

Hashtagged #liberationday, EO 14257 literally threw the baby out with the bathwater where U.S.- Australia relations are concerned, causing Aussies to wonder if 100 years of mateship³ between these two great countries could be past its prime. Just five weeks earlier, Australian Treasury Secretary Jim Chalmers, in his keynote speech at the U.S. Superannuation Investment Summit,⁴ said that the four-day event was timely and a powerful demonstration of the strategic and economic alignment of the two countries that has done so much to secure prosperity for both peoples.⁵ U.S. Treasury Secretary Scott Bessent even attended and endorsed Australia's "fantastic" superannuation system that has delivered growth of Australian retirement savings in a "sustainable" and "regular" way.^6] Chalmers and Bessent spoke gospel truth — the glowing track record of Australian pension fund investments in the United States speaks for itself. In 2025 the United States has attracted over one third of all private market investments that Australian pension funds make overseas,⁷ notably in U.S. private equities, real estate, and infrastructure.

However, has the imposition of tariffs⁸ on Australia's beef industry broken the spell cast by the summit over key superannuation industry players⁹ who came to Washington and publicly acknowledged their intent to invest trillions¹⁰ of super fund dollars in the U.S. economy? For Australia, the summit was about becoming the trade partner of choice for the United States for its long-term capital needs.¹¹ Dangling its behemoth super fund war chest before the Trump administration was a calculated proposition to bring to the forefront Australia's privatized social security system as a safe and reliable provider of long-term capital to the United States with projected growth to make it the second-largest pension fund market globally by 2030.¹² More recently, however, Australia's top super funds are reducing their exposure to U.S. equities because of stretched valuations and increased volatility caused by recent Trump administration policies,^13] opting instead to invest in alternative assets such as private equity,¹⁴ insurance bonds, and asset backed financing, as well as emerging markets in China. They are also diversifying their portfolios to cope with geopolitical uncertainty,¹⁵ with some investing in real estate assets, property, and infrastructure, while others are exploring opportunities in Europe and India.^16]

Still, now that the infamous revenge tax¹⁷ has been shelved, the Aussie appetite for U.S. capital markets has once more been somewhat revived.¹⁸ One has to ask why Australian super funds are so hell-bent on pursuing U.S. opportunities¹⁹ when the U.S. tax system, even without the revenge tax, has subjected many U.S. and Aussie expats to premature U.S. taxation on super fund savings that have not even matured.²⁰ According to a new report, Australia's pension fund investment in the United States is expected to more than double over the next decade from US $400 billion to over US $1 trillion.²¹ Considering the Australian pension system is greater than that of the largest sovereign wealth funds,²² and on track to surpass Canada and the United Kingdom to become the world's second-largest retirement system by 2031,²³ the exciting possibility of Australia's becoming the key investment partner of the United States mandates a stricter review of exactly how these super funds are going to be classified and taxed under the U.S. tax regime. In this second installment, Dungog and Silvius collaborated with David Laanemaa,²⁴ a cross-border Australian tax director at Bentleys Pty Ltd, New South Wales, in their attempt to answer whether the U.S.-Australia mateship can have a happily ever after in light of current U.S. tax treatment of Australian superannuation funds, and what it would take for the United States to be truly a safe and successful investment location for Australians.^25]

Australian superannuation funds on the down low

The superannuation industry is a significant player in the Australian retirement scheme, with superannuation assets totaling AUD 4.1 trillion at the end of the March 2025 quarter,²⁶ and with significant growth in pension mandates coming from listed equities, global fixed interest, and private credit.²⁷ Almost half of this total is invested in assets outside Australia, primarily listed international equities.²⁸ Technically, there are six types of super funds available to Australians: industry funds, corporate funds,²⁹ retail funds, public sector funds, self-managed superannuation funds (SMSFs), and small Australian Prudential Regulatory Authority (APRA) funds. However, the real distinction is not with the type of super fund, but rather, the category — whether the specific super fund is a large professional public offer fund or a small offer fund, which is a do-it-yourself fund among partners and private families.

Except for SMSFs, which are regulated by the Australian Taxation Office,³⁰ and government funds, which are operated by some Australian states and have constitutional exemptions, it is APRA that manages all larger professional super funds.³¹ These large professional public offer super funds must have trustees that hold registrable superannuation entities (RSE) licenses.³² To date, RSE licensees are approximately just 59³³ and are regulated by APRA and the Australian Securities and Investment Commission (ASIC) for prudential and consumer protection purposes.

As of September 2024, there were 95 public offer super funds,³⁴ which can be further divided into industry and retail funds. Industry funds are not for profit and have equal representation of unions and employers (with some independents on their boards). They are linked through common ownership of IFM Investors and have their own representative body, the Super Members Council.³⁵ The retail funds are for-profit, owned by banks, insurers, financial services business and investment firms with a different representative body, and the Financial Services Council.³⁶ Retail fund members run platform products with lots of choice, not just a few investment options, and tend to be subject to professional financial advice.

In contrast to smaller funds and larger public offer funds, SMSFs are not regulated by APRA or ASIC because the members of SMSFs are also statutorily required to be trustees of the funds. SMSFs are regulated by the ATO and must be in strict compliance with tax law requirements on superannuation to remain subject to preferential tax rates. Most SMSFs are serviced by accounting firms and are represented by the SMSF Association.³⁷

As of May the Association of Superannuation Funds of Australia³⁸ (ASFA) reported that industry funds have the most substantial assets under management, equivalent to AUD 1.485 billion spread among 20 funds, followed by small APRA funds with AUD 1.003 billion under management across 646,847 funds.³⁹ Altogether, the industry funds — so called because they initially were created for workers in specific economic sectors — hold more than one-third of the country's retirement savings.⁴⁰ Separately, SMSF assets total AUD 1.005 billion,⁴¹ which is spread over 646,168 privately managed funds and covers 1.14 million members.^42]

As of June 30, APRA reported the following key statistics for the superannuation industry⁴³:

• Total superannuation assets increased by 4.8 percent over the quarter to AUD 4.3 trillion as of June 30, of which AUD 3 trillion was in APRA-regulated funds.
• Total contributions increased by 14.1 percent to AUD 210.2 billion in the year ending June 30. Employer contributions increased by 10.1 percent over the year to AUD 151.1 billion. Member contributions increased by 25.8 percent over the year to 59.1 billion.
• Benefit payments increased by 12.8 percent to AUD 132.5 billion in the year ending June 30. This increase was the result of lump-sum payments rising by 14.3 percent to AUD 73.3 billion and pension payments increasing by 11 percent to AUD 59.2 billion.

These statistics confirm what was already apparent, that the Australian super fund war chest is massive and growing exponentially. And it is heading our way. The question is, are we ready?

From an Australian perspective, super funds are statutory trusts because each is created under the superannuation laws⁴⁴ that mandate that employers create trusts providing for employees' retirement. Employers are legally obligated to make superannuation contributions based on 12 percent pretax earnings of each employee to a complying superannuation fund (either APRAregulated or SMSF). Employers who do not follow this requirement are subject to a penalty tax. Unless self-employed, employees can choose the fund to which their employer contributions are paid. If the employee doesn't choose a fund, the contributions are invested in a MySuper, which is a low-fee default plan.⁴⁵ However, employees cannot opt out of paying super contributions, although they can make additional voluntary contributions (either pretax or posttax) up to annual contribution caps. They benefit from lower tax rates on contributions⁴⁶ and earnings of the funds.^47] Income distributions are tax free in retirement.

To encourage contributions, these funds receive preferentially low tax rates in Australia, with the aim of increasing private savings and facilitating asset growth. Unlike traditional retirement funds, contributions and earnings generated by investments held by a super fund are taxed at a low flat rate of 15 percent.⁴⁸ Broadly, where a super fund has derived a capital gain from the disposal of an asset, any net capital gain, after deducting any capital losses, will be included in the fund's taxable income and will attract tax of 15 percent, which may be further reduced to 10 percent.⁴⁹ Contributions and earnings in a super fund account cannot be accessed by the beneficial owner, the employee, until a condition of release is met — reaching age 65 or retirement. At that time, distributions from the super fund are generally tax free.^50]

The Australian government highly encourages investment in a super fund to increase the level of savings for an individual's retirement. It provides incentives for saving funds in a super, such as current tax concessions, which serve the dual purpose of encouraging future savings and ensuring the beneficiaries are compensated because assets placed in a super fund cannot be accessed until retirement. Preferential tax rates encourage fund owners to contribute and engage in active investments that will grow the assets. These investments range from bonds and equities to partnership interests in active business operations. In this regard, SMSFs are the super fund of choice for these types of undertakings.

However, for U.S. taxpayers, using super funds to actively invest and hold business and real estate assets creates a unique challenge — because U.S. tax laws are also applied to determine the treatment of the super fund, and as a corollary, income and gains generated by its underlying assets, the results are often incongruent with and adverse to the preferential tax treatment applied in Australia. Thus, an Australian's investment in a super, which is the third pillar in Australia's retirement system,⁵¹ could be at risk in the United States depending on its classification.

When superannuation reforms were enacted in 2017,⁵² Australia's legislature made clear its intent to continue providing tax-favored treatment for supers so that they would eventually replace money paid out of the old age pension funded by government. In short, one could say it is almost Australian social security.

Recent Division 296 reforms in Australia

These days, however, the super fund industry has become a victim of its meteoric success. The super fund is no longer perceived as a savings vehicle for a dignified retirement, alongside government support, in an equitable and sustainable way. Over the past 30 years since super funds took off, the superannuation regime has received wide criticism from all corners as the focus has shifted from savings to tax sheltering because people have been hoarding money in taxconcessional superannuations for family wealth.⁵³ Over the last few years, Australia's Labor Party has tried to impose a super tax. Super funds with accumulated balances over AUD 3 million are set to be levied a tax on unrealized capital gains over that amount. This proposed tax is intended to force people to consider shifting wealth from super funds to other vehicles such as family trusts and investment companies. The fate of the unrealized capital gains tax is yet to be decided but will likely become law.

Pension plans around the world

Australia's reintroduction of the super regime in 1992 was followed by other countries that also instituted pension reforms to increase savings for their aging populations. Currently, many types of retirement savings plans⁵⁴ exist worldwide that make up the cross-border pension landscape. However, there is no comprehensive scheme providing a uniform global classification of these plans for all tax purposes in all countries.

In general, pension plans around the world have shifted to fully funded private individual accounts that can be accessed by individuals through their employers, by social partners (occupational pensions), or directly without any involvement by their employers and established by a pension fund or a financial institution acting as a pension provider (personal pensions). Occupational pensions are either defined benefit (DB) or defined contribution (DC). In DC plans, benefits offered are directly linked to the extent of contributions made by the participants, but participants bear the brunt of the risk and are responsible for managing their investment decisions for retirement. In contrast, in traditional DB plans sponsoring employers assume all risks. However, some countries have developed hybrid DB plans, which come in different forms but all result in spreading the risks between employers and employees. Both types of pensions coexist in 33 out of the 38 countries appearing in the OECD report.⁵⁵

According to the OECD, DC plans and personal pensions have been gaining prominence at the expense of DB plans even in countries in which there has historically been a high proportion of assets in DB plans, such as the United States.⁵⁶ Indeed, this same observation can be found in the August 2022 report on retirement security⁵⁷ by the U.S. Government Accountability Office. It notes that traditional DB pensions have become less common, with more individuals managing their own retirement savings. Since the 1980s many OECD countries instituted reforms to restructure their public pension programs to address anticipated financial shortfalls in the traditional pay-as-you-go system,⁵⁸ which meant reducing benefits under the public pension and increasing incentives for fully funded and mandatory individual account-based savings⁵⁹ (fully funded private pension plans).⁶⁰ This included:

1. requiring automatic enrollment by employers of their employees in retirement savings plans to increase program participation;^61]
2. making employer contributions and government contributions mandatory to encourage participants to remain in their plans;⁶²
3. using default contribution rates of 3 percent to 5 percent of a participant's salary to facilitate savings by simplifying key investment decisions of how much to contribute;⁶³ and
4. providing participants with flexibility in terms of plan options when changing employers, ability to pause or stop contributions, ability to take early withdrawals, and ability to draw down funds.^64]

Fully funded private pension plans are intended to complement existing public pension plans, so much so that in some countries, like Australia, Canada, Chile, the Netherlands, and the United Kingdom, funded private pension plans have overtaken public pensions as the main source of retirement funding.^65]

With more and more U.S. persons relocating abroad for work and lifestyle choices, it is not a surprise that many now participate in foreign fully funded private pension plans that do not fit squarely within the four corners of what would be classified as a tax-qualified plan under the U.S. tax code.⁶⁶ Not surprisingly, the foreign countries to which U.S. persons are relocating are among the top-ranked for fully funded private pension plan assets as of 2022. These are: the United Kingdom (US $3.6 trillion), Australia (US $2.3 trillion), the Netherlands (US $2 trillion), Canada (US $1.7 trillion), Japan (US $1.5 trillion), and Switzerland (US $1.2 trillion).⁶⁷

A super-sized lack of guidance

Of the foregoing countries, only Canada has received adequate guidance from the IRS over U.S. tax classification, tax treatment, and reporting requirements of its various pension and savings plans over the last two decades.⁶⁸ Australian super funds continue to receive inconsistent tax classification and treatment, and although Australia initially hoped that the U.S. Tax Court in Dixon⁶⁹ would be able to provide much-needed direction, that is looking less and less likely. As of the time of writing of this article, the Dixon case has been languishing in the Tax Court for over five years.

Similarly, the international tax community hoped that Australian super funds would come back to the forefront with the January 2024 indictment of John Anthony Castro in the Northern District of Texas. Castro was indicted on and ultimately convicted of 33 separate counts of assisting in the preparation of a fraudulent tax return, based on his activities while operating Castro & Co. LLC, a virtual tax preparation business with locations in Orlando, Florida; Mansfield, Texas; and Washington, D.C.⁷⁰ One group of particular interest to Castro and his company was Australian and American expats, especially those with significant accumulations in their super funds not previously disclosed on U.S. tax returns.

Since 2016 Castro had been holding himself out as an international tax expert and participated in the preparation of more than 1,900 tax returns for U.S. taxpayers around the world. Unfortunately for his many clients, he was actually preparing tax returns based on fraudulent positions and novel legal theories not supported by U.S. tax law.⁷¹ Most significantly for our purposes, Castro was a proponent of the theory that interests in Australian super funds should be classified as interests in "privatized social security accounts" and therefore exempted from U.S. taxation entirely under article 18(2) of the Australia-U.S. tax treaty.⁷² On this basis, he sold U.S. tax opinions to Aussie and American expats with undisclosed super funds, advising them on how to exempt their super fund earnings and distributions from U.S. income tax. Included in his client list was the aforementioned Daryl Dixon, who became his client sometime in 2016.⁷³

Because of this connection, when Castro was indicted, the international tax community hoped that there would finally be some additional guidance forthcoming from the U.S. Treasury on the proper U.S. tax classification of a super fund. But alas, it was not meant to be. Castro's domestic activities related to fraudulent deductions, refunds, and filings were so prolific that the assistant U.S. attorneys prosecuting the case were able to obtain a conviction without even really having to rely on litigating the super fund issue. So we continue to wait.

Isolationist tendencies run deep

Unsurprising? Perhaps. Indeed, international tax practitioners have long bemoaned the fact that the U.S. domestic tax regime has not kept pace with pension reforms initiated around the world to expand retirement security by increasing opportunities for individual taxpayers to accumulate pretax savings. Perhaps the better view is that the United States has never really been interested in catching up with the latest international trends. Being oblivious to the changing world views on taxation of retirement and pensions (which sacrifices tax revenue to encourage personal savings among the population), the current U.S. statutory tax framework for classification and reporting of foreign retirement savings plans remains incoherent and disjointed, severely lacking a uniform structure for addressing foreign pension plan arrangements in a manner that extends to such plans the benefits of tax deferral or, in some cases outright exemption, as endeavored in U.S. bilateral tax treaties. To further complicate this area of the law, in May 2018 the IRS implemented an enforcement campaign targeting foreign trust reporting by U.S. persons. This campaign unfortunately cast a broad net, entangling U.S. persons with beneficial interests in cross-border pension plans.

Taken together, perhaps this all helps to explain why many Australians remain generally perplexed and astounded by the U.S. tax classification and treatment of a super fund. First, the United States taxes contributions, earnings, and distributions from a super simply because the beneficiary of that super is American. Then, the United States taxes a super fund's investment in U.S.-situs assets (including investments in real estate, U.S. startup companies, and other businesses) not as assets held in a foreign pension fund, which are often subject to deferral or preferential rates, but as any other foreign investor, subject to U.S. withholding taxes and standard marginal rates.

U.S. pensions: an overview

Over the past 100 years,⁷⁴ in the United States at least, a survey of publications by Treasury and the IRS yields a plethora of guidance on the tax treatment of domestic retirement plans, and more recently, foreign pension plans. Published guidance on the former appears to have been issued on an as-needed basis, resulting in the application of provisions under the code with the related Treasury regulations that, when strung together, provide a tax classification that supports adverse tax treatment of the foreign plan for U.S. income tax purposes. Indeed, relief from unfavorable tax consequences for U.S. participants in foreign plans has been sought time and again through applicable treaty provisions negotiated with the United States.⁷⁵ Because of the inherent political nature of the treaty-making process, the ratification and amendment of tax treaties remains in a lengthy hiatus,⁷⁶ subject to the changing priorities of the U.S. government. The United States must urgently acknowledge the evolving nature of foreign pension plans and adapt existing domestic tax frameworks to keep pace with these changes, so that U.S. persons with beneficial interests in these plans are not disadvantaged, and to keep the country competitive with the rest of the world. The U.S. retirement scheme allows for individuals to direct their savings and to have both occupational and personal pensions. However, unlike many other countries, occupational plans were voluntary in the United States until the recent passage of the Setting Every Community Up for Retirement Enhancement (SECURE) Act 2.0 of 2022,⁷⁷ which recalibrates traditional U.S. domestic retirement vehicles (such as section 401(k) plans and individual retirement accounts) one step closer to the pension and retirement regimes of other countries with mandatory employer-funded accounts.

Because the U.S. retirement regime for occupational pensions up until the SECURE Act was voluntary, accounts established by an employer under a DC or DB plan for the benefit of its employees to assist with retirement savings are afforded tax-deferred status under section 401(a) to encourage participation. This statute confers tax-qualified treatment to an employees' trust that is created or organized in the United States and forms part of a stock bonus, pension, or profit sharing plan of an employer for the benefit of its employees or beneficiaries. The irony is that there is no definition under the code or regulations of what would constitute an employees' trust for this purpose. Moreover, even if one were somehow able to divine that a particular retirement or pension plan is an employees' trust, it would still most definitely have to be a domestic trust to obtain tax-qualified status under section 401(a). The tax-deferral benefits enjoyed by a U.S. employee who is covered under a U.S. tax qualified plan extends even after that employee relocates to work in another country. However, a U.S. participant's contributions to such a plan, as well as income accruals and distributions from the U.S. plan, are generally subject to tax in the other country unless relief is available under the applicable tax treaty between the United States and that country.⁷⁸ Our survey of existing U.S. tax treaties with applicable relief provisions reveals that there is no uniformity of relief to be found.⁷⁹

Robbing immigrants of their savings?

Nonresident persons who relocate to the United States and participate in U.S. plans are afforded the same tax-deferral benefits on plan contributions and income accruals as U.S. persons. However, while there is a U.S. taxation exemption option, under section 72(w),⁸⁰ for any contributions made to an existing foreign retirement plan before relocating to the United States, there does not appear to be any relief from current U.S. taxation of foreign employer contributions made to the foreign plan, as well as income and gains accrued in the foreign plan (from both foreign employer and employee contributions) once the beneficiary of the plan has become a U.S. tax resident.⁸¹ The result is that a substantial portion of the corpus and all of the income and gains accrued in the plan become subject to U.S. taxation once the conditions are satisfied for penalty-free withdrawals and distributions to commence.

In the same vein, U.S. persons who participate in another country's foreign retirement and savings plans while living overseas have very limited ability to claim tax deferral on contributions, income accruals, and distributions from such plans that are not U.S. tax-qualified plans. As noted, most foreign plans will not meet the requirements for U.S. tax-qualified plans under section 401(a) because there is no definition in the code of employees' trust, and even if there were, section 501(a) requires an employees' trust to be a U.S. domestic trust.⁸² Hence, the U.S. tax treatment of foreign plans falls under section 402(b), which was enacted in its current form in 1969⁸³ to govern contributions and earnings made within a nonexempt employees' trust. This default treatment of foreign plans owned by U.S. persons has an adverse effect on the ability of U.S. persons to accumulate savings compared with non-U.S. persons, as well as arguably a chilling effect on the ability of the United States to attract and retain the best and most talented workers in the world.

Section 402(b) provides that (1) contributions made to the foreign plan by a foreign employer would be includable as gross income of the U.S. person with a beneficial interest in the plan and taxed currently, to the extent the amounts meet the requirements of section ^83;84 and (2) income accretions in the foreign plan that are distributed or made available for distribution to the U.S. beneficiary are taxable to that person in that same year, to the extent provided for under section 72.⁸⁵ What is not apparent is that the term "distribution" under section 402(b) does not include transfers and rollovers between foreign plans that are nonexempt plans because they are simply not structurally U.S. trusts to begin with. In fact, transfers from a foreign plan to another foreign plan in the form of rollovers are treated as taxable distributions for U.S. tax reporting purposes absent specific exemptions under this section. One would hardly consider resorting to the provisions of section 402(b) as being in the best interests of the beneficiary because the individual would likely be subject to U.S. tax on contributions made by the foreign employer, or on rollovers or transfers between foreign plans; and income accretions made available to the U.S. taxpayer without actual distribution. A U.S. beneficiary of a foreign plan under section 402(b) should expect to be taxed on almost all components of the foreign plan without any recourse for treating the plan as a foreign grantor trust,⁸⁶ such that future distributions made from the plan would no longer be subject to additional tax.⁸⁷

To mitigate the risk of double taxation regarding these foreign plans, a U.S. beneficiary may opt to treat the foreign plan as a foreign grantor trust under reg. section 1.402(b)-1(b)(6). Doing so would exempt future distributions from the plan (including rollovers and transfers between foreign plans) from additional U.S. taxation. However, this provision can only be applied if the beneficiary's employee contributions are "not incidental when compared to employer contributions" and the "applicable requirements of subpart E are satisfied."⁸⁸ No further guidance is provided under this reg subsection to enlighten U.S. taxpayers and their advisers. From our perspective, taking a position under this obscure subsection of regulatory guidance could be quite the gamble given the overall lack of clarity in how these provisions operate.

A better option in the long run for U.S. beneficiaries of foreign plans is to report the plan itself as a foreign grantor trust. As mentioned, this option only becomes available as an exception to the exception under reg. section 1.402(b)-1(b)(6).⁸⁹ A deliberate classification of a foreign plan as a foreign grantor trust under subchapter J rather than as an exception to the exception under reg. section 1.402(b)-1(6) would subject all contributions and income accruals to current U.S. taxation but will eliminate U.S. taxation on future distributions. In essence, the foreign plan would be treated as a post tax plan, operating similarly to a U.S. Roth IRA.⁹⁰ However, unlike U.S.-based Roth plans, the only monetary limits to savings under the foreign plan would be the limits placed on it by the foreign country's laws.

Still, resorting to a Machiavellian fix to mitigate the risk of double taxation of U.S. persons with beneficial interests in foreign plans leaves much to be desired. The end does not justify the means. More work is needed to recalibrate the statutory tax framework used to classify foreign occupational and personal pension plans to narrow the tax gap between the U.S. persons with domestic plans and those with foreign plans. After all, because U.S. persons are taxable on their income worldwide, regardless of how and where it is generated, there seems to be no reason why a U.S. person working in the United States for a U.S. employer should incur no tax on contributions and income accruals in a tax qualified plan while a U.S. person working for a foreign employer overseas⁹¹ participating in a mandatory foreign plan is subject to double taxation on the same components.

Super taxing Australian superannuation funds

Based on the above, it is abundantly clear that theoretically all foreign funds coming to the United States with their new U.S. residents are treated equally badly under the existing U.S. tax regime. However, in practice the devil is in the details. For those coming to the United States with funds that closely resemble U.S. domestic retirement plans, the answer seems to be relatively simple. In fact, it is, at least in the case of the Canadian Registered Retirement Savings Plan (RRSP), perhaps the foreign retirement plan that most closely resembles a traditional 401(k). However, for funds and plans that do not resemble U.S. domestic plans, at times the gap feels insurmountable.

To be fair, super funds do not exist nor resemble any entity or structure in the U.S. tax world. This may explain in large part why, since the IRS has not yet issued definitive guidance on this issue, there is not a single U.S. tax perspective on what a super fund is for U.S. tax purposes. On one hand, it is a foreign pension that would not be subject to any tax-deferred treatment like that extended to a U.S. 401(k) or IRA.⁹² It could also be a foreign grantor trust if it has a U.S. taxpayer contributor and a U.S. individual beneficiary designated to receive tax-free distributions from the super upon satisfaction of statutory conditions (upon reaching age 65 or retirement).⁹³ Either classification leads to some degree of U.S. taxation on contributions, earnings, and distributions received by a U.S. taxpayer. Because a super fund is a foreign asset, it also adds to the complexity of a U.S. taxpayer's international reporting obligations.

The reverse is also true for Australian taxpayers who invest in U.S. assets through their super funds. Foreign entities that are foreign trusts are subject to a different entity classification framework that results in more or less the same outcome. Under reg. section 301.7701-4, a foreign trust is either an ordinary trust or a business trust for U.S. tax purposes. An ordinary trust exists to preserve assets, while a business trust is used to engage in a trade or business. If the latter, it would be treated as either a partnership or corporation based on certain characteristics. In this regard, Australian corporate taxpayers are much better off than Australian individual taxpayers, as illustrated below by AustralianSuper, IFM Investors, and the ill-fated U.S. Masters Residential Property Fund.

AustralianSuper on Wall Street

Take for example, AustralianSuper,⁹⁴ Australia's largest superannuation fund with AUD 360 billion in assets and 3.4 million members. It was formed in 2006 after the merger of the Australian Retirement Fund, the Superannuation Trust of Australia, and Finsuper, to cater to employees and employers from any industry or profession in Australia (hence, a public offer fund). AustralianSuper is a statutory trust, which is governed by a trust deed, most recently amended by Order of the Supreme Court of South Australia on December 24, 2021. Under Australian superannuation and tax laws, the legal owner of the assets of the fund vest with its corporate trustee entity, which is AustralianSuper Pty Ltd, a proprietary limited company with Australian resident directors.

To meet its growing needs to invest in international markets, AustralianSuper evolved its corporate structure to have subsidiary operating companies in the United Kingdom, the United States, and China, as well as separate legal entities that hold investments. AustralianSuper has had an office in New York since 2021 and has a third of its overall assets invested in the United States.⁹⁵ The subsidiary company in the United States is AustralianSuper (U.S.) LLC, a Delaware limited liability company that is wholly owned by AustralianSuper Pty Ltd.

The foreign entity classification regulations list just one Australian entity, an Australian public company, as subject to per se corporation treatment for U.S. tax purposes. It would therefore appear, at first blush, that a privately owned Australian company such as an Australian proprietary limited company (AusPty) would have some flexibility to elect its treatment for U.S. tax purposes or be subject to default treatment as a disregarded entity (DE), association, or partnership based on the number of its members. However, because shareholders of an AusPty have limited liability under Australian corporate laws, it would be unlikely that an AusPty with one member would be able to elect DE classification under the U.S. check-the-box regulations. Assuming for the sake of analysis that the AusPty is owned by more than one member and therefore will not be disregarded for U.S. tax purposes and can be either a corporation⁹⁶ or partnership, it still cannot be assumed that it would be able to elect DE classification because it's a wholly owned Delaware LLC of the AusPty.

Under the entity classification regulations, a single-member LLC will be de facto a disregarded entity unless an election is timely filed to elect corporate classification for U.S. tax purposes. In this regard, it would be very unlikely that the Australian tax advisers would opt to let sleeping dogs lie and simply let the lone U.S. LLC be treated as a disregarded entity to allow passthrough of the U.S. income, losses, deductions, and tax credits to the AusPty entity. The decision to not elect any corporate classification may be fatal to the AustralianSuper parent entity in Australia, because it is well known that AustralianSuper up until this July was heavily overweight in global equities, a substantial amount of which were U.S. stocks.⁹⁷ This would mean that there would also be a corollary exposure to U.S. income withholding taxes and estate taxes for Australian taxpayers who have parked their savings in AustralianSuper absent an election to treat the AustralianSuper (U.S.) LLC as a domestic C corporation.

IFM Investors — proving that success takes a village

IFM Investors Pty Ltd was established over 30 years ago by a group of pension funds to invest, protect, and grow the long-term retirement savings of Australian workers. It had approximately AUD 230 billion under management as of December 31, 2024. It is currently owned by 16 Australian pension funds⁹⁸ and one U.K. pension fund⁹⁹ that are predominantly industry superannuation funds with 745 institutional investors worldwide. They have offices in Melbourne, Sydney, London, Berlin, Zurich, Amsterdam, Milan, Warsaw, New York, Houston, Hong Kong, Seoul, and Tokyo. IFM Investors Pty Ltd¹⁰⁰ has been physically present and actively investing in the U.S. market since it opened its New York office in 2007, just five years after it was formed in Melbourne. IFM Investors has since expanded further into the United States through subsidiary LLC entities, managed as a fund of funds¹⁰¹ investing primarily in U.S. private equities and infrastructure projects. Indeed, IFM funds are actively invested in infrastructure assets in more than 30 of the United States, including the Indiana Toll Road, Switch Inc., Swift Current Energy, and Freeport LNG.

As of the date of this article, IFM Investors has the following Delaware LLC entities: IFM Investors (U.S.) LLC,^102] a management services company that is paid on a contract fee basis; IFM Investors Advisors (U.S.) LLC,¹⁰³ an investment management services company; and IFM Investors (Japan) LLC.¹⁰⁴

That an Aussie company would use LLC entities as its entity of choice to operate and expand its investments to the United States is no surprise. An LLC is treated as a disregarded entity¹⁰⁵ for U.S. tax purposes generally unless a proactive election is made with the IRS to treat the LLC as a corporation. While the IRS has not published data confirming the rate at which Australian-owned LLC entities file entity classification elections, we don't think it is common. This is because corporate dividends are highly taxed in Australia. Making a U.S. entity classification does not make any sense for Australian taxes, especially because once the entity election is made on the U.S. side (causing the LLC to be classified as a corporation for U.S. tax purposes), there is no room for the Aussie investor to report the LLC to the ATO as anything but a corporation for Australian tax purposes, too.¹⁰⁶ The downside to this default classification of the LLC is that an Australian investor that is an Australian discretionary trust would be subject to U.S. estate taxes under this type of setup if the trust were treated for U.S. tax purposes as a foreign grantor trust.¹⁰⁷ Interestingly however, the IFM structure in the United States defies the common Australian trust¹⁰⁸ structure as the parent entity of the LLC.¹⁰⁹ The parent entity of the U.S. LLCs is IFM Investors Pty Ltd, a proprietary limited company that is treated for Australian tax purposes as a corporation. For U.S. tax purposes, a proprietary limited can be classified as a corporation or partnership, which would then provide the ultimate shareholders of IFM Pty Ltd with the ability to pass through income, losses, and gains generated from the U.S. LLCs (assuming filing as LLC-partnerships) and pay taxes based on Australia's integrated tax regime.

If IFM Pty Ltd elected to be treated as corporation for U.S. tax purposes (an LLCcorporation), then all distributions from the LLC to IFM Pty Ltd would benefit from the Australia- U.S. tax treaty for U.S. income tax withholding purposes as well as provide U.S. estate tax protection for its individual investors in Australia (if any).

Doomed and defeated: U.S. Masters Residential Property Fund

Perhaps the most infamous of the Australian superannuation fund investments in the United States the past decade is the U.S. Masters Residential Property Fund (URF). The URF was formed in 2011 by Dixon Advisory Group Pty Ltd (DAG-Australia) and Maximilian Sean Walsh, the former deputy chairman of DAG-Australia and a member of its investment committee. Structured as an Australian unit trust, the URF is treated as a hybrid Australian company with passthrough attributes. A unit trust has members that are the beneficiaries of the trust, and a trustee that has management of the trust assets. Similar to corporate shareholders, the unit holders of a unit trust have limited liability under Australian law because there is no personal liability for the debt or claims against the unit trust by reason of being a unit holder. However, unlike shareholders of a corporation that have interests only in the shares of a company, unit holders have interests in the underlying assets of a unit trust. Under the U.S. check-the-box regulations, a unit trust with more than one member would most likely be treated as a foreign eligibility entity that is an association if it has more than one member, or a disregarded entity if it has a singular member.

DAG-Australia, known as "Australia's most high-profile promoter of self-managed super funds,"¹¹⁰ was a Canberra-based asset management and financial advisory firm that merged in 2017 with Evans & Partners,¹¹¹ a high end stock brokerage firm based in Melbourne. The merger produced Evans Dixon,¹¹² an AUD 18 billion¹¹³ financial services firm that listed on the Australian Securities Exchange (ASX) in May 2018¹¹⁴ as a public company.¹¹⁵ It was the fourth largest SMSF provider in the country.¹¹⁶ Both Alan Dixon and his father, Daryl Dixon, were on its investment committee. It was reported by the Australian news media that the investment committee recommended its 4,700 SMSF clients to invest in the URF, the biggest in-house Dixon investment,¹¹⁷ listed as a closed-end fund on the ASX in 2012. At that time, a high Australian dollar made investing in U.S. assets attractive, with the U.S. dollar and U.S. property market weak.¹¹⁸ The URF managed over 600 homes in New York and New Jersey,¹¹⁹ which consisted of distressed U.S. residential properties from the boroughs.¹²⁰ It was reported that the URF "loaded up on debt to amass a billion-dollar portfolio of New York and New Jersey real estate, charging hundreds of along the way."¹²¹ By the time the U.S. lawsuits were filed, the URF had fallen 90 percent in value over five years,¹²² bringing down along with it the superannuation investments of middle-income Australians with a reasonable amount of wealth accumulated over decades in white-collar professions.¹²³

The URF invested SMSF funds directly in distressed real estate, which was then managed by the Australian fund through its wholly owned subsidiary, Dixon Advisory Group U.S., an urban single-family-home rental business based in New York City and New Jersey. Alan Dixon was the managing director and CEO of Dixon Advisory Group U.S. He was also a shareholder, managing director, and CEO¹²⁴ of its Australian parent company, Dixon Advisory Group Pty Ltd.¹²⁵ The public fallout from the URF investments is well-documented and written about in Australia. In April 2024 a class-action settlement was approved by the Federal Court of Australia against Dixon Advisory and Superannuation Services Pty Ltd for approximately AUD 16 million.¹²⁶ As of the date of this article, the URF is trading on the ASX for AUD 32 cents. Evans & Partners was delisted in November 2024.

A silver lining, really?

The irony of the above is that the Australian investors in the URF really did dodge the U.S. tax bullet because of the unfortunate series of catastrophic events that occurred in 2018. If the URF investments in U.S. real estate were to have appreciated in value, each SMSF member who invested in the URF using their SMSF money would have been subject to adverse U.S. tax consequences because each SMSF investor, as a unit holder to the URF unit trust, has a direct interest in the underlying U.S. real estate owned by the URF. Indeed, one should carefully consider whether acquiring U.S.-based assets through SMSFs would expose Aussie members of the SMSF to U.S. estate taxes because U.S. real estate is a U.S.-situs asset for U.S. estate tax purposes.¹²⁷

SMSFs are unique in Australia's superannuation system and differ from other funds, because members of these funds are also the trustees, and therefore, are in control and have sole responsibility for their retirement savings and, therefore, all investment decisions. At the same time, trustees must abide by all regulatory requirements and responsibilities. For example, they must do all the paperwork to set up an SMSF or engage a professional accountant to do so, and then engage more professionals to undertake a valuation of its assets, prepare and file reports with the ATO and conduct annual auditing. SMSFs are not cheap, but they are a popular method for holding business assets and investments.

An SMSF from a U.S. perspective is essentially a revocable trust, given that its members (the beneficiaries) are also trustees. For U.S. tax purposes, an SMSF could be treated as a foreign grantor trust if there is a U.S. person who contributes and a U.S. person who benefits from the trust. Some SMSFs fall squarely within these parameters when a U.S. citizen residing in Australia makes voluntary concessional and nonconcessional contributions to the fund, and another U.S. person (or the same one) is entitled to receive retirement distributions from the same fund. Treatment as a foreign grantor trust means that all the income, gains, deductions, and credits accrued in the SMSF are immediately attributed to the U.S. person who made contributions to the fund. However, the U.S. person would also be able to claim FTCs for Australian taxes paid by the SMSF on its Australian tax returns. Theoretically, because contributions and earnings accrued in the SMSF would have already been subject to U.S. tax, any distributions received from the fund would constitute posttax money and be tax free. While the foregoing addresses U.S. income tax treatment of an SMSF as a foreign grantor trust, the same also applies in the U.S. estate tax context.^128]

It is certainly not uncommon for Australian members of an SMSF to acquire U.S.-situs rental real estate using SMSF money, such as those acquired through the URF. Perhaps if the URF had held each U.S. real estate investment through domestic single-member U.S. LLCs formed in the same state as the real estate to provide additional liability protection to the URF,¹²⁹ one could then take the position that an SMSF that owns a U.S. vacation home that is occasionally rented out to third parties remains a foreign trust, while an SMSF that owns commercial properties for lease certainly would be geared toward a business entity classification such as a partnership or corporation rather than a foreign trust. To date, while the IRS has not reached any definitive guidance on the U.S. tax classification of SMSFs for U.S. tax purposes, through its escalating enforcement and compliance actions¹³⁰ targeting U.S. persons who have either inadvertently failed to disclose SMSF ownership or pay tax on income accrued or withdrawals taken from their SMSFs, those U.S. persons have been subjected to egregious penalties under section 6677 for failure to file forms 3520/3520-A.¹³¹

The IRS and superannuation: on a collision course with history

Like the U.S. government, the IRS has a tendency to bury its head in the sand and rely on the momentum set in place by its aggressive international enforcement actions against international institutional players and high-networth families.¹³² But you can't bring a knife to a gunfight. Since the 2010s, the IRS has done exactly that where foreign pensions are concerned.

The June 2015 private letter rulings

Foreign trusts, like the AustralianSuper fund, continue to evade definitive U.S. tax classification and treatment.¹³³ Indeed, it has been 10 years and 45 days since the IRS published three private letter rulings classifying an Australian superannuation fund as a foreign trust for U.S. tax purposes and providing its first comments on the issue. In its 2015 advice to U.S. taxpayers in LTR 201538008, LTR 201538007, and LTR 201538006, the IRS held that a foreign trust providing superannuation-type benefits to its members constituted a trust for U.S. federal income tax purposes and should be reported accordingly. While it has never been officially confirmed that the trusts in question were SMSFs, it has been informally acknowledged in international tax circles in Washington and elsewhere that they were.

The letter rulings have been in the proverbial legal ether for almost a decade, and the implications raised by the classification of SMSFs as foreign trusts continue unabated. The most consequential of these concern whether SMSFs, as foreign trusts created under Australian superannuation laws to provide retirement savings for an employee in the Australian workforce, should then be further classified as employee trusts subject to section 402(b) treatment at all. Unfortunately, the IRS's position (as first outlined in the letter rulings) does not address this question. Rather, it seems to begin with an assumption that an SMSF is a foreign employee trust, without stopping to consider if this is in fact the appropriate category for a private pension fund that is an integral part of Australia's superannuation regime. Indeed, the IRS has refused to issue any further administrative guidance to clarify whether an SMSF is a foreign trust or in fact a foreign employee or pension trust. This has led to the widespread practice of reporting SMSFs as employee trusts that are foreign grantor trusts under section 402(b) for U.S. tax purposes, all of which has helped to shape the dialogue moving forward.

Rev. Proc. 2020-17

In 2018, the IRS instituted a robust foreign trust reporting enforcement campaign that aimed to improve forms 3520 and 3520-A compliance.¹³⁴ The intent was to:

• improve U.S. taxpayers' and practitioners' knowledge of a U.S. person's requirement to report ownership of, and transactions with, foreign trusts;
• decrease the percentage of late filed and incomplete forms 3520/3520-A; and as a corollary,
• increase the number of properly filed forms 3520/3520-A.¹³⁵

Section 6048 provides the statutory mandate for foreign trust reporting implemented by Form 3520, "Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts," and Form 3520-A, "Annual Information Return of Foreign Trust with a U.S. Owner." While section 6048 provides an exception from reporting for certain transfers to foreign compensatory trusts under section 402(b), which are reported as compensation income by the U.S. person on an applicable U.S. federal income tax return, the lack of any specific list identifying which foreign trusts are in fact foreign compensatory trusts under section 402(b) makes this exception an elusive one. Indeed, most foreign plans that are foreign trusts would generally fall within the parameters of section 6048, which would impose annual obligations on U.S. beneficiaries to file Form 3520, and if the foreign plan is treated as a foreign grantor trust for U.S. tax purposes, Form 3520-A.

In the absence of specific guidance on many foreign plans, tax practitioners have defaulted to reporting those in which a U.S. person has a beneficial interest (either directly or beneficially) as foreign trusts subject to U.S. foreign trust reporting requirements, or worse, as passive foreign investment companies subject to Form 8821 and disclosure via a foreign bank account report and the Foreign Account Tax Compliance Act. There is, however, no consistency among tax practitioners in reporting foreign plans as foreign trusts subject to Form 3520 or Form 3520-A filings. Out of an abundance of caution, and in the absence of IRS guidance directly on this issue, many international tax practitioners defaulted to characterizing foreign plans as trusts reportable on either Form 3520 or Form 3520-A. However, doing so provided too broad a net, because it caught foreign pension-like plans that present low risk of facilitating tax evasion because of the strict regulatory overview by their respective government agencies and the relatively low statutory lifetime contribution limitation thresholds that were often included in the legislation creating these plans.

In March 2020 the IRS issued Rev. Proc. 2020- 17, 2020-12 IRB 539, to provide a foreign trust reporting exemption for certain tax-favored foreign retirement and nonretirement savings plans that meet specific criteria. It also provided an exemption for rollovers from one foreign plan to another if both plans meet the requirements of Rev. Proc. 2020-17.¹³⁶ It appears that the IRS recognized that the administrative burden of reviewing every single Form 3520 or Form 3520-A filed to disclose interests of U.S. persons in foreign trusts could not be justified, particularly because the existence of these foreign trusts were likely already subject to annual tax reporting under section 6038D as specified foreign financial assets.^137]

While Rev. Proc. 2020-17 has provided some degree of relief to foreign plans not exempted from U.S. taxation under previous IRS guidance,¹³⁸ such as Canadian Registered Education Savings Plans and Canadian Registered Disability Savings Plans, it does not go far enough to cover other foreign plans that should receive the same exemption. The very narrow parameters for determining tax-favored retirement plans or tax favored nonretirement savings plans in Rev. Proc. 2020-17 left out foreign plans that need IRS guidance, such as Australian superannuation funds and Canadian tax-free savings accounts. Indeed, the parameters are so narrow that perhaps only the Canadian savings plans mentioned above would even qualify for the foreign trust reporting exemption under Rev. Proc. 2020-17. In addition to providing narrow parameters for exempting foreign plans from foreign trust reporting, Rev. Proc 2020-17 did not provide a solution to alleviate U.S. income taxation of income accruals and employer contributions in these plans. While the procedure did eliminate the annual tax reporting requirement for qualifying foreign trusts that are foreign plans, and as a corollary, avoid substantial penalties for noncompliance, it did not go far enough to provide effective relief for foreign plans in countries that are either not legally structured as trusts domestically,¹³⁹ or do not tolerate low contribution thresholds for savings as in the United States. In light of this, many U.S. international tax practitioners who deal regularly with Australian super funds, some of whom are IRS attorneys, agree that Rev. Proc. 2020-17 cannot be applied to exempt Australian superannuation funds from foreign trust reporting. We would strongly recommend taking these individuals' word for it over Google's AI summary of the current state of Aussie super funds.¹⁴⁰

Section 897 to the rescue?

The plight of the Australian super fund could have once again caught the attention of the international tax community on June 7, 2019, when the U.S. Treasury introduced temporary regulations under section 897(l), related to the availability of an exemption from the application of the 1980 Foreign Investment in Real Property Tax Act[141] on the disposition of U.S. real property interests (USRPIs). Under section 897(l), entities qualifying as qualified foreign pension funds (QFPFs)¹⁴² and qualified controlled entities (QCEs) are exempted from FIRPTA withholding on the disposition of their interests in USRPIs (which include interests in mines, wells, and natural deposits and interests in U.S. domestic corporations, unless the taxpayer can demonstrate that the corporation was not a United States real property holding corporation at any time in the five years before the disposition).¹⁴³

Indeed, qualifying for the section 897(l) exemption can provide significant relief to foreign pension funds holding USRPIs. In contrast to the general rule in section 897(a)(1), nonresident alien individuals holding interests in QFPFs are not taxed as if they were engaged in a U.S. trade or business and the resulting gain or loss was effectively connected with such trade or business in the United States when the QFPF disposes of USRPI investments.¹⁴⁴ Even more importantly, qualification as a QFPF or QCE exempts the entity from the 15 percent FIRPTA withholding requirement that would otherwise apply to the transfer. Because the withholding requirement is applied on the fair market value of the USRPI, this can leave a foreign investor in quite a bind, especially if the investing entity does not have sufficient liquidity in its other assets to satisfy its withholding obligations.

On that basis, it was of significant interest to the international tax community that this exemption be as broadly applicable as possible, to ensure that the greatest number of foreign pensions and funds are qualified. Comments were requested by the IRS in 2019 and several Australian entities provided comments, including PwC Australia and the ASFA.¹⁴⁵ Of chief concern to these groups was the narrow definition applied to QFPFs and QCEs, because the commentators believed there was a significant risk that super funds, in particular, because of the expanding role they have taken in Australian financial planning and investment, would not qualify. Similarly, they raised concerns about the application of the bright-line rules regarding the requirement that at least 85 percent of the value of the benefits expected to be paid out of a fund were to be retirement and pension benefits, and 100 percent must be "qualified."¹⁴⁶ Unfortunately, when the final regulations became effective on December 29, 2022,¹⁴⁷ the IRS once again failed to fully assuage these concerns, taking the view that avoiding abuse of this exception necessitated the narrow scope for these definitions, adding a potential hurdle for super fund interest holders to overcome when filing tax returns in the United States.

Foreign trust regulations

On May 8, 2024, the U.S. Treasury issued proposed foreign trust regulations¹⁴⁸ that included an expansion of the exception for tax-favored foreign retirement trusts initially introduced under Rev. Proc. 2020-17. However, the proposed regulations provide no relief for the current problems related to foreign pension and retirement plans that do not qualify as pensions or pension funds under different iterations of the U.S. model tax treaty, because none of them are structured as domestic trusts. Indeed, the issues associated with contributions, accrued earnings, and distributions to and from such foreign retirement plans, including rollovers between plans, remain not just unaddressed but exacerbated by the proposed regulations. As had become somewhat customary, the international tax community again reached out to the U.S. Treasury with comments and concerns about the proposed regulations. Chief among these was the imposition of significant penalties on non-willful taxpayers for failing to report transactions that may not be thought of as otherwise reportable — things like nontaxable rollover transactions, beneficial transfers on death, and other deemed dispositions resulting in constructive receipt of trust assets by U.S. taxpayers. Compounding this issue, as the correct U.S. tax classification of many of these investments is still at best ambiguous, owners of many foreign retirement plans may be penalized for failing to report transactions with entities that they're not even sure are actually foreign trusts.

As pointed out by the American College of Trust and Estate Counsel (ACTEC) in its comments,¹⁴⁹ a significant number of Americans live and work abroad and contribute to foreign pension plans. In many cases, this is because of sheer necessity, because U.S.-based plans often have restrictions on contributions and distributions for nonresident U.S. citizens, and many foreign plans, including super funds, mandate employer contributions.¹⁵⁰ However, participation in these plans also carries a significant risk to U.S. taxpayers, who are left trying to decipher and comply with the maze of international tax filing requirements imposed on foreign investments. Because U.S. tax practitioners cannot even agree on how to classify these plans that do not qualify as pensions or pension funds, large penalties for failure to properly report the assets may result. Initially, there was optimism that Rev. Proc. 2020-17 had resolved many of these issues, especially in light of its more expansive use of the term "foreign trust" to include trusts, funds, accounts, and other arrangements providing pension, educational, and disability benefits. But the excitement was short-lived as it became apparent that many foreign pension arrangements were still unlikely to qualify.

Hoping to finally obtain some clarity on some issues, ACTEC made a series of recommendations, including the introduction of a regime akin to the check-the-box election regime for business entities that allows eligible foreign funds to elect treatment as foreign trusts for U.S. tax purposes. This would allow entities formed in civil law countries that do not recognize trusts to elect classification as trusts for U.S. tax purposes, giving taxpayers with these investments clarity on the exact tax treatment and filing requirements. However, these proposed regulations have not been finalized, so it remains to be seen what, if anything, will be included.

The U.S. tax treaty stalemate

The U.S. legislative stalemate on bilateral tax treaties is preventing a much-needed fix to article 18 of the U.S. model tax treaty. As the foregoing section on IRS administrative action has illustrated, the narrow parameters administratively set by the IRS to classify and tax foreign pension funds has resulted in a patchwork of tax laws and administrative practice that has not been helpful to the plight of the Australian super fund. It has been intentionally excluded from these remedial measures. The reason for this special treatment eludes us.

Further, Congress has not been particularly receptive to providing a legislative fix to the U.S. tax classification and treatment of Australian super funds. This is why the United States remains in the proverbial weeds and behind the rest of world when it comes to acknowledging that many countries have reformed their pensions in a manner that is absolutely inconsistent with the U.S. existing pension and retirement scheme. The United States has remained staunchly dependent on an antiquated Social Security regime that is based on public contributions (payroll taxes) into government trusts that are then invested by the government into who knows what, in the hope that someday, when it is our turn to retire, we will receive a check every month to help tide us over until death comes knocking at the door.

The rest of the world took a more proactive approach, of course. Over the past decade, countries around the world have reformed their pension regimes to address the challenges of an aging population with increasing longevity and low fertility by encouraging fully funded private pensions in the workplace and personally directed by individuals. It has, thus far, paid off. The OECD documented in its 2022 report that private pension plan assets have surpassed public pension assets by trillions of dollars.¹⁵¹ Of these private pensions, the DC plan arrangement is preferred to the more traditional DB plan. In Australia DB plans have been phased out except for possibly judges and politicians because companies are unable to fund the future liabilities. However, the tradeoff appears to be that individuals with DC or hybrid plan arrangements have more access to their individual accounts because they are at least partially responsible for managing their retirement investments.¹⁵² These accounts are also subject to preferential tax treatment in their home countries so that savings are accumulated as long as possible, and, in some cases, distributions upon retirement age are not taxed at all.¹⁵³ Such is the nature of the bargain struck between public and private stakeholders to provide adequate retirement income for everyone without increasing taxes.

In other countries, retirement savings are accumulated in vehicles other than traditional pension funds.¹⁵⁴ These include employers' books, pension insurance funds, and other privately managed vehicles.¹⁵⁵ For example, the Korean pension system relies on services provided by entities in the financial services industry — such as banks, mutual funds, and insurance companies — to provide voluntary occupational and personal pension contracts with individuals. In most OECD countries that follow the Chilean system, mandatory individual accounts are managed by specialized fund and management companies (pension entities) that own IRAs. The pension entities are legally separate from the financial group to which they belong.¹⁵⁶ In Australia¹⁵⁷ and the Netherlands, the superannuation funds and pension funds are operated by independent stand-alone entities that are not owned by providers of other financial services. Even in countries in which pensions are provided by public entities or institutions, such as Lithuania and the United Kingdom, the pension providers are not trusts but not-for-profit public corporations.¹⁵⁸

More importantly, the legal structure for private pension providers around the world varies. Providers structured as pension funds are independent entities with legal personality and capacity and have their own governing boards, such as in Australia, Denmark, Finland, Italy, Japan, the Netherlands, Switzerland, and Germany's pensionkassen. Others are contractual arrangements between the individual and the pension entity with a segregated pool of assets without legal personality or capacity such as in Chile, the Czech Republic, Mexico,¹⁵⁹ Portugal, and Turkey. Only a few countries, like the United States, have pension funds in trust structures in which the trustee legally owns the pension fund assets and administers the assets in the interests of the plan participants who are beneficiaries of the investments.

What this all boils down to is the reality that retirement savings in foreign plans outside the United States are not limited to trust structures with traditional trustees and beneficiaries. Because of pension reforms in the past decade, the legal structures in which pension funds are held, invested, and from which they are distributed, are not likely to meet the requirements of a taxqualified retirement plan for U.S. tax classification purposes under section 402(b)(2) and (b)(4) to qualify the U.S. taxpayer participating in these plans for tax deferral on employer contributions, investment earnings, and distributions.¹⁶⁰ Moreover, because most OECD countries now have in place mandatory occupational pension plans,¹⁶¹ U.S. taxpayers who are employed abroad cannot opt out of their employer-funded private pension plans, which give them more access and control over their accounts.¹⁶² This in turn means that U.S. taxpayers will be currently taxable on employer contributions and income accumulated and undistributed in their respective accounts that, if held through a trust established in the foreign country of employment, such as Australian SMSFs, would likely be classified, and immediately taxable, in the United States, as foreign grantor trusts.

U.S. persons in countries that use nontrust vehicles as pension fund providers, such as private corporations, are not spared adverse U.S. tax treatment because of their beneficial interests in these vehicles. For example, in Mexico, individual accounts held by a Mexican private corporation, referred to as Administradoras de Fondos para el Retiro (Afores), are invested in the stock of a legal financial entity managing investment portfolios, known as a sociedad del inversion especializada en fondos para el retiro (Siefore).¹⁶³ The interest held by the individual is an ownership in interest in the Siefore, which manages three compulsory portfolios comprising government bonds, domestic securities, and foreign equities. Both the Siefore and its portfolios would likely be taxable in the United States as a PFIC, subject to the PFIC tax and international reporting requirements with hefty penalties for noncompliance.¹⁶⁴ There is no income tax treaty relief available to U.S. taxpayers with beneficial interests in an Australian superannuation fund or Mexican retirement fund to avoid double taxation of contributions and earnings in these retirement vehicles.¹⁶⁵ To make things worse, both types of private pension plans would also be subject to burdensome U.S. international tax reporting on an annual basis because neither would be classified as a tax-favored foreign retirement plan or nonretirement savings plan under Rev. Proc. 2020-17. Truly, there is much work left for the IRS and Treasury to remedy this disparate outcome for U.S. beneficiaries of foreign plans.

Because most pension reforms in OECD countries were implemented after their bilateral tax treaties with the United States entered into force, it is not surprising that the pension articles in these treaties do not reflect structural and legal changes implemented by the reforms. However, a solution can still be found within the existing pension articles if the IRS or Treasury were to explore the position that these private pension plans are hybrid social security vehicles implemented by foreign governments under their social security programs to support individuals and their dependents in maintaining a certain level of income because of old age, disability, death, sickness, work injury, or unemployment and the like. Social security programs provide cash benefits or benefits in kind to individuals in part through employment, because contributions made by employers, employees, or both, largely fund the programs. In short, retirement savings contributed to and accumulating within foreign private pension plans constitute foreign social security in OECD countries that have undergone pension reform and therefore should not be subject to tax by the United States under the applicable bilateral tax treaty provisions.

At this point, it would be useful to point out that both the tax treaty and the totalization agreement¹⁶⁶ are types of international agreements the United States uses to coordinate various aspects of the Social Security program.¹⁶⁷ Although similar in function to tax treaties, totalization agreements are legally classified as congressional-executive agreements concluded under statute.¹⁶⁸ Coordination of the social security programs between two countries is addressed either exclusively through an executive agreement or in a treaty, or simultaneously in both. This bifurcated approach has resulted in overlapping and potentially dueling agreements that give rise to interpretational issues and create uncertainty for workers and administrators.¹⁶⁹

This appears to be the case with U.S. international agreements with OECD countries. Our review of totalization agreements between the United States and OECD countries, as illustrated in the following table, shows that while only a few of the agreements were ratified by Congress after the bilateral tax treaties entered into force, these few acknowledge that the pension reform in the respective countries have created hybrid social security vehicles. The Australia-U.S. totalization agreement explicitly references the employer contribution portion of an individual's superannuation fund as substantially equivalent to social security for U.S. purposes.¹⁷⁰ Similar provisions exist in the U.S.- Slovenia totalization agreement, which includes an explicit reference to the "compulsory participation in social insurance" system.¹⁷¹ This of course gives rise to the possibility that, if the U.S. totalization agreements were updated, many more of the these foreign private pension plans would likely have components that would also be recognized as constituting or equivalent to U.S. Social Security. This acknowledgment in bilateral totalization agreements that foreign private pension plans would be in lieu of, similar to, or equivalent to U.S. Social Security should be recognized as a definitive classification for tax treaty purposes.

The table also shows that the U.S. bilateral tax treaties with the other 37 OECD countries were entered into force before pension reforms were implemented in 28 of them. Of these 28 countries that have undergone pension reform, eight (the Czech Republic, Greece, Poland, the Slovak Republic, Slovenia, South Korea, Sweden, and Turkey) have never entered into protocols with the United States to update their existing tax treaty provisions. Therefore, relying on the pension articles in the respective bilateral tax treaties in force to remedy the unfortunate and inevitable double taxation of foreign pension plans in these 28 countries under U.S. domestic tax laws should not be the last resort for resolving a case of double taxation of a U.S. person's crossborder pension.¹⁷² Rather, we recommend a corresponding review of the applicable bilateral totalization agreement be undertaken to confirm if the cross-border pension at issue is part of the foreign country's social security program after pension reform. If such is the case, then relief may be available under the applicable tax treaty provision to all or a portion of the pension.

A 'happy ever after' for Australian superannuation?

This brings us back to the conundrum of what we are supposed to do with Australia's massive super fund war chest, which appears to be once more back on track with plans to invest heavily in U.S. and international markets. Based on a recently issued report endorsed by the Super Members Council, Australian pension funds are forecast to have US $2.6 trillion invested globally by 2035, including US $1 trillion in the United States and specifically US $140 billion in U.S. private markets, primarily in infrastructure and private equity.¹⁷³ With such staggering forecasts, the separate pledges made by Australian superannuation funds, IFM Investors, and Aware Super to the U.K. government totaling US $29 billion over a five-year period pales in comparison.¹⁷⁴ Could it be that the only way forward for Australian super fund investments in the United States is through a corporate structure representing pooled funds from Australian super fund entities, rather than through Aussie individuals investing directly through their own super funds such as SMSFs? It certainly appears that investments made by IFM Investors Pty Ltd and AustralianSuper are not at all subject to adverse U.S. tax treatment because the U.S.-facing legal structure of these funds (LLCs) under the check-the-box regulations would be a corporation.

On the other hand, individual Aussies who invest in the United States through their own super fund accounts (SMSFs, industry funds, or employer funds) do not possess the gravitas that the Australian super fund giants possess. Unless one has a cross-border tax lawyer on the team, the everyday Aussie investor is not informed enough about U.S. entity tax classification technicalities to either: (1) file an election to treat their super fund investing directly in the United States as a corporation; or (2) file an election to treat the wholly owned LLC of their super fund as a corporation to avoid default classification as a disregarded entity. Absent knowledge of the foregoing, the everyday Aussie person who invests in the United States, and even a U.S. person in Australia (or back from Australia) who owns a super account, must bear the brunt of U.S. taxation because the IRS treats these funds as foreign trusts, with individual Aussie members exposed to: (1) U.S. income taxation on accrued investment income and gains in the super both during the accumulation phase and on pension withdrawals on retirement; and (2) U.S. estate taxes on the underlying U.S.-situs assets, rather than as foreign retirement and pension funds equivalent to U.S. IRAs under article 18 of the Australia-U.S. tax treaty.¹⁷⁵

Indeed, the United States seems at a standstill when it comes to providing a uniform solution to address the adverse U.S. tax treatment of superannuation funds owned by individuals, notwithstanding that it has been 10 years since the IRS issued the seminal private letter rulings treating an Australian SMSF as a taxable foreign trust.¹⁷⁶ The disparate tax treatment of Australian superannuation investments — corporate versus individual — places an onerous financial and tax burden that is not as easily borne by the latter.¹⁷⁷ Compounding the issue further, the Australia- U.S. tax treaty has not been formally amended since the 2001 protocol, predating the massive expansion growth that super funds have seen in recent years. The Australian government has raised these issues with previous U.S. administrations to seek a better tax treatment for Australian superannuation funds in a manner that reflects its true nature. We support these efforts to reconcile the Australian super fund structure with the current U.S. tax regime in a series of sequential administrative pronouncements from the IRS:

1. Clarifying that compulsory superannuation guarantee contributions by employers and earnings on these contributions should be treated as foreign social security and therefore exempt from U.S. taxation under article 18(3) of the Australia-U.S. income tax treaty. This classification would be consistent with the provisions of the 2002 Social Security Totalization Agreement between the United States and Australia, which recognizes superannuation guarantee contributions as a form of social security.
2. Clarifying that voluntary post-tax contributions to Australian super funds by a U.S. person should not be included in gross income. These contributions should be treated similarly to Roth 401(k) or IRA contributions by U.S. persons and therefore do not trigger any tax on contribution and subsequent distribution.
3. Clarifying that taxes paid by the super fund in Australia can be claimed by the U.S. person as FTCs to reduce U.S. tax liability relating to contributions and earnings taxes paid by the fund attributable to the voluntary or nonsuperannuation guarantee portion of a U.S. person's interest in an Australian super fund. This would reduce the extent of double taxation in Australia and the U.S. on U.S. persons with Australian super funds.
4. Clarifying that a U.S. person can roll over U.S. retirement plans such as 401(k)s and IRAs into an Australian super fund and roll over preserved balance between Australian superannuation funds during accumulation phase without this being treated as taxable capital gain includable in the U.S. person's gross income for U.S. tax purposes.
5. Carving out Australian super funds from annual foreign trust reporting requirements that have resulted in foreign trust reporting penalties without prompt redress available within the IRS to resolve penalty notices issued.

Implementation of the above would benefit the estimated 130,000 working-age Americans living in Australia and subject to compulsory superannuation.¹⁷⁸ It would also benefit many of the around 100,000 Australian-born individuals living and working in the United States, many of whom are likely to have interests in Australian super funds and who expect to return to Australia.

Attempts by the Australian government to obtain a more favorable U.S. tax treatment for Australian super funds has not been fruitful to date. It appears that the U.S. Treasury and IRS have not been willing to provide even an administrative remedy to the plight of thousands of individuals who have super funds as part of their retirement security. Finding a remedy to help cross-border U.S. and Aussie workers in both countries from egregious taxation of their future retirement nest egg has not been an international tax priority for the U.S. government. Apparently, the United States would rather renegotiate the tax treaty than resort to a solution similar to what was done in 2014 to spare Canadian and U.S. expats alike from incurring U.S. taxes and penalties for failure to report their Canadian RRSPs.

As we briefly discuss below, other countries that undertook pension reforms and privatized their social security systems did not suffer the same fate as Australia. Treasury and the IRS have treated pension and retirement funds from Canada and the United Kingdom, the world's two largest pension funds remarkably well.

Footnotes

1. See the White House, "Imposing Duties to Address the Flow of Illicit Drugs Across Our Northern Border," EO 14193 (Feb. 1, 2025); the White House, "Imposing Duties to Address the Situation at Our Southern Border," EO 14194 (Feb. 1, 2025); the White House, "Imposing Duties to Address the Synthetic Opioid Supply Chain in the People's Republic of China," EO 14195 (Feb. 1, 2025).

2. These tariffs are being litigated in various courts across the United States. Most recently, the Federal Circuit upheld a ruling from the U.S. Court of International Trade that the Trump administration had no legal right to impose tariffs and that Trump had overstepped his executive authority under the Emergency Powers Act. Notwithstanding that, the tariffs remain in place because the Trump administration intends to appeal the Federal Circuit decision to the U.S. Supreme Court. See Bernard McGhee, Luena Rodriguez-Feo Vileira, Nell Clark, and Peter Orsi, "Appeals Court Finds Trump's Tariffs Unconstitutional, but Leaves Them in Place for Now," Associated Press, Aug. 29, 2025.

3. See Australian Government, Department of Foreign Affairs and Trade, History of Mateship: Australia and the United States.

4. The Hon. Dr. Jim Chalmers, MP, Treasurer, Australian Treasury, Address to the Super Summit (Feb. 25, 2025).

5. See, e.g., Lachlan Maddock, "Landmark U.S. Super Summit Triggers Best Financial Interests Questions," Investment Magazine, Mar. 3, 2025; Jessica Penny, "Inaugural Super Summit Reaffirms Australia's 'Envy of the World' System," Super Review, Mar. 3, 2025.

6. See Super Members Council, "Key U.S. Official Endorses Australia's Super Systems Dependability and Sustainability" (Feb. 26, 2025).

7. See Mandala Partners, "Going Global: Unlocking the Growth Potential of Australian Pension Capital," at section 2.3 (Feb. 2025).

8. On July 31 Trump issued EO 14326, which modified EO 14257 ("Regulating Imports With a Reciprocal Tariff to Rectify Trade Practices That Contribute to Large and Persistent Annual United States Goods Trade Deficits" (Apr. 2, 2025)) and resumed previously delayed countryspecific tariffs, including a 10 percent tariff on Australian-made goods and services. See the White House, "Further Modifying the Reciprocal Tariff Rates," EO 14326 (July 31, 2025). See also Australian Government, Department of Foreign Affairs and Trade, "Latest U.S. Tariffs" (last accessed Sept. 20, 2025).

9. Representatives from the following Australian superannuation funds participated in the summit: AustralianSuper, Australian Retirement Trust, Cus, HESTA, Hostplus, Aware Super, CareSuper, Rest Super, Brighter Super, UniSuper, IFM Investors, Super Members Council, NAB, Macquarie Infrastructure Partners, Macquire Infrastructure and Real Assets, the Future Fund, the Australian Council of Superannuation, and Association of Superannuation Funds of Australia (ASFA).

10. By 2035 it is projected that millions of Australians will be investing US $1 trillion in the United States through their supers. Also, a new report commissioned by IFM Investors found that, in particular, local funds are expected to invest US $140 billion in U.S. private markets, with around US $60 billion earmarked for infrastructure, targeting sectors such as roads, ports, logistics, energy, and telecommunications. See Penny, supra note 5.

11. In her article, Penny summarized the discussions between U.S. and Australian participants, noting that representatives from several large superannuation funds had the opportunity to demonstrate superannuation as a distinctly different pool of capital and explain its sale and growth. Members of the Australian delegation said that the reception from the United States has been "clear and constant" and that the Australian system remains the "envy of the world." In fact, its "design is recognized as fundamental to its success: universal, compulsory and savings are preserved until retirement. These design features enable deployment of long-term capital into global markets, including infrastructure." Representatives also reaffirmed their commitment to long-term growth, saying that "Australian superfunds are scouring the world for the best opportunities to grow members' retirement savings, in turn helping strengthen Australia's economic and diplomatic ties and shoring up our growing influence on the international financial landscape." In fact, "in the U.S., through their Superfunds Australians are now regarded as among the biggest and most sophisticated investors in the world." See id.

12. See supra note 6.

13. See Amy Bainbridge and Richard Henderson, "Australia Pensions in $2.7 Trillion Industry Shift Focus from U.S.," Bloomberg, July 7, 2025.

14. See Henderson, "Australian Pension Overseeing A$75 Billion Adds Private Equity," Bloomberg, July 8, 2025.

15. In their article, supra note 13, Bainbridge and Henderson wrote that: "AustralianSuper, the nation's largest pension fund, has ended its overweight position in global equities, of which U.S. shares make up the largest proportion, citing the geopolitical uncertainties caused by Trump's changes. [Similarly,] Colonial First State has tilted its portfolio toward emerging markets given its desire to diversify away from U.S. equities, which it considers are expensive. One turning point in their view of U.S. investments came in February with the so-called 'Revenge Tax,' embedded in Trump's 'Big Beautiful Bill,' that would have increased levies on income from U.S. assets held by investors from countries such as Australia. While that measure was ultimately removed from the bill, it did enough to damage sentiment." See also Bainbridge and Henderson, "Revenge Tax Shift Revives U.S. Appeal for Australia Mega Funds," Bloomberg, June 26, 2025.

16. In light of the significant changes that are happening in the United States, many Australian super funds have started to look at alternative investment options. In their article "Revenge Tax Shift," supra note 15, Bainbridge and Henderson provide examples of these changes in investment strategy, including: Legalsuper, an AUD 7 billion fund set up for the legal profession, is looking in India for private market opportunities while holding its position in U.S. equities and bonds but not adding to them; MLC Asset Management, an AUD 94 billion fund, remains active in the United States but is simultaneously exploring alternative allocations across asset classes in Europe, including private equity and debt; Aware Super, an AUD 186 billion fund, finalized a property deal in London that reignited its appetite for office space, and is working on separate deals in continental Europe given more uncertainty around political dynamics in the United States; and Colonial First State, an AUD 168 billion fund, has tilted its portfolio toward Chinese equities that have been trading at low valuations and deployed money into private equity to verify the portfolio's ability to cope with a number of different scenarios amid heighted geopolitical uncertainty and stretched valuations in U.S. stocks.

17. The so-called revenge tax was a proposal contained in the One Big Beautiful Bill Act (proposed as section 899 of the IRC) that would have increased taxes on U.S.-source income of non-U.S. businesses. As proposed, section 899 would have raised the federal tax rate on income from U.S. assets — such as dividends, interest, royalties, and business profits — earned by people and institutions based in certain countries. Starting at an increase of 5 percentage points, the measure would have incrementally escalated the surtax to as much as 20 percentage points beyond existing rates. That would have brought rates on this income to 50 percent in some cases. Investors who might have been affected sit on trillions of dollars in U.S. assets. Had it been included in the final bill, section 899 would have increased U.S. tax rates on countries whose tax policies the United States deems unfair, including Australia, Canada, France, and the United Kingdom, all of which impose digital services taxes on large technology companies such as Meta Platforms Inc. and Amazon.com Inc., doing business in their countries. Section 899 would also have affected countries that impose a minimum tax on multinational corporations as part of a global agreement, which at least 30 countries do. This includes Australia, the EU member states, Japan, and South Korea. Under the proposal, the U.S. Treasury Department would have published and updated a list of discriminatory foreign countries, which likely would have had far-reaching impact on Australian pension funds, which have invested US $450 billion in U.S. infrastructure, equities, bonds, and other assets. See Melissa Shin et al., "Why Trump's Section 899 'Revenge' Tax Worries Investors," Bloomberg, June 12, 2025.

18. See Bainbridge and Henderson, "Revenge Tax Shift," supra note 15.

19. See IFM Investors, "New Report Reveals USA Is the Top Destination for Australian Pension Fund International Investment" (Feb. 25, 2025).

20. See, e.g., Marsha Laine Dungog and Roy A. Berg, "U.S. Income Tax Treatment of Australian Superannuation Funds," Tax Notes Int'l, Oct. 10, 2016, p. 177; and Berg and Dungog, "What U.S. Workers Need to Know About Australian Superannuation Plans," 46(8) Tax Mgmt. Int'l J. 437 (2017); see also Dungog and Tamara Cardan, "Dixon: A Cautionary Tale of U.S.-Australian Tax Issues," Tax Notes Int'l, Feb. 8, 2021, p. 769.

21. See Mandala Partners, supra note 7, at Executive Summary.

22. See id. at section 2.1 (Exhibit 6). As of February 2025, the top 10 largest sovereign wealth funds are Norway NBIM (US $1.8 trillion); China-CIC (US $1.3 trillion); China-SAFE IC (US $1.2 trillion); UAE-Abu Dhabi-ADIA (US $1.1 trillion); Kuwait KIA (US $969 billion); Saudi Arabia PIF (US $925 billion); Singapore-GIC (US $847 billion); Qatar-QIA (US $510 billion); UAE-Dubai-ICD (US $360 billion); and UAE-Abu Dhabi-Mubadala (US $330 billion). The Australian pension system's largesse of US $2.607 trillion dwarfs the competition!

23. Bainbridge and Jinshan Hong, "Wall Street Wins More of Australia's $2.7 Trillion Pension Pot," Bloomberg, June 10, 2025.

24. See Bentleys, David Laanemaa. Laanemaa has over 30 years of cross-border tax experience dealing with U.S. and Australian matters. He has spent decades as a professional wealth manager and financial adviser, holding active licenses as a member of the Chartered Accountants Australia and New Zealand (CA ANZ), registered tax agent of the Australian Taxation Office, accredited financial planning specialist with CA ANZ, registered SMSF auditor with the Australian Securities and Investment Commission (ASIC), registered tax financial adviser with Australian Government Tax Practitioners Board, certified financial planner (Deakin University) and member of the Financial Planning Association of Australia, and a member of the Society of Trusts and Estate Practitioners.

25. The authors also thank Ian Beckett, general manager of policy and advice for the Australian Prudential Regulatory Authority (APRA), and Roy Berg for their generous review and insights regarding the current state of the Australian superannuation industry and U.S. taxation of the same. Before APRA, Beckett was the minister-counsellor (economic) and senior Treasury representative of the Australian Embassy to the United States in Washington until December 2024. He is now based in Sydney.

26. See ASFA, Super Statistics.

27. See Bainbridge and Hong, supra note 23.

28. See id.

29. Corporate funds do not appear to be as relevant because these have been replaced by industry or retail fund SMSFs.

30. See ATO, Help and Support for SMSFs (Apr. 1, 2025).

31. The APRA is the prudential regulator of Australia's financial services industry. APRA ensures that financial institutions are financially sound and able to meet their obligations to depositors, policyholders, and superannuation fund members. See generally APRA, Who We Are.

32. See APRA, Register of Superannuation Institutions (2025).

33. For a downloadable list of RSE and RESE licensees and MySuper Authorised Products published Sept. 1, 2025, see id.

34. See Barbara Drury, "Which are Australia's Largest Super Funds?" Superguide, Mar. 10, 2025.

35. The Super Members Council was established on October 1, 2023, by Australian for-profit-to-member superannuation funds. There are 22 forprofit super funds that are members of the Super Members Council: Australian Retirement Trust, AustralianSuper, Aware Super, CareSuper, CBUS Super, Equip Super, ESSSuper, First Super, GESB Superannuation, HESA, HostPlus, LegalSuper, Ness Super, NGS Super, REI Super, REST Super, SA Metropolitan Fire Service Superannuation Scheme, State Super SAS Trustee Corp., TEAM Super, Telstra Super, UniSuper, and Vision Super.

36. The Financial Services Council develops policy and sets standards for more than 100 member companies in one of Australia's largest industry sectors, financial services. Full members represent retail and wholesale funds management businesses, superannuation funds, investment platforms, and financial advice licensees. The financial services industry is responsible for investing more than AUD 3 trillion on behalf of over 15.6 million Australians. The pool of funds under management is larger than Australia's GDP and the capitalization of the Australian Securities Exchange, and is one of the largest pools of managed funds in the world.

37. See Self Managed Super Fund Association.

38. See ASFA, ASFA: The Voice of Super.

39. See ASFA, Superannuation Statistics (May 2025).

40. See Bainbridge and Hong, supra note 23.

41. See APRA, "APRA Releases Superannuation Statistics for March 2025" (May 28, 2025).
42. See Australian Government, Self-Managed Superannuation Funds (Dec. 5, 2020, updated May 21, 2025).

43. See APRA, "APRA Releases Superannuation Statistics for June 2025" (Aug. 27, 2025).

44. The Superannuation Industry (Supervision) Act 1993 provides a comprehensive regime for the regulation of super funds and associated entities. The superannuation industry is regulated by the APRA, ASIC, and the ATO.

45. Both industry and retail funds offer MySuper options. These options generate substantial money returns because the member is apparently a passive rather than active investor.

46. Generally 15 percent tax on the super fund contributions and earnings, and up to 30 percent tax under division 293 tax for highincome earners.

47. That is, 15 percent to one-third capital gains tax discount, and a proposed tax of up to 30 percent under division 296 on earnings on balances over AUD 3 million, including unrealized capital gains.

48. Complying superannuation funds, including SMSFs, are taxed concessionally at the rate of 15 percent on the fund's income, including realized capital gains and taxable contributions received. See generally division 295, Income Tax Assessment Act 1997.

49. The lower capital gains rate of 10 percent would apply when the fund has held the asset for more than 12 months and is eligible to apply the capital gains tax general discount.

50. The authors acknowledge that with the unrealized capital gains proposal pending before the Australian Parliament, the portion that would remain tax free within a superannuation fund would be limited to just AUD 3 million, leaving the rest subject to a 30 percent tax, effective July 1, 2026, that would be imposed on the annual growth in that person's superannuation balance, less any contributions in the same year. See Phillip Coorey, "Super Tax Grab Set to Be Shelved Until After Election," Australian Financial Review, Nov. 25, 2024.

51. Australia's retirement income system has three pillars. The first, the foundation of the system, is the provision of social security in the form of the age pension. The second pillar constitutes compulsory employer contributions under the superannuation guarantee scheme. The third pillar broadly comprises all voluntary savings, including member contributions and home ownership. See Australian Government, Treasury, "Retirement Income Review," Consultation Paper (Nov. 2019).

52. In 2017 the Australian government introduced legislative amendments to improve the integrity of the superannuation system to ensure that it is used for providing income in retirement to substitute for or supplement the age pension, and not for tax minimization and estate planning purposes.

53. See Coorey and Michael Read, "Super Tax 'Shows Chalmers Ignoring History,'" Australian Financial Review, May 27, 2025.

54. The OECD defines the term "retirement savings plans" as private arrangements (funded and book reserves) and funded public arrangements. See "Chapter 9 — Landscape of Retirement Savings Plans," OECD Pensions at a Glance 2021 at 216.

55. Id.

56. See id. at n.19.

57. See GAO Report to the Chair, Committee on Ways and Means, House of Representatives on Retirement Security, "Recent Efforts by Other Countries to Expand Plan Coverage and Facilitate Savings," GAO- 22-105102 (Aug. 2022).

58. See GAO Report to the Chair, Committee on the Budget, U.S. Senate, "Entitlement Reform Process, Other Countries' Experiences Provide Useful Insights for the United States," GAO-08-372, at 9 (Jan. 2008).

59. See GAO-22-105102, supra note 57.

60. Please note that all following references to fully funded plans do not correlate per se to a DB scheme. The AustralianSuper fund, for example, is a fully funded plan with an account-based scheme that goes up and down depending on the market.

61. See GAO-22-105102, supra note 57, at 7. For example, Canada's pooled registered pension plan, Lithuania's pension accumulation plan, New Zealand's KiwiSaver, Quebec's voluntary retirement savings plan, and the United Kingdom's qualifying workplace pension plans (e.g., the national employment savings trust (NEST)).

62. Id. at 15-19. Employers in New Zealand and the United Kingdom must contribute at least 3 percent of an employee's salary to their respective KiwiSaver and NEST accounts. On the other hand, the governments of Lithuania, Quebec, and Canada encourage employers to contribute through incentives such as tax deductions for contributions. Australian employers are required to contribute 9.5 percent of an employee's salary into a superannuation account as a superannuation guarantee, which is tax-deductible to the employer.

63. Id. at 21. For example, the contribution rate in Lithuania is 3 percent, New Zealand 3 percent, Quebec 4 percent, and the United Kingdom 5 percent.

64. Id. at 28.

65. See OECD Pensions at a Glance 2021, chapter 9, at Table 9.2., "Assets in Retirement Savings Plans and Public Pension Reserve Funds, in OECD Countries and Other Major Economies in 2020 or Latest Year Available."

66. The result is that these plans will likely be classified as nonqualified plans, which are taxable to the U.S. person on a current basis rather than a deferred basis under the existing statutory framework for foreign pension plans.

67. See OECD Pensions Outlook 2022 at Table 1.1.

68. See generally Rev. Proc. 2014-55, 2014-44 IRB 753 (providing guidance for reporting interests in certain Canadian retirement plans consistent with para. 7 of Article XVIII of the Canada-U.S. Income Tax Convention), superseding guidance provided in Notice 2003-75, 2003-2 C.B. 1204, and Rev. Proc. 2002-23, 2002-23 C.B. 1204. See also Rev. Proc. 2020-17, 2020-12 IRB 539 (providing exemptions from U.S. foreign grantor trust reporting requirements under section 6048 for certain taxfavored retirement and nonretirement savings accounts), discussed in more detail below.

69. See Dixon v. Commissioner, No. 13874-19 (T.C., July 25, 2019). See also Dungog and Cardan, supra note 20.

70. See U.S. Attorney's Office — Northern District of Texas, "Mansfield Man Charged in Fraudulent Tax Return Scam" (Jan. 10, 2024).

71. See U.S. Attorney's Office — Northern District of Texas, "Mansfield Tax Preparer Convicted of 33 Counts of Tax Fraud After Bench Trial" (May 24, 2024).

72. See generally John A. Castro, "U.S. Tax Treatment of Australian Superannuation," 2 Nev. L.J. Forum 91 (2018).

73. For a detailed description of this representation, see Dungog and Cardan, supra note 20.

74. The first private pension plan was created in the United States in 1899, by the American Express Co. Congress passed the first income tax bill in 1913, which did not address pensions directly, but was followed by an IRS ruling in 1914 that pensions paid to retired workers could be deducted by employers as "ordinary and necessary business expenses." This was followed by the Revenue Act of 1926, which formally exempted income from pension plans from a retired employee's taxable income. See Workplace Flexibility 2010, Georgetown University Law Center, "A Timeline of the Evolution of Retirement in the United States (2010)," Memos and Fact Sheets 50 (Mar. 26, 2010).

75. See generally the U.S. model income tax conventions of 1996, 2006, and 2016, discussed below.

76. See generally Oren Penn, "U.S. Income Tax Treaties at the Start of the Biden Administration," PwC (May 2021).

77. See generally SECURE 2.0 Act of 2022, Division T of the Consolidated Appropriations Act, 2023, P.L. 117-328 (2022).

78. Alternatively, the U.S. employee may move coverage to a U.S. affiliate's qualified plan. This topic is outside the scope of this article.

79. See, e.g., Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, Austria- U.S., article 18(5), May 31, 1996, T.I.A.S. No. 98-201 (1998); Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, Belgium-U.S., article 17(6), (7) and (9), Nov. 27, 2006, T.I.A.S. No. 07-1228.2 (2007), as amended by protocol (2006) and Memorandum of Understanding (2009); Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, Bulgaria-U.S., article 17(5), Feb. 23, 2007, T.I.A.S. No. 08-1215.1 (2008), as amended by protocol (2008); Convention with Respect to Taxes on Income and Capital, with Exchange of Notes, Canada-U.S., Article XVIII (7), (8) and (13), T.I.A.S. 11087 (1985), as amended by protocols (1996, 1997, and 2009); Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital, with Exchanges of Notes, France-U.S., article 18(2), Aug. 31, 1994, T.I.A.S. No. 1963 (1995), as amended by protocols (2004 and 2009); Taxation Convention, Germany-U.S., article 18A(1), (2), and (5), Aug. 29, 1989, T.I.A.S. No. 91-821 (1991), as amended by protocol (2006); Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, Iceland-U.S., article 17(4), Oct. 23, 2007, T.I.A.S. No. 08-1215 (2008); Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital Gains, with Protocol and Related Agreement, Ireland-U.S., article 18(5), July 28, 1997, T.I.A.S. No. 2141 (1997), as amended by convention (1999); Taxation Convention, Italy- U.S., article 18(6), Aug. 25, 1999, T.I.A.S. No. 09-1216 (2009); Taxation Convention, Malta-U.S., article 18, Aug. 8, 2008, T.I.A.S. No. 10-1123 (2010); Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, with Understanding and Exchange of Notes, Netherlands-U.S., article 19(7) and (8), Dec. 18, 1992, T.I.A.S. No. 2291 (1993), as amended by protocols (1993 and 2004); Taxation Convention, South Africa-U.S., article 18(6), Feb. 17, 1997, T.I.A.S. No. 97-1228 (1997); Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Protocol Amending the Convention, Sweden-U.S., article 19(4), Sept. 30, 2005, T.I.A.S. No. 06-831 (2006); Taxation Convention with Protocol, Switzerland-U.S., article 28(4), Oct. 2, 1996, T.I.A.S. No. 97-1219 (1997), as amended by protocol (2009); Taxation Convention with Exchange of Notes, U.K.-U.S., article 18(1), (2), and (5), July 19, 2002, T.I.A.S. No. 13161 (2003), as amended by protocol (2001).

80. While section 72(w) exempts contributions made to the foreign plan from the U.S. person's investment in the contract, it exacerbates the U.S. taxation of income and gains accrued in the plan on distribution because the investment in the contract will be relatively low because it would exclude those contributions made by the U.S. person before immigrating to the United States. Section 72(w) does not exempt any income and gains arising from preimmigration contribution amounts.

81. Section 72(w) affords limited relief, in the sense that it would exempt from U.S. tax certain contributions to a foreign plan made on compensation for labor or personal services (1) performed outside the United States before the beneficiary became a U.S. resident; and (2) was not taxable by any other foreign country because the contribution was made directly into the foreign plan and not paid to the employee, who would have otherwise been taxable under foreign law.

82. Domestic trust is defined in section 7701(a)(30)(E)(i) and (ii), which provides that a trust is a U.S. person if: (1) a court in the United States is able to exercise primary supervision over the trust; and (2) one or more U.S. persons control all "substantial decisions" of the trust. A trust that fails to satisfy one or both tests is classified as a foreign trust under section 7701(a)(31)(B).

83. Section 402(b) was introduced in its current form by the Tax Reform Act of 1969. The act amended section 402(b) to coordinate the taxation of pensions with the taxation of property received for the performance of services in section 83, which was introduced in the same act.

84. To be includable in the U.S. person's income, the employer contributions must meet the conditions of reg. section 1.83-3(b), requiring "substantial vesting." Once the employer contributions are vested and taxed, income earned by the trust is deferred until it is distributed or actually made available to the employee under section 402(b)(2), unless the U.S. person is a highly compensated employee under the plan. In that case, vested earnings are instead included in the employee's income each year under section 402(b)(4). Because (1) most foreign employer contributions to foreign retirement plans are mandatory and irrevocable, and (2) almost all foreign retirement plans with a U.S. employee would fail the discrimination test under section 410(a), it follows that the U.S. person would be taking these employer contribution amounts into income and taxed currently. There would be no tax deferral extended to the amounts.

85. Under section 72(d), the amount of a payment made by an annuity under a qualified employer plan is only includable in the employee's gross income to the extent it exceeds the investment in the plan, determined by dividing the total investment in the contract as of the annuity start date by the number of anticipated payments based on the age of the employee.

86. See generally subchapter J (i.e., sections 671-679, collectively, the grantor trust rules).

87. See section 402(b)(3), which states that the beneficiary of a nonexempt employees' trust under section 402(b)(1) shall not be considered an owner of the trust under subpart E, part 1, of subchapter J.

88. See reg. section 1.402(b)-1(b)(6).

89. T.D. 7554, 1978-2 C.B. 71, provides that: "The regulations under Sections 402(b), 403(c) and 404(a)(5) provide rules for the treatment of nonexempt employees' trusts and nonqualified employees' annuity plans that are consistent with the treatment of property under Section 83. Thus, where an employer contributes cash to a nonexempt employees' trust or a nonqualified employees' annuity plan, an employee is taxable on the contribution when the employee's rights under the trust or plan are substantially vested." We note that T.D. 7554 does not provide additional commentary on reg. section 1.402(b)-1(6) specifically. However, based on the legislative history of sections 402(b) and 83, because employee contributions are made at the employee's discretion and can be made using posttax funds, the option to treat a foreign plan as a foreign grantor trust likely arises because the funds could be considered substantially vested at the time of contribution to the nonqualified plan. Similar to making an election under section 83(b), electing foreign grantor trust treatment under reg. section 1.402(b)-1(6) allows the employee to opt out of the deferral and accelerate the tax.

90. A Roth IRA is funded using after-tax dollars (no tax deduction is available for contributions), and withdrawals are generally tax-free, assuming the necessary conditions are met. See generally U.S. Bank, "What Is an IRA?"; see also section 408A.

91. According to the 2019 National Taxpayer Advocate Report to Congress, there are approximately 9 million U.S. citizens living abroad, along with more than 170,000 U.S. military personnel. In addition, more than 330,000 U.S. students study overseas. See Taxpayer Advocate Service 2019 report, at 29, citing the Department of State estimate issued by the Bureau of Consular Affairs (CA by the Numbers, Fiscal Year 2017 data updated for July 2018). These numbers do not include U.S. lawful permanent residents and other individuals who are U.S. citizens at birth.

92. See, e.g., Dungog and Berg, supra note 20.

93. See id. See also Berg and Dungog, supra note 20.

94. AustralianSuper has been in existence since May 30, 2000, when it was formed as Australian Super Public Sector Pty Ltd. It is managed and operated by its Australian corporate trustee entity, AGEST Super Pty Ltd, which manages industry funds, superannuation, savings, pension, and insurance investments.

95. JP Morgan, "The Future of Superannuation: Optimising Outcomes Through Global Investment and Unlisted Assets" (2023). 96An AusPty's classification as a corporation for U.S. tax purposes has important consequences for both U.S. individuals living in Australia and Australian individuals living in the United States (collectively, U.S. taxpayers) who are shareholders of that company. If the company is classified as a foreign corporation, then any Australian franked dividends received by a U.S. taxpayer would be included as part of taxable income for U.S. tax purposes. However, the U.S. taxpayer would be unable to claim foreign tax credits for Australian taxes paid on these dividends (franking credits or imputation credits) on U.S. tax returns. From a U.S. tax perspective, an individual shareholder can claim FTCs for foreign taxes paid by such individual. However, in the case of franked dividends, the AusPty is liable for the payment of taxes on these dividends. A U.S. taxpayer who is an individual shareholder cannot claim FTCs on taxes paid by the AusPty on a U.S. tax return unless an election is made to be treated as a corporate taxpayer. To come as close as possible to claim the Australian franking credits on the U.S. taxpayer's U.S. tax return (and consequently, reduce U.S. taxes on the franked dividends), the AusPty must be classified as a partnership for U.S. tax reporting purposes to achieve passthrough treatment for Australian income, gains, deductions, and credits paid or accrued by the AusPty to its U.S. owner (or as the case may be, the Australian partnership to its U.S. partner).

97. See Bainbridge and Henderson, "Australia Pensions," supra note 13.

98. The Australian superannuation funds are all public offer funds: AustralianSuper, Australian Retirement Trust, Brighter Super, BUSS Q, CareSuper, CBUS, Equip Super, First Super, HESTA, Hostplus, NS Super, REI Super, Team Super/TWU Super, UniSuper, Vision Super, and Aware Super (previously First State Super). All are classified as industry funds that are statutory Australian trusts except Brighter Super and Vision Super, which are public sector funds.

99. NEST is the occupational pension scheme of the United Kingdom, which is established as a U.K. trust.

100. IFM Investors Pty Ltd was known as Industry Funds Management Pty Ltd from May 10, 2005, through October 17, 2013, with a financial services license. Australian Services & Investment Commission, "IFM Investors Pty Ltd."

101. The industry fund investing in a series of underlying managed funds.

102. Originally formed as Industry Funds Management (U.S.) LLC on November 9, 2006, and amended to IFM Investors (U.S.) LLC on October 17, 2013. It is a registered investment adviser in Delaware, New York, and Texas.

103. Originally formed as IFM (U.S.) Investment Advisor LLC on August 29, 2007, and amended to IFM Investors (U.S.) Advisor LLC on October 17, 2013.

104. Formed in Delaware on November 27, 2013, as IFM U.S. (Japan) LLC and amended to IFM Investors (Japan) LLC on December 12, 2013.

105. More commonly referenced as the check-the-box regulations, the final version of these regulations was issued by the U.S. Treasury December 18, 1996, as T.D. 8697. It was subsequently promulgated as reg. section 301.7701-1.

106. See Income Tax Assessment Act 1936 (Part IVA). See also Practical Compliance Guideline (PCG) 2018/7, Part IVA of the Income Tax Assessment Act 1936 and Restructures of Hybrid Mismatch Arrangements, Australian Taxation Office for the Commonwealth of Australia (Oct. 25, 2018), at paras. 52-59.

107. Noncitizen, nonresidents of the United States are entitled to an exemption of US $60,000 against the U.S. estate tax, which translates to a credit of US $13,000. See section 2102(b)(1) and reg. section 20.2052-1. However, relief from U.S. estate tax can also be claimed under the Australia-U.S. estate tax treaty, which while repealed in Australia by the 1999 Statute Stocktake Bill, remains in force and is recognized by the United States as binding. See Convention Between the Government of the Commonwealth of Australia and the Government of the United States of America for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on the Estates of Deceased Persons, Australia-U.S., January 7, 1954, T.I.A.S. No. 2903 (1954).

108. A typical Australian investment structure involves the use of a family discretionary trust, which is settled by an Australian resident for a nominal amount. Under the domestic laws of Australia, the trust itself can exist for 80 years. See generally the Law Society of New South Wales, "How a Trust Works." The trust is the sole member of a U.S. LLC, which holds all the trust's U.S.-situs investments. These U.S. investments generate income and capital gains that, from an Australian tax perspective, will flow through, up to the Australian trust (ideally without triggering any entity-level U.S. taxes). We note that this conclusion relies heavily on the assumption that the LLC remains a flowthrough under Australia's foreign hybrid entity rules (not addressed in this article). Under this model, the corporate trustee entity (most likely a private proprietary limited), is formed and managed by an Australian resident individual, who has control over the trust investments in the person's capacity as its director. Core among its powers is exercising complete discretion to distribute accrued trust income or capital gains to the beneficiaries of the trust. Often, the beneficiaries are a combination of individuals who are taxed in Australia at a high marginal 47 percent rate, and Australian resident "bucket companies" that enjoy a reduced income tax rate of 30 percent. Because the corporate trustee has the discretion to make distributions, the trustee more often than not will choose to make income distributions to the bucket company. The bucket company is owned by an individual Australian resident who then extracts the distributed trust income as a franked dividend. The franking credits paid by the bucket company on trust income that it receives are claimed by the shareholder, thereby lowering the tax on the Australian dividend farther than if the trust distribution was received directly by such individual. Such is the beauty of an integrated tax regime.

109. In fact, no competent tax lawyer in the United States would use an LLC under circumstances described above. Why? Because it would be tantamount to fostering an illicit affair between the trust and the LLC, in which one party reaps the benefits of the relationship while the other party is left hanging onto every empty promise made by the other. That's all it is — empty promises. Because while the trust-LLC structure provides the Aussie investor a tax-efficient way to tap into the U.S. markets without the burden of exorbitant Australian taxes, this structure leaves the investor vulnerable to ongoing U.S. income and estate tax risks on the U.S. end of the Pacific Ocean.

110. See John Wasiliev, "How In-House Investments Unravelled Dixon," Australian Financial Review, Nov. 6, 2020.

111. Evans & Partners was cofounded by former Essendon Football Club Chair David Evans. See Samantha Bailey, "Adviser in ASIC's Crosshairs," Herald Sun (Australia), Sept. 5, 2020. See also Myriam Robin and Jonathan Shapiro, "No Regrets Over Evans Dixon Merger: David Evans," Australian Financial Review, Nov. 11, 2019.

112. Just recently, the shareholders of Evans Dixon approved the rebranding of the company to E&P Financial Group, after ASIC, of the five government agencies with oversight over Australian superannuation funds, filed a court action against Dixon Advisory & Superannuation Services, a wholly owned subsidiary of Evans Dixon, alleging breaches of its best interest duty obligations in September 2020. See Jonathan Shapiro and Carrie LaFrenz, "Évans Dixon Quiet on ASIC Case Fallout," Australian Financial Review, Nov. 12, 2020. The corporate regulator also filed a multimillion-dollar Federal Court of Claim action alleging Dixon Advisory failed to act in its clients' interests or provide appropriate advice in recommending investments, raking in hundreds of millions of dollars in fees. See Shapiro and LaFrenz, "Dixon Name to Go, Heartache Remains," Australian Financial Review, Oct. 17, 2020.

113. See Wasiliev, supra note 110.

114. See Shapiro and LaFrenz, "Evans Dixon Makes Changes to Walsh & Co Board," Australian Financial Review, Dec. 19, 2019.

115. Dixon Advisory & Superannuation Services became a wholly owned subsidiary of the new public company.

116. See Bailey, supra note 111.

117. It was reported that the URF was a "one-time [AUD] 1 billion sharemarket-listed" fund that was discovered to be in serious trouble after the 2017 merger. As of November 2020, the fund apparently had a "meagre market capitalization of over just $80 million with shares that cost investors up to $2 to buy having a market value at just 21c this week." See Wasiliev, supra note 110.

118. See Shapiro and LaFrenz, supra note 114.

119. See Shapiro and LaFrenz, "Evans Dixon Model Under Scrutiny as Stocks Plunge," Australian Financial Review, June 7, 2019.

120. See Wasiliev, supra note 110.

121. See Shapiro and LaFrenz, supra note 114; see also Shapiro and LaFrenz, "ASIC Action May Cost Dixon Advisory Tens of Millions," Australian Financial Review, Sept. 4, 2020. The publication reported that the ASIC federal court claim tallied up to AUD 135.9 million in fees paid by the URF to Dixon Advisory and other related parties from September 2015 to June 2018. These included management fees charged on gross assets of AUD 25.8 million, responsible entity fees of AUD 12.54 million, stamping and handling fees of AUD 5.8 million, and property transaction fees of AUD 18 million. It also paid AUD 68 million to Dixon Projects, which was hired to renovate properties in the fund located in New Jersey and Manhattan areas.

122. See Shapiro and LaFrenz, supra note 114; see also Shapiro and LaFrenz, "Dixon Name to Vanish, Leaving Behind Devastated Clients," Australian Financial Review, updated Oct. 16, 2020.

123. See Shapiro and LaFrenz, supra note 114: "Most of Dixon Advisory's 4000-odd clients are middleclass Australians with a reasonable wealth accumulated over decades in whitecollar professions. The balances range between AUD 500,000 to AUD 3 million." See also Wasiliev, supra note 110, saying that the URF was capitalized with "hundreds of millions of dollars provided by thousands of Dixon Advisory SMSF clients."

124. Alan Dixon left his position as CEO in 2019 and sold his entire 16.7 percent stake in the company to Pitt Capital in August 2020 for AUD 17.6 million. He also left the company's board in July 2020. See Shapiro and LaFrenz, supra note 114.

125. Dixon Advisory was founded by Alan's father, Daryl Dixon, purportedly one of the three people who understood Australia's entire superannuation system. He was one of its most trusted experts. He and his wife established Dixon Advisory in 1986 and grew it into the fourthlargest superannuation advice firm in Australia. See Shapiro and LaFrenz, "Dixon Name to Vanish, Leaving Behind Devastated Clients," Australian Financial Review (Oct. 16, 2020). He and his son were on the investment committee of the company. He left the business in 2019. Id.

126. Keith Ford, "Dixon's $16M Class Action Settlement Approved by Federal Court," Money Management, Apr. 18, 2024.

127. If the SMSF investor through the URF holds U.S.–situs assets that are actively engaged in activities that are considered a U.S. trade or business (such as residential or commercial rental real estate), there is a risk that the SMSF itself may be reclassified for U.S. tax purposes as a foreign corporation or foreign partnership rather than a foreign trust that is an ordinary trust for U.S. income and/or estate tax purposes.

128. This exposure cannot be averted by filing a Form 8832, "Foreign Entity Classification," with the IRS for the SMSF to be classified as a foreign corporation because the ultimate beneficial owners of the SMSF are U.S. citizens.

129. For U.S. tax purposes, a single-member LLC is treated as a disregarded entity unless a tax election is made to treat it as a corporation.

130. Starting in 2018, the IRS launched the "Forms 3520/3520-A Non- Compliance and Campus Assessed Penalties" campaign, which was designed to improve compliance with the accurate and timely filing of information returns reporting ownership of and transactions with foreign trusts. See also IRS, "IRS Announces the Identification and Selection of Six Large Business and International Compliance Campaigns" (May 21, 2018).

131. See, e.g., "Most Serious Problem #8 — International: The IRS's Approach to International Information Return Penalties Is Draconian and Inefficient," 2023 National Taxpayer Advocate Report to Congress (Dec. 2023).

132. U.S. Attorney General's Office — District of New Jersey, "'Real Housewives of New Jersey' Stars Sentenced to Prison for Conspiracy, Bankruptcy, Fraud, and Tax Offenses" (Oct. 2, 2014).

133. See generally LTR 201538006, LTR 201538007, and LTR 201538008. In all three letter rulings, the foreign trust was governed by foreign legislation and regulated by several government entities. Although it was not explicitly named, the trusts at issue were Australian super funds.

134. See IRS, "Six Compliance Campaigns," supra note 130. The IRS announced the completion of this campaign on June 15, 2022, and it is listed on the IRS's list of inactive campaigns.

135. See Dungog and Liguo Cooper Xu, "Should Canadian RESPs and RDSPs Be Exempt From Foreign Trust Reporting?" Tax Notes Federal, July 22, 2019, p. 475.

136. See Rev. Proc. 2020-17.

137. "Specified foreign financial asset" is defined in section 6038D as (1) "any financial account . . . maintained by a foreign financial institution . . . and (2) any of the following assets which are not held in an account maintained by a financial institution . . . (A) any stock or security issued by a person other than a United States Person, (B) any financial instrument or contract that is held for investment that has an issuer or counterparty which is other than a United States person, and (C) any interest in a foreign entity."

138. These plans previously exempted from current U.S. taxation when held by U.S. persons include (most notably) the Canadian RRSP, which has been the subject of extensive IRS guidance.

139. Rev. Proc. 2020-17 also failed to address other foreign pension plans that are not established as trusts under the domestic laws of the respective countries, such as Mexican Afores, German pension funds, and other pension vehicles established in foreign countries that do not recognize or use trusts as part of their domestic tax laws.

140. In a recent online inquiry on the U.S. tax reporting for Australian superannuation funds, we received the following AI summary when entering the prompt, "Rev Proc 2020-17 and Australian Superannuation" to AI Overview for Google (Aug. 18, 2025): Australian Superannuation and Rev. Proc. 2020-17: While the IRS hasn't issued specific guidance on ASFs and their exact classification, many tax professionals believe that most ASFs should qualify for the exemption provided in Rev. Proc. 2020-17.

141. See generally section 1445.

142. An entity qualifies as a QFPF if it is a trust, corporation, or other organization/arrangement that is: (A) created or organized outside of the United States by a foreign country; (B) (i) to provide retirement or pension benefits to participants who are current or former employees, or persons designated by those employees, as a result of the services rendered to the employer, or (ii) by one or more employers to provide retirement or pension benefits to current or former employees or persons designated by those employees in consideration for services rendered by those employees to those employers; (C) does not have a single participant with a right to more than 5 percent of its income or assets; (D) which is subject to government regulation and with respect to which annual information about its beneficiaries is provided to the relevant tax authorities in the country in which it is established or operates; and (E) under the laws of the country in which it is established or operates, (i) contributions to the entity which would otherwise be subject to tax are deductible, excluded from gross income, or taxed at a reduced rate, or (ii) taxation of any investment income is deferred, excluded from gross income, or taxed at a reduced rate.

143. Section 897(c)(1).

144. Section 897(a)(1).

145. See, e.g., PwC Australia letter to IRS (Sept. 4, 2019); and ASFA, "Submission to Internal Revenue Service — Exception for Interests Held by Foreign Pension Funds" (Sept. 4, 2019).

146. See id.

147. T.D. 9992 (Dec. 29, 2022).

148. See REG-124850-08 (May 8, 2024).

149. See ACTEC, "Letter re: Comments of the ACTEC on Proposed Regulations Regarding Transactions With Foreign Trusts and Information Reporting on Transactions With Foreign Trusts and Large Foreign Gifts" (July 8, 2024).

150. See id. at 9.

151. See OECD Pensions Outlook 2022, Figure 1.1.

152. See OCED Pensions Outlook 2022.

153. See id.

154. See id.

155. See id.

156. See id.

157. See Dungog and Berg, supra note 20.

158. See id.

159. For a general overview of the Mexican retirement system, see Berg, Dungog, and Pedro E. Corona de la Fuente, "The U.S. Income Tax Treatment of Mexican Retirement Funds Owned by U.S. Persons," Int'l J. (Nov. 2017).

160. See Veena K. Murthy, "Selected Cross Border Equity and Deferred Compensation Issues with Foreign Funded Plans," 42 Compensation Plan J. 67 (2014). See also Christopher Callahan, "U.S. Tax Laws Governing Foreign Pensions," Tax Notes Int'l, Dec. 7, 2020, p. 1319.

161. See OECD Pensions Outlook 2022; and OECD Pensions at a Glance (2016).

162. See Barbara E. Kritzer, "Individual Accounts in Other Countries," 66(1) Soc. Sec. Bull. (2005). The countries referenced in the bulletin are Argentina, Australia, Bolivia, Bulgaria, Chile, China, Colombia, Costa Rica, Croatia, Denmark, Dominican Republic, El Salvador, Estonia, Hong Kong, Hungary, Italy, Kazakhstan, Kosovo, Kyrgyzstan, Latvia, Mexico, Mongolia, Nigeria, Peru, Poland, Russia, Singapore, Slovakia, Sweden, United Kingdom, and Uruguay.

163. See generally subchapter J (sections 671-679, collectively the "grantor trust rules").

164. See id. See also Marie Sapirie, "The PFIC Reporting Problem for Foreign Retirement Accounts," Tax Notes Int'l, Sept. 16, 2013, p. 1055.

165. See supra note 163 and reg. section 1.83-3(b).

166. Totalization agreements are bilateral agreements between the United States and another country to coordinate social security coverage and benefit provisions for individuals who live and work in more than one country throughout their working lives.

167. See generally Allison Christians, "Taxing the Global Worker: Three Spheres of International Social Security Coordination," U. Wis. L. Sch., Legal Studies Research Paper Services No. 1031 (Apr. 2006). The United States has in force 62 comprehensive income tax treaties covering 63 countries and 30 social security totalization agreements.

168. The United States has totalization agreements in 30 countries, entered into between 1978 and 2019. It has also negotiated totalization agreements with three other countries, but they are not yet in force. The United States has totalization agreements with the following countries which are listed by date of signing Italy, Germany, Switzerland, Belgium, Norway, Canada, the United Kingdom, Sweden, Spain, France, Portugal, the Netherlands, Austria, Finland, Ireland, Luxembourg, Greece, South Korea, Chile, Australia, Japan, Denmark, the Czech Republic, Poland, the Slovak Republic, Hungary, Brazil, Uruguay, Slovenia, and Iceland. The United States has totalization agreements with Brazil and Uruguay, but does not have tax treaties in place.

169. Id.

170. See article 2(b)(ii), "Agreement Between the Government of the United States of America and the Government of Australia on Social Security" (effective as of Oct. 1, 2002).

171. See article 2(1)(b)(ii), "Agreement on Social Security Between the United States of America and the Republic of Slovenia" (effective as of Feb. 1, 2019).

172. The applicable bilateral tax treaty between the United States and OECD member country must first be amended by protocol to address the structural changes in social security and pension regime of these countries before one can resort to relying on its operative provisions.

173. See Mandala Partners, supra note 7, at section 3.2 and Exhibit 11.

174. Hans van Leeuwen, "Australian Super Funds Build $29b War Chest for U.K.," Australian Financial Review, Nov. 23, 2023; "Major Pension Investors Release Landmark Blueprint to Unlock Investment and Fast Track Clean Power by 2030," IFM Investors (Oct. 9, 2024).

175. See, e.g., Dungog and Berg, supra note 20; and Berg and Dungog, supra note 20; see also Dungog and Cardan, supra note 20.

176. See generally LTR 201538006, LTR 201538007, and LTR 201538008. In all three letter rulings, the foreign trust was governed by foreign legislation and regulated by several government entities. Although it was not explicitly named, the trusts at issue were Australian super funds.

177. See, e.g., "Most Serious Problem #8," 2023 Taxpayer Advocate report, supra note 131. See also id., "International: The IRS's Approach to International Information Return Penalties Is Draconian and Inefficient." See also id. at 131, "Most Serious Problem #9: Compliance Challenges for Taxpayers Abroad: Taxpayers Abroad Continue to be Under Served and Face Significant Challenges in Meeting Their U.S. Tax Obligations."

178. See id.

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