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Maltese Pension Plan Tax Fraud is a Priority for the IRS in 2023

Articles/News, Hot Topics, Offshore Account Update

Posted on August 11, 2023 |

The Internal Revenue Service (IRS) is cracking down on taxpayers who use Maltese pension plans to avoid federal income tax liability. Signed in 2011, the U.S.-Malta Tax Treaty opened a loophole that allowed (or at least arguably allowed) taxpayers to contribute appreciated assets to Maltese personal retirement plans and then take staggered tax-free distributions.

The federal government attempted to close this loophole in 2021, and that same year the IRS added “Maltese individual retirement arrangements misusing treaty” to its “Dirty Dozen” list. Maltese pension plan tax fraud remains a priority for the IRS in 2023, and we have recently seen an increase in both IRS criminal tax audits targeting Maltese pension plan owners and IRS tax Malta pension investigations.

What U.S. Taxpayers with Maltese Pension Plans Need to Know in 2023

If you are a U.S. taxpayer and have been using a Maltese pension plan to avoid federal income tax liability, what do you need to know?

IRS audits and investigations present substantial risks. While this is true in all cases, it is especially true when an audit or investigation relates to an IRS enforcement priority. With the IRS specifically cracking down on tax evasion involving Maltese pension plans in 2023, taxpayers targeted in these investigations will need to promptly engage an experienced IRS criminal tax attorney to defend them by all means available.

Importantly, in addition to targeting U.S. taxpayers for their past use of Maltese pension plans as tax avoidance tools, the IRS has also recently proposed new regulations that would label Maltese pension plan distributions as “listed transactions” going forward. Listed transactions are subject to reporting requirements, and while not necessarily unlawful, they are generally considered to be vehicles for unlawful tax avoidance.

Defending Against an IRS Audit or Investigation Targeting Maltese Pension Plan Distributions

In all cases, IRS criminal tax audits and tax evasion investigations present substantial risks. The criminal penalties for tax evasion include substantial fines and prison time, and even if an audit or investigation does not lead to criminal prosecution, civil penalties could still be on the table. The IRS can impose liability for back taxes, interest, and penalties—and, for many taxpayers, this could mean millions of dollars (if not tens of millions of dollars) in liability exposure.

Defending against an IRS audit or investigation starts with engaging experienced legal counsel. From relying on professional advisors’ advice to falling for a Maltese pension plan promotion scheme, there are several potential defenses available. Of course, taxpayers who have not unlawfully evaded federal income tax liability should not face any consequences as a result of opening their Maltese personal retirement plans. If you need help dealing with the IRS, we encourage you to contact us promptly for more information.

Contact New Jersey Tax Attorney Kevin E. Thorn, Managing Partner of Thorn Law Group

Are you facing IRS scrutiny related to a Maltese pension plan? If so, we can help. Call 201-842-7696 or contact us confidentially online to request an appointment with New Jersey tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group.

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