IRS hearing on Malta pension plans cancelled after no one offers to testify

A hearing scheduled by the US Internal Revenue Service and the Department of the Treasury for 21 September about the disputed Malta retirement plans has been called off after no one came forward to testify.

The hearing was called as part of the lead-up to new proposed regulations that would require US taxpayers to disclose their transactions in Maltese retirement plans.

The new regulations, which were proposed in June, aim to classify Maltese retirement plans as listed transactions that material advisers and participants would need to report to the IRS.

The IRS is also proposing the imposition of financial penalties on anyone who fails to report them.

A notice in the US Federal Register published on Monday cancelled the hearing after the public comment period for the proposed regulations expired on 7 August.

The notice of the proposed public hearing instructed those interested in testifying at the public hearing to submit a request to testify and an outline of the topics to be addressed.

Since no such submission was received, the public hearing has been cancelled and the IRS and Treasury are now expected to move ahead with the new regulations banning the Malta transactions that have seen high net worth US taxpayers transferring assets into personal retirement plans in Malta to limit and potentially eliminate tax on distributions.

After several years of warning taxpayers away from these plans, the IRS Criminal Investigation Division has initiated investigations into the potential abuse and it will seek to hold taxpayers and their advisers accountable for illegal conduct.

The US Treasury and IRS recently said they were leveraging more resources to detect Americans using Maltese personal retirement scheme tax loopholes to improperly claim exemptions.

The additional resources to tackle the Malta schemes will come from the Inflation Reduction Act, the Treasury said in a statement marking a year since the Act’s inception.

As part of the IRS’ efforts to pursue unlawful offshore tactics, the Department of Treasury and IRS in June issued proposed rules that define Maltese personal retirement schemes used to avoid US taxes as listed transactions.

The Treasury said at the time, “IRS is working to identify taxpayers who are improperly using Malta-US Treaty rules to improperly claim exemptions.

“Inflation Reduction Act resources will enable IRS to detect those who leverage these offshore schemes.”

In a recent quarterly press call, IRS Commissioner Daniel Werfel was quoted as saying that one of the “swift and aggressive action[s]” the agency is taking to strengthen enforcement efforts against high-income individuals is escalating enforcement efforts around Malta pension plan transactions.

The IRS’ Criminal Investigation Division has reportedly begun in-person visits to taxpayers and advisors, presenting summonses and conducting criminal investigations into individuals who contributed to or promoted these transactions.

Those under investigation include lawyers, accountants, estate planners and other financial advisors.

Some taxpayers have also reportedly begun receiving summons.

The IRS could be expected to assert civil tax penalties, including negligence penalties, against participants in the Malta schemes. It may also impose criminal penalties on taxpayers and the promoters of the transactions.

In 2021, the IRS placed Maltese pension plans on its ‘Dirty Dozen’ list of abusive tax shelters, along with syndicated conservation easements and abusive micro-captive arrangements.