IRS 2023 Dirty Dozen – Scam #12 Part C
IRS 2023 Dirty Dozen – Scam #12: The Internal Revenue Service cautioned taxpayers beware of promoters peddling bogus tax schemes with international elements.(Part C)
These schemes involve an international component, such as hiding cash and digital assets offshore or using Maltese foreign individual retirement accounts or foreign captive insurance.
“These tax avoidance strategies often target high-income individuals seeking to reduce or eliminate their tax obligation,” said IRS Commissioner Danny Werfel. “Sometimes taxpayers are conned into believing they can participate in these schemes. People should always look for advice from an independent, trusted tax professional, not a promoter focused on aggressively marketing and pushing questionable transactions.”
Maltese individual retirement arrangements misusing treaty
These arrangements involve U.S. citizens or residents who attempt to avoid U.S. tax by contributing to foreign individual retirement arrangements in Malta (or potentially other host countries). The participants in these transactions typically lack any local connection to the host country, and unlike U.S. law for individual retirement arrangements, the host country’s laws allow for contributions in a form other than cash and do not limit the amount of contributions by reference to employment or self-employment activities. By improperly asserting the foreign arrangement as a “pension fund” for U.S. tax treaty purposes, the U.S. taxpayer misconstrues the relevant treaty provisions and improperly claims an exemption from U.S. income tax on gains and earnings in, and distributions from, the foreign individual retirement arrangement.
Whether anchored offshore or in the U.S., abusive transactions and schemes remain a high priority for the IRS. The IRS Office of Chief Counsel continues to hire additional attorneys to help the agency combat abusive arrangements, including syndicated conservation easements, micro-captive transactions and others.
The IRS also created the Office of Fraud Enforcement (OFE) and Office of Promoter Investigations (OPI) to coordinate service-wide enforcement activities against taxpayers committing tax fraud and promoters marketing and selling abusive tax avoidance transactions and schemes to effectuate tax evasion.