Proposed regulations identify Malta personal retirement schemes as listed transaction


In a June 6 notice of proposed rulemaking (REG-106227-22), Treasury and the IRS issued proposed regulations that identify any transaction that is the same as, or substantially similar to, a Malta personal retirement scheme as a listed transaction. 


Under the proposed regulations, a “Malta personal retirement scheme” is defined as when a U.S. citizen or a U.S. resident alien (i) directly or indirectly transfers cash or other property to, or receives a distribution from, a personal retirement scheme established under Malta’s Retirement Pensions Act of 2011, and (ii) takes the position on a U.S. Federal income tax return where income, gains, or distributions are not taxable in the U.S. under the Convention Between the Government of the United States of America and the Government of Malta for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, August 8, 2008 (the “Treaty”). 


The IRS previously placed Malta personal retirement schemes on its “Dirty Dozen” list in July 2021. According to the IRS, individuals that engage in such arrangements misconstrue the pension provisions of the Treaty to improperly claim an exemption from U.S. income tax, often on transfers of appreciated assets such as securities, annuities or partnership interests, and typically lacking a local connection in Malta. According to the IRS, such individuals may also fail to comply with their U.S. information reporting requirements, including under Section 6048. In December 2021, the IRS published a competent authority arrangement in which the U.S. and Maltese competent authorities agreed that individual retirement arrangements established under Malta’s Retirement Pensions Act of 2011 are not considered “pension funds” and that distributions from such arrangements are not “pensions or other similar remuneration” for purposes of relevant provisions of the Treaty.


The preamble to the proposed regulations makes clear that the IRS will take the position that the taxpayers are not entitled to the purported tax benefits. Also, although the proposed regulations as drafted are limited to retirement arrangements established in Malta, the government stated that it is considering whether similar transactions in other jurisdictions should also be identified as listed transactions and requested comments on the matter. When the proposed rules become final, both participants in and material advisors with respect to the listed transaction will be required to file disclosures with the IRS, including timely filing disclosures for transactions in certain prior years. Any failure to disclose in a timely manner will carry significant penalties.


Practice note

As a reminder, it is against Firm Policy to promote, offer, participate in, implement or otherwise carry out or affirmatively advise on any listed transaction or transaction of interest. Heightened taxpayer penalty and return preparer standards also apply to listed transactions and transactions of interest. Absent reasonable reliance on a reasoned tax opinion reaching a more likely than not level of confidence from an independent tax advisor, tax professionals generally will not be permitted to sign any return that includes a listed transaction or transaction of interest. Any situation in which the Firm is considering onboarding a client that has participated in, or preparing any return of an existing client that includes, a listed transaction or transaction of interest, must be brought to the immediate attention of TPQ.



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