IRS Criminal Investigation of Malta Pension Plan
By Joel N. Crouch on July 5, 2023
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Joel N. Crouch
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Last week the IRS’ interest in the Malta Pension Plan (MPP) took a very serious turn as IRS Criminal Investigators started contacting professionals and taxpayers who participated in MPPs.
The first indication of IRS interest in MPPs was when MPPs were included on the 2021 IRS Dirty Dozen list as follows:
“Some U.S. citizens and residents are relying on an interpretation of the U.S.-Malta Income Tax Treaty (Treaty) to take the position that they may contribute appreciated property tax free to certain Maltese pension plans and that there are also no tax consequences when the plan sells the assets and distributes proceeds to the U.S. taxpayer. Ordinarily gain would be recognized upon disposition of the plan's assets and distributions of the proceeds. The IRS is evaluating the issue to determine the validity of these arrangements and whether Treaty benefits should be available in such instances and may challenge the associated tax treatment.”
Later that year the IRS and Malta tax authority published a Competent Authority Arrangement (CCA) which narrowed the definition of what qualifies as a pension under the U.S.-Malta tax treaty. The CCA stated: “U.S. taxpayers with no connection to Malta were misconstruing the pension provisions of the Treaty to avoid income tax on the earnings of, and distributions from, personal retirement schemes established in Malta”.
Just last month, the Treasury Department proposed regulations that would designate MPP arrangements as “listed transactions” which, if finalized, would require participants in MPPs to make disclosures and require material advisors to meet recordkeeping requirements. In addition, MPP participants would have increased penalty exposure.
Any tax advisor or taxpayer who participated in a MPP transaction should be concerned with how quickly the IRS’ interest in MPPs has changed from civil in nature to criminal investigations. Advisors and taxpayers would be wise to consult with an experienced tax controversy attorney before talking with the IRS about any MPP transaction.
For questions regarding this blog post or any other civil or criminal tax related matter, please feel free to contact me at jcrouch@meadowscollier.com.
The first indication of IRS interest in MPPs was when MPPs were included on the 2021 IRS Dirty Dozen list as follows:
“Some U.S. citizens and residents are relying on an interpretation of the U.S.-Malta Income Tax Treaty (Treaty) to take the position that they may contribute appreciated property tax free to certain Maltese pension plans and that there are also no tax consequences when the plan sells the assets and distributes proceeds to the U.S. taxpayer. Ordinarily gain would be recognized upon disposition of the plan's assets and distributions of the proceeds. The IRS is evaluating the issue to determine the validity of these arrangements and whether Treaty benefits should be available in such instances and may challenge the associated tax treatment.”
Later that year the IRS and Malta tax authority published a Competent Authority Arrangement (CCA) which narrowed the definition of what qualifies as a pension under the U.S.-Malta tax treaty. The CCA stated: “U.S. taxpayers with no connection to Malta were misconstruing the pension provisions of the Treaty to avoid income tax on the earnings of, and distributions from, personal retirement schemes established in Malta”.
Just last month, the Treasury Department proposed regulations that would designate MPP arrangements as “listed transactions” which, if finalized, would require participants in MPPs to make disclosures and require material advisors to meet recordkeeping requirements. In addition, MPP participants would have increased penalty exposure.
Any tax advisor or taxpayer who participated in a MPP transaction should be concerned with how quickly the IRS’ interest in MPPs has changed from civil in nature to criminal investigations. Advisors and taxpayers would be wise to consult with an experienced tax controversy attorney before talking with the IRS about any MPP transaction.
For questions regarding this blog post or any other civil or criminal tax related matter, please feel free to contact me at jcrouch@meadowscollier.com.
