Is a Malta Retirement Plan Reported on FBAR, IRS Compliance

Is a Malta Retirement Plan Reported on FBAR, IRS Compliance

Is a Malta Retirement Scheme Reported on FBAR, Missed Filing

In recent years, the Malta Retirement Scheme (aka Malta Pension Plan or ‘MRS’)  has become a key enforcement priority for the IRS and DOJ. That is because the U.S. government believes that many Taxpayers only opened their Malta Pension Plan in an attempt to circumvent the Roth IRA contribution limitations and move hundreds of millions of dollars into the retirement schemes, with the ultimate goal of avoiding taxes. The IRS and DOJ are working together to crack down on these types of questionable retirement trusts, and are pursuing both criminal and civil investigations against U.S. taxpayers. One common question we receive often is whether a Malta Pension Plan is reported on the FBAR (FinCEN Form 114). Yes, there is no specific exemption that excludes the Malta Retirement Plan as reportable for FBAR. Let’s take a look at why the Malta Retirement Scheme is reportable on the FBAR:

What is the FBAR?

The US Government requires US Taxpayers who own foreign assets and accounts to disclose this foreign account information on FinCEN Form 114 — otherwise known as the FBAR — in addition to filing a US Tax Return. FBAR refers to the Report of Foreign Bank and Financial Accounts, which is filed by US Persons on FinCEN Form 114 and enforced by the Internal Revenue Service in accordance with Money and Finance (not Internal Revenue Code) section 5314 et seq. Unlike other international information reporting forms, the FBAR is not a Tax Form. Still, the IRS is tasked with assessing and enforcing FBAR Penalties — which has been a US Government compliance priority for several years now. Foreign Bank and Financial Account violations may result in Civil and/or Criminal FBAR penalties — although criminal penalties are rare. Usually, the US Person will get hit with civil penalties, which can range extensively. To reduce or avoid these penalties the IRS has developed several amnesty programs, collectively referred to as offshore voluntary disclosure. We have prepared a summary explaining the basics of the FBAR, who has to file, and when.

Who is a U.S. Person for FBAR Purposes?

A U.S. person is more than just an individual. Rather, a “US person” refers to a citizen or resident of the United States, as well as certain entities that were created under US law. Some examples include a corporation, partnership, trust, limited liability company, and even an estate. 

What is a Financial Account?

A financial account is more than just a bank account. Rather, a foreign financial account can include several different items that are reportable, such as checking and savings accounts; securities accounts; commodity futures or options accounts; insurance policies; mutual or other pooled funds; and more. While (at the time of this article) cryptocurrency is not required to be reported unless the account holds other types of currencies in addition to cryptocurrency, Notice 2020–2 shows that the US government has every intention of requiring virtual currency as a reportable account under 31 CFR 1010.350.

Publication 5569

Publication 5569 summarizes the types of accounts that are reportable.

• • • Financial Account Financial accounts include:

      • • Bank accounts such as savings and checking accounts, and time deposits,

        • Securities accounts, such as brokerage accounts, securities derivatives accounts, or other financial instruments accounts;

        • Commodity futures or options accounts;

        • Insurance or annuity policies with a cash value (such as a whole life insurance policy);

        • Mutual funds or similar pooled funds (i.e. a fund available to the public with a regular net asset value determination and regular redemptions), and; •

        • Any other accounts maintained in a foreign financial institution or with a person performing the services of a financial institution.

    • Example: Canadian Registered Retirement Savings Plan (RRSP), Canadian Tax-Free Savings Account (TFSA), Mexican individual retirement accounts (Fondos para el Retiro) and Mexican Administradoras de Fondos para el Retiro (AFORE) are foreign financial accounts reportable on the FBAR.

Retirement Exceptions

While there are exceptions to filing the FBAR for retirement plans, it is limited primarily to U.S. plans with foreign accounts/assets.

As provided by the IRS:

• • • Participants in and Beneficiaries of Tax-Qualified Retirement Plans. A participant in or beneficiary of a retirement plan described in Internal Revenue Code section 401(a), 403(a), or 403(b) is notrequired to report a foreign financial account held by or on behalf of the retirement plan.

       

  • • Individuals don’t need to report foreign financial accounts held in individual retirement accounts (described in Internal Revenue Code Sections 408 and 408A) and tax-qualified retirement plans (described in IRC Sections 401(a), 403(a) or 403(b)) on the FBAR.

       

  • • A foreign trust, which is not taxed as a grantor trust, may be required to file a Form 1040-NR, U.S. Nonresident Alien Income Tax Return, to pay U.S. tax on certain U.S. sourced income or income effectively connected to a U.S. trade or business. See Publication 519, U.S. Tax Guide for Aliens and the instructions for Form 1040-NR for additional information. If you have a financial interest in or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account, the Bank Secrecy Act may require you to report the account each year to the Internal Revenue Service by filing FinCEN Form 114 (formerly TD F 90-22.1), Report of Foreign Bank and Financial Accounts (FBAR). 

Fines and Penalties

The penalties for not reporting FBAR can be harsh but there are programs to assist taxpayers with getting into compliance for previously unreported Malta Retirement Schemes/Malta Pension Plans.

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Current Year vs Prior Year Non-Compliance

Once a taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties. 

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure.  Contact our firm today for assistance.