IRS - Classic Scams and New Threats Top 2024 List
Schemes Involving International Elements―Maltese Individual Retirement Arrangements, Offshore Accounts and Digital Assets
International tax compliance remains a high priority for the IRS. The IRS continues to scrutinize taxpayers attempting to hide assets in offshore accounts and accounts holding digital assets, such as cryptocurrency. U.S. persons are subject to tax on their worldwide income, unless they can establish there is a statutory or treaty exemption.
A newer international scheme involves U.S. citizens or residents attempting to avoid U.S. tax by contributing to foreign individual retirement arrangements in Malta or another country. These countries 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 this as a "pension fund" for U.S. tax treaty purposes, the U.S. taxpayer improperly claims an exemption from U.S. income tax on gains and earnings in, and distributions from, the foreign individual retirement arrangement.
The IRS continues to aggressively identify individuals who attempt to conceal income in offshore banks, brokerage accounts, digital asset accounts and nominee entities. The IRS scrutinizes structured transactions, private annuities, employee leasing schemes, foreign trusts, the use of nominee ownership and other arrangements used to conceal taxable income, beneficial owners and assets. To complement its enforcement investigations, the IRS requires individuals holding foreign assets and third parties to report to the IRS on foreign assets, foreign accounts, foreign entities and digital assets. Reporting requirements carry substantial penalties for failure to file.
Asset protection professionals and unscrupulous promoters continue to lure U.S. persons into placing their assets in offshore accounts and structures, saying they are out of reach of the IRS. Similarly, unscrupulous promoters recommend digital assets as being untraceable and undiscoverable by the IRS. These assertions are not true. The IRS can identify and track anonymous transactions of foreign financial accounts as well as digital assets.
Many of these schemes are promoted and advertised online, but all these schemes have one thing in common: They promise tax savings that are too good to be true and will likely cause legal harm to taxpayers.
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