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Malta Retirement Plan + Repeated IRS Warnings = IRS Criminal Investigation by EVAN DAVIS

IRS Special Agents fanned out throughout the United States on June 30, seeking to interview promoters and clients of a “Maltese individual retirement arrangement” that for the past three years has earned a spot on the IRS’s Dirty Dozen tax promotions list. These are simply the first public actions in what will doubtless be a massive and worldwide investigation.

In 2021, the IRS first announced (IRS wraps up its 2021 “Dirty Dozen” scams list with warning about promoted abusive arrangements | Internal Revenue Service) that “. . . some U.S. citizens were relying on an interpretation of the US-Malta tax treaty to assert that contribution of appreciated property to a Maltese pension plan could contribute the appreciated property to the pension plan, which could then sell the property and distribute the proceeds, all tax-free . . .” The treaty’s plain language appears to permit this favorable treatment, but the IRS thinks this result wasn’t intended, is too good to be true, and therefore everyone must understand that the treaty can’t mean what it appears to say. A few months later, the IRS and Malta tax authority announced in a CAA (malta-competent-authority-arrangement-pension-funds.pdf (irs.gov)) a joint interpretation of the US-Malta tax treaty that sought to foreclose the promoters’ and taxpayers’ argument in favor of the Malta pension plan promotion. The IRS made sterner Dirty Dozen announcements in 2022 and 2023, and on June 7, 2023, the IRS published a proposed rule to make Maltese pension plan arrangements “listed transactions” that require taxpayers to disclose them on IRS forms. Thirty-six other transactions have previously been added to this IRS naughty list, but the IRS generally stops there and treats such transactions exclusively as civil matters subject to harsh penalties. Listed Transactions | Internal Revenue Service (irs.gov)

However, the most recent listed transaction, in 2017, has generated substantial criminal investigations and indictments, namely syndicated conservation easements. Unfortunately for many taxpayers and promoters who became clients of our firm and other criminal tax experts, the IRS opened criminal investigations of conservations easements and has ensnared primarily accountants and other professionals. One listed transaction becoming multiple criminal investigations is an anomaly; two consecutive listed transactions turning criminal is now a trend.

Choosing to open a wide-ranging criminal investigation of sophisticated tax transactions is a rare step, one the government does not take lightly. The volume of scarce resources devoted to such cases is staggering, with dozens of agents and prosecutors spending years poring over emails, seeking foreign evidence through Mutual Legal Assistance Treaty and Exchange of Information requests, facing well-resourced and well-represented targets who in turn have relied on professionals, and facing the daunting task of explaining to a jury why this complicated transaction was an obvious fraud. We often see the government has bitten off more than it can chew on such cases, although it has had success in obtaining pleas from some involved in syndicated conservation easements. However, the hard task of taking one of those cases to a jury has not occurred, yet the IRS and Department of Justice have opened another front on promoters of allegedly abusive tax schemes. In the case of the Malta IRAs, any criminal case based on the promotion being “too good to be true” should be dead on arrival, so the IRS should have good reason to think that promoters and/or clients are making knowingly false statements to the IRS that goes beyond a dispute about the substance versus form of the tax treaty. 

If you or a client are in the unfortunate position of having participated in or promoted the Malta IRA program, then seek advice from an experienced civil and criminal tax counsel now. And if the IRS has already knocked on your door, remember that they aren’t there to simply hear what you have to say, but instead are looking to put together a criminal case against anyone they think worthy of charges and that could include you. Most often, they target the promoters, but not always. There’s only one way to be safe in this situation: politely decline to answer questions without having counsel present. For those who have already been contacted and those who merely participated and have not been contacted yet, experienced counsel will address any immediate criminal issues and discuss filing amended returns or participating in various IRS programs such as the Voluntary Disclosure program and Streamlined procedure, which our firm has successfully completed for countless clients over the years. 

Hochman Salkin Toscher Perez P.C. is recognized as the pre-eminent civil and criminal tax litigation firm on the West Coast. Nearly all its principals spent years working as civil litigators and/or criminal prosecutors for one or more of the Department of Justice Tax Division, U.S. Attorney’s Office, or the IRS, and we have achieved remarkable success in helping clients avoid criminal charges, steering clients through sensitive audits, settling complex civil matters, and winning even difficult civil and criminal cases at trial and on appeal.

EVAN J. DAVIS – For more information please contact Evan Davis – davis@taxlitigator.com or 310.281.3288. Mr. Davis has been a principal at Hochman Salkin Toscher Perez P.C. since November 2016. He spent 11 years as an AUSA in the Office of the U.S. Attorney (C.D. Cal), spending three years in the Tax Division where he handed civil and criminal tax cases and eight years in the Major Frauds Section of the Criminal Division where he handled white-collar, tax, and other fraud cases through jury trial and appeal. As an AUSA, he served as the Bankruptcy Fraud coordinator, Financial Institution Fraud coordinator, and Securities Fraud coordinator. Among other awards as a prosecutor, he received an award from the CDCA Bankruptcy Judges for combatting Bankruptcy Fraud and the U.S. Attorney General awarded him the Distinguished Service Award (DOJ’s highest litigation award) for his work on the $16 Billion RMBS settlement with Bank of America. Before becoming an AUSA, Mr. Davis was a civil trial attorney in the Department of Justice’s Tax Division in Washington, D.C. for nearly 8 years, the last three of which he was recognized with Outstanding Attorney awards. He is a magna cum laude and Order of the Coif graduate of Cornell Law School and cum laude graduate of Colgate University.

Mr. Davis represents individuals and closely held entities in federal and state criminal tax (including foreign-account and cryptocurrency) investigations and prosecutions, civil tax controversy and litigation, sensitive issue or complex civil tax examinations and administrative tax appeals, and white-collar criminal investigations including campaign finance, FARA, money laundering, and health care fraud.

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