In recent years, U.S. taxpayers have engaged in “Malta pension plans,” utilizing these arrangements to contribute appreciated assets and claim tax exemptions under the U.S.-Malta tax treaty. Nevertheless, the U.S. government has responded with measures, including the Competent Authority Arrangement (CAA) and proposed regulations, aiming to restrict treaty benefits due to suspected misuse and potential tax evasion. Participants now face compliance risks, including penalties and potential criminal investigations. To rectify their tax status, individuals have several avenues available, such as participating in voluntary disclosure programs, using streamlined filing compliance procedures, opting for a quiet disclosure, or choosing to take no immediate action, each carrying distinct risks amidst heightened IRS scrutiny.

Gray Reed Partner Matt Roberts authored an article discussing the pension provisions of the U.S.-Malta tax treaty and the reasons why taxpayers claim that these provisions make income earned by and distributions from Malta plans nontaxable. The article also provides an overview of the U.S. information reporting requirements of Malta plans that most participants in them have overlooked and the penalties for not complying with these requirements. Finally, it discusses ongoing IRS enforcement actions against Malta plan participants and what options these taxpayers may have to come into compliance with U.S. tax law and mitigate the civil and criminal penalties the IRS can assess for participating in the plans. The Tax Adviser published the article on December 1, 2023.

Read the full article here.