IRS Investigates Abusive Tax Practices Tied To Malta Pension Plans

The U.S. Internal Revenue Service (IRS) has turned up the heat on a tax scheme involving Malta pension plans.

This complex financial strategy has been used by some American taxpayers to enjoy tax-free benefits, thanks to a treaty between the U.S. and Malta. Now, the IRS is launching a criminal investigation into the situation, signalling they’re taking this issue very seriously.

In 2011, a treaty between the U.S. and Malta (known as the U.S.-Malta Tax Treaty) kicked off. This allowed American taxpayers to set up retirement plans in Malta, under specific conditions. Some people, however, found a way to use this treaty to their advantage.

They began moving assets like property and securities into these Maltese retirement plans. This move allowed them to withdraw funds without facing the usual tax implications.

However, in 2021, the IRS flagged this strategy, deeming it “potentially abusive”. They weren’t happy, suggesting that these taxpayers were finding a loophole in the treaty to dodge their tax responsibilities.

To stop this from happening, both the U.S. and Malta came together to refine the treaty’s terms. Their aim? To clearly define what a pension fund was and to stop the misuse of the treaty.

The IRS hasn’t been sitting quietly. They’ve kept this Malta pension plan scheme on their radar, including it in their annual “Dirty Dozen” list (a list of tax schemes they’re concerned about) for three consecutive years.