Last week, in a government notice of proposed rulemaking (REG-106227-22), US Treasury and the IRS…
Malta pension plans listed on “Dirty Dozen” list of “tax scams”
Last week, the Internal Revenue Service (IRS) placed certain Malta-based pension plan arrangements on its annual “Dirty Dozen” list of “tax scams.” In its recent news release, the IRS warns that it is evaluating the validity of such arrangements and may challenge the tax treatment of Maltese pension plan contributions and distributions. IR-2021-144 (July 1, 2021).
The types of pension arrangements that have attracted IRS attention involve a U.S. citizen or resident who contributes appreciated assets to a Maltese pension plan, sells the assets within the plan, and receives a distribution of proceeds relating to the asset sales from the plan. Some US citizens and residents, the IRS said, are relying on an interpretation of the US-Malta Income Tax Treaty to avoid tax by moving assets to Maltese pension plans.
The IRS said it is evaluating the issue to determine the validity of these arrangements. It also warns that it might challenge the way the treaty is being used. Generally, the listing of an arrangement on the “Dirty Dozen” leads to increased IRS activity, and participants in Maltese pension plans should prepare to aggressively defend their tax reporting positions.
The IRS publishes its Dirty Dozen list each year for multiple reasons. Primary among these motivations is to inform the unwary of those schemes that might be perpetrated against them to reduce the likelihood of success.
Affected persons are urged to consult a tax professional to determine whether their arrangement is covered by the Treaty definition of “pension fund.” If it is not, we can work with you to take all corrective actions as necessary.
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