IRS Launches Criminal Tax Audits into Malta Pension Scams

The Internal Revenue Service (IRS) is cracking down on taxpayers who use Maltese pension funds to avoid federal income tax liability. While the IRS has included Maltese pension fund scams on its “Dirty Dozen” list for a few years, recent events suggest that the agency is beginning to take a more aggressive approach to targeting taxpayers in IRS tax Malta pension investigations.

IRS Seeks to Close Loophole Allowing for Tax-Free Distributions from Maltese Pension Plans

In 2011, the United States entered into a tax treaty with Malta. Under one interpretation of the treaty, taxpayers could open personal retirement plans in Malta and contribute appreciated non-cash assets from the United States. Taxpayers could then take staggered tax-free distributions—avoiding any liability to the IRS. The IRS identified this strategy as “potentially abusive” in 2021 and subsequently entered into a Competent Authority Agreement (CAA) with Malta which states:

“U.S. citizens and residents may not claim benefits under paragraph 1(b) of Article 17 and Article 18 of the Treaty with respect to the type of fund, scheme or arrangement described in the paragraph immediately above, including a personal retirement scheme established in Malta under the Retirement Pensions Act of 2011.”

According to the IRS, this effectively closed the loophole that the Malta tax treaty opened. That same year, the IRS added “Maltese individual retirement arrangements misusing treaty” to its “Dirty Dozen” list—and it has stayed on the list ever since. Now, in 2023, we are beginning to see a wave of IRS criminal tax audits targeting taxpayers who have opened personal retirement plans in Malta.

Have You Been Contacted By the IRS Regarding Your Maltese Investments?

If you have been contacted by the IRS regarding your retirement investments in Malta, you should consult with an IRS criminal tax attorney promptly. Criminal tax fraud audits and investigations can present substantial risks—including not only liability for back taxes and interest but also fines and even prison time. When the IRS decides to prioritize a particular area of enforcement, it typically does so swiftly and aggressively, and at-risk taxpayers must be prepared to defend themselves by all means available.

Of course, many (if not most) taxpayers did not go into opening a Maltese pension plan and taking structured tax-free distributions on their own. In many cases, high-net-worth taxpayers opened Maltese pension plans on the advice of their accountants and tax counsel—and they played little (if any) role in the process. Promoters sold the benefits of opening Maltese pensions to many taxpayers as well. While relying on professional advice or falling for a promotion scam may save taxpayers from criminal culpability, it will not protect them entirely, and convincing the IRS that they did not intend to violate the law will still require experienced legal representation.

Request an Appointment with Boston Tax Attorney Kevin E. Thorn, Managing Partner of Thorn Law Group

If you have a personal retirement plan or pension in Malta and are facing scrutiny from the IRS, we encourage you to contact us promptly for more information. To request an appointment with Boston tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, call 617-692-2989 or contact us online today.