IRS probes wealthy in Malta tax scheme but they’re not the target

investmentnews.com:

One morning in late June, criminal agents from the Internal Revenue Service made unannounced visits to dozens of wealthy Americans. They carried summonses and wanted to ask about pension plans in Malta on the IRS “Dirty Dozen” scams list.

But several tax lawyers said agents may have gone too far by looking for crimes in transactions that promoters promised were permissible under a 2011 US-Malta tax treaty.

“It is hard to see anything criminal in claiming tax benefits pursuant to a textual reading of the treaty, so it seems unlikely that most participants have any real criminal exposure,” said Tom Cullinan, a tax attorney at Chamberlain Hrdlicka in Atlanta.

Promoters had touted the plans as a savvy way to avoid millions of dollars in taxes after the two nations signed a treaty allowing them in 2011. But the IRS later viewed the plans as “too good to be true” and the nations changed the treaty in 2021.

With that, the magic of Malta pensions evaporated. The IRS began auditing plan participants. In early June, the agency proposed identifying certain Malta retirement transactions as “listed transactions,” subjecting them to greater reporting requirements and penalties.

IRS commissioner Daniel Werfel has made a crackdown on Malta plans a priority as the agency is committing fresh resources to pursue wealthy people. It’s also closed about 175 delinquent tax cases involving millionaires, generating $38 million in recoveries; stepped up work on wealthy non-filers; and focused on Americans seeking tax breaks in Puerto Rico. The IRS says it identified about 100 people who failed to meet the rules, and it expects “many of these cases to proceed to criminal investigation.”

The shock-and-awe visits to Malta plan participants and