Overview
Over the past few weeks, Special Agents from IRS Criminal Investigation (IRS-CI), working jointly with the Large Business & International Division (LB & I), have approached numerous participants as part of a criminal investigation involving Malta Pension Plans. The participants include taxpayers, accountants, attorneys, among others.
By way of background, Malta, in addition to being a strategically important island during World War II, is home to the Maltese Retirement Pensions Act of 2011. This Act, known as the "Malta Pension Plan," permitted the establishment of a pension arrangement in that country. Promoters and others have purportedly advised US taxpayers that when such a plan sells assets, the gains are not subject to tax in Malta or in the US.
On the basis of the above, in July 2021, the IRS updated its list of tax scams by asserting that:
[s]ome US citizens and residents are relying on an interpretation of the US-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 US taxpayer. Ordinarily, gain would be recognized upon disposition of the plan’s assets and distributions of the proceeds.
Likening this investigation to the IRS's scrutiny of Son of Boss transactions from over a decade ago, the IRS appears focused on bringing criminal cases against the promoters and other parties, who have purportedly advised taxpayers that distributions to the plan participants are not subject to tax. In what appears to be an effort to develop criminal cases against these targets, the IRS is seeking to interview a number of key players, including taxpayers. We understand that the IRS-CI is coordinating these investigations with the LB & I division and that civil as well as criminal actions will be pursued.
Those who participated in these pension plans should keep in mind their right to remain silent, the risks of waiving those rights, and potential penalties for making false statements. It is critical that those who participated in these plans have competent and experienced counsel who can properly advise them in an effort to avoid greater criminal and civil exposure.
