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Emory International Law Review Recent Developments

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The IRS’s duty to ensure the public’s compliance with tax law largely involves defining what taxpayers must report on their tax returns. Since its formation in 1862 when Congress formed the Office of the Commissioner of Internal Revenue under the Treasury Department, citizens of the United States have developed unique schemes to pay less taxes. To create fairness, Congress granted the IRS the power to label certain taxpayer schemes as “listed transactions.” The IRS uses this power to list a certain transaction, triggering both a taxpayer participant and material advisor obligation to report any participation in said listed transaction including details about the transaction. Participants and material advisors who fail to comply with the listed transaction reporting results in financial penalties enforced by the IRS. There are currently 36 listed transactions available for viewing on the IRS’s website, yet the newest listing has yet to officially make the list. The Malta Personal Retirement transaction was conceived after the United States signed the U.S.-Malta Tax Treaty in 2008. This Treaty addressed the highly favorable tax law in Malta that allows individuals to place money in an account without being taxed upon contribution or dispersion, so long as the account is considered a pension or retirement account. Once the IRS became aware of the situation, the IRS began taking measures to place the Malta retirement scheme on their list of reportable transactions. However, in the past year, the IRS began changing the way it lists transactions due to courts rejecting some of their reportable and listed transaction notices (including those dealing with syndicated conservation easements and micro-captives). In 2022, the Tax Court ruled that the IRS must comply with guidelines enforced by the Administrative Procedure Act (APA). The most recent listed transaction (regarding syndicated conservation easements) was ruled void after the Tax Court found the IRS did not comply with the necessary notice-and-comment requirements. After the transactions were deemed void, participants and material advisors no longer have the obligation to report their conservation easement transactions. The IRS is taking measures to fix the problem, but the process is lengthy. The first major attempt at meeting the court-required APA compliance is the new Proposed Regulations on micro-captives.

To ensure the same error is not repeated with the Malta Personal Retirement Scheme proposal, the IRS is attempting to go through all the necessary steps to ensure proper notice-and-comment requirements are fulfilled so their listed transaction is upheld upon future challenge. Assuming everything goes smoothly in the September public hearing, the Malta Personal Retirement Scheme should successfully be added as the 37th listed transaction, and taxpayer participants and material advisors must abide by this regulation or suffer the penalties.



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