Why STM Malta QROPS Can Cause IRS & FBAR Problems

STM Malta Pension Services LTD and U.S. Investors

STM Malta Pension Services LTD and U.S. Investors

In recent years, the Internal Revenue Service has significantly cracked down on what they believe to be improper Malta pension plans/QROPS investment schemes. The seeks to penalize U.S. taxpayers who they think improperly funded a Malta QROPS or other pension scheme and treated it like a Roth IRA that was not taxable — based on a treaty loophole that has since been closed. Unfortunately, for taxpayers who may have previously worked in countries like the UK and transferred their pension plans over to a QROPS under UK law, they can also get stuck in the matrix (although, depending on their U.S. status at the time of investment can impact their reporting requirements). One common company that manages these types of Malta pension plans is STM Malta Pension Services LTD. And with recent guidance that U.S. person clients have been receiving about QROPS under U.S. tax law from STM (and external QROPS advisers), there is some cause for concern about compliance and penalties.

STM Malta QROPS

STM Malta Pension Services Limited maintains QROPS for both U.S. persons and non-U.S. persons. In recent months, there has been some concern as to whether STM provided proper guidance to U.S. persons because now it appears STM may be taking the position that taxpayers who are US persons have various reporting requirements and that this information was not provided to U.S. taxpayers when they were first introduced to the QROPS scheme. There have been some additional lawsuits involving complaints regarding the type of investments that were made under the QROPS, but for U.S. tax and reporting purposes, the key issue is whether the taxpayer has been properly reporting the QROPS for FBAR, FATCA, Form 8621, and other potential international information reporting forms — along with whether or not they have received any artificial tax benefit.

Did STM Malta Misguide U.S. Persons?

There is a growing concern that this company did not provide U.S. persons who were investing in QROPS with proper advice about what their cross-border tax and reporting responsibilities are. Some taxpayers are reporting that when they formed the investment, they were not told any U.S reporting was required, but now they are allegedly being told that they should have been reporting this information for FBAR, FATCA, and PFIC. In addition, the clients are now being told that they do not receive tax-deferred treatment under U.S. tax law since it is not a ‘pension’ for U.S. tax purposes.

What Can U.S Taxpayers Do?

Taxpayers who are U.S. persons for tax purposes and have not properly reported their STM Malta QROPS to the US government should consider one of the IRS amnesty options. Depending on the individual’s facts and circumstances, and specifically how they were first introduced to the QROPS scheme, will help determine which program they qualify for and whether they’re eligible or not for a non-willful submission.

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and/or 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.

Late-Filing Disclosure Options

If a Taxpayer is out of compliance, there are various international offshore tax amnesty programs that they can apply to safely get into compliance. Depending on the specific facts and circumstances of the Taxpayers’ noncompliance, they can determine which program will work best for them.

*Below please find separate links to each program with extensive details about the reporting requirements and examples.

Streamlined Filing Compliance Procedures (SFCP, Non-Willful)

The Streamlined Filing Compliance Procedures is one of the most common programs used by Taxpayers who are non-willful and qualify for either the Streamlined Domestic Offshore Procedures or Streamlined Foreign Offshore Procedures.

Streamlined Domestic Offshore Procedures (SDOP, Non-Willful)

Taxpayers who are considered U.S. residents and file timely tax returns each year but fail to report foreign income and/or assets may consider the Streamlined Domestic Offshore Procedures.

Streamlined Foreign Offshore Procedures (SFOP, Non-Willful)

Taxpayers who are foreign residents may consider the Streamlined Foreign Offshore Procedures which is typically the preferred program of the two streamlined procedures. That is because under this program Taxpayers can file original returns and the 5% title 26 miscellaneous offshore penalty is waived.

Delinquent FBAR Submission Procedures (DFSP, Non-Willful/Reasonable Cause)

Taxpayers who only missed the FBAR reporting and do not have any unreported income or other international information reporting forms to file may consider the Delinquent FBAR Submission Procedures — which may include a penalty waiver.

Delinquent International Information Returns Submission Procedures (DIIRSP, Reasonable Cause)

Taxpayers who have undisclosed foreign accounts and assets beyond just the FBAR — but have no unreported income — may consider the Delinquent International Information Return Submission Procedures. Before November 2020, the IRS was more inclined to issue a penalty waiver, but since then this type of delinquency procedure submission has morphed into a reasonable cause request to waive or abate penalties.

IRS Voluntary Disclosure Procedures (VDP, Willful)

For Taxpayers who are considered willful, the IRS offers a separate program referred to as the IRS Voluntary Disclosure Program (VDP). This program is used by Taxpayers to disclose both unreported domestic and offshore assets and income (before 2018, there was a separate program that only dealt with offshore assets (OVDP), but that program merged back into the traditional voluntary disclosure program (VDP).

Quiet Disclosure

Quiet disclosure is when a Taxpayer submits information to the IRS regarding the undisclosed foreign accounts, assets, and income but they do not go through one of the approved offshore disclosure programs. This is illegal and the IRS has indicated they have every intention of investigating Taxpayers who they discover intentionally sought to file delinquent forms to avoid the penalty instead of submitting to one of the approved methods identified above.

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. 

*This resource may help Taxpayers seeking to hire offshore tax counsel: How to Hire an Offshore Disclosure Lawyer.

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.