The leaked tapes that show how the rich avoid taxes

Summary

Planet Money (NPR)

Episode: The leaked tapes that show how the rich avoid taxes

Date: May 27, 2026

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Episode Overview

This episode explores how the ultra-wealthy exploit ambiguous zones in tax law to avoid paying taxes, focusing on a controversial U.S.-Malta tax treaty loophole. Using leaked tapes, interviews with former IRS officials, and behind-the-scenes material from elite tax strategists, the hosts illustrate how these loopholes are discovered, promoted, challenged by the government, and fiercely defended—even as political winds shift. The story reveals the blurred boundary between legal tax avoidance and illegal tax evasion and how difficult it is for regulators to keep up.

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Key Discussion Points & Insights

1. How the IRS Uncovers Tax Schemes

• Methods Used: Carolyn Schenck, former IRS official, describes spy-like tactics:
  • “Surveillance, wiretaps, old school trash pulls. Which is obviously a phenomenal source of information.” (00:48, Schenck)
• Whistleblowers:
  • Some informants approach in secret, handing over sensitive documents even in dramatic and unnerving ways.
  • “Someone shoved... an enormous manila envelope with a whole bunch of bank documents in it underneath my hotel room door...” (01:29, Schenck)

2. The Birth of a Tax Loophole: The Malta Scheme

• Discovery:

  • In 2021, IRS officials identified a new and questionable loophole operating via the U.S.-Malta Tax Treaty of 2008.
  • “There's this weird thing out there that I think taxpayers are doing. This maybe is the new thing... Where is it? ... Malta.” (02:28, Schenck)

• Background on Tax Treaties:

  • Tax treaties prevent double taxation for Americans abroad and typically exempt income already taxed by the other country (07:11–07:39).
  • Nuances in the U.S.-Malta treaty left certain retirement account rules open for interpretation.

• The Loophole Mechanics:

  • Malta created Roth-like accounts with far laxer restrictions than U.S. Roth IRAs, allowing unlimited contributions of appreciated assets (like real estate, stocks, or even Bitcoin).
  • Theoretically, Americans could park huge gains in Maltese accounts, then withdraw the money in the U.S. tax-free.
  • “These accounts were way supercharged... unlimited amounts, and not just cash, but whatever. Real estate, ownership of a company, Bitcoin, then sell it and pull out the proceeds entirely tax free.” (09:13, Fountain)

3. How the Wealthy Found and Sold the Loophole

• Ultra-Wealthy Client Example:
  • Internal pitches showed how New Yorkers with multimillion dollar gains moved assets to Malta to dodge $4.7 million in taxes (Max Franklin example). (11:16, Loricchio)
• Public and Private Promotion:
  • Loophole was quietly marketed to an elite clientele—lawyers even published articles defending its legitimacy.
  • “The authors and people really believed in it... they were not trying to hide anything.” (12:15, Gradman)
• A “Wasting Asset”:
  • Tax lawyers saw the loophole as time-limited—use quickly before the government moves to close it.
  • “A tax loophole is a wasting asset.... You have to figure out, how do I squeeze the juice out of it as much as possible?” (12:43, Gradman)

4. IRS Crackdown and "The Dirty Dozen"

• Investigation:
  • IRS officials, led by Carolyn Schenck, gathered evidence, combed the internet, and confirmed the scheme’s spread among practitioners.
  • “We seem to be the only ones who weren't invited to this party.” (14:39, Schenck)
• Economic Substance Doctrine:
  • IRS challenged the loophole for providing no business benefit aside from tax avoidance.
  • “Does this make economic sense other than the purpose of... then sheltering the gain? It does not.” (15:12, Schenck)
• Dirty Dozen List:
  • The IRS publicly flagged the Malta scheme as “abusive” in 2021, warning taxpayers against it.
  • “This is an incredibly abusive scheme... We need to get the word out there—this has gotta go.” (15:42, Schenck)
• Treaty “Take Backsies”:
  • U.S. and Malta revised their interpretation: Americans can only deposit already-taxed cash, not assets, effectively closing the loophole.
  • “All of a sudden we're standing here with our treaty partner right next to us, standing in a joint statement.” (17:30, Schenck)

5. Leaked Tapes: The Wealthy Fight Back

• Wealth Managers and Lobbyists Organize:
  • Secret strategy calls were made by tax lawyers and lobbyists post-crackdown, hoping to keep the loophole open.
  • “On the call, they introduce this high powered lobbyist, Kenneth Keys...” (20:40, Loricchio)
• Notable Quotes from Tapes:
  • “Just because you were able to bully Malta into signing this document, it doesn't make what it says accurate or correct.” (21:24, Keys)
  • “Rand Paul potentially is a good candidate for us... this is the kind of thing that would just drive him crazy.” (21:52, Keys)
  • “If you get one senator who decides he's going to be outraged... he can bring the whole place to a dead stop.” (22:02, Keys)
• Tactics:
  • Lobbyists hoped to get Congress involved to argue that IRS overstepped; stalling tactics touted to outlast statute of limitations.

6. Regulatory and Political Shifts

• IRS Enforcement Escalates:
  • Under Biden, IRS boosts enforcement, proposes a “Come Clean Rule”—require disclosures and penalties for those using the Malta shelter. (22:49, Fountain)
• Setbacks:
  • A change in administration and IRS leadership stalls the rule. Key officials leave; Kenneth Keys, who fought to keep the loophole, secures top positions in the Treasury and IRS (24:15, Loricchio).
  • Keys formally recuses himself from Malta matters, but the effort to finalize the crackdown fizzles.

7. Where Things Stand Now

• Unfinished Business:
  • The “Come Clean” rule is “nowhere”—the government’s attempt to clear the gray line between loophole and illegal shelter never made it to final regulation. (25:31–25:39)
• Reflection by Former Regulator:
  • “The government missed an opportunity to... protect the treasury and... help taxpayers... So it's disappointing.” (26:28, Schenck)
• Final Takeaway:
  • Even obvious loopholes can persist when exposed to sophisticated lobbying and political change.
  • “I kind of assumed that tax law was pretty black and white... I did not know that you could just fight back against the feds... and that you could maybe win.” (26:58, Fountain)
  • Challenges Ben Franklin’s “nothing is certain except death and taxes.”

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Notable Quotes & Memorable Moments

• On Secret Tactics:
  “Old school trash pulls, which is obviously a phenomenal source of information.” — Carolyn Schenck (00:48)
• On the Loophole:
  “I think I was oscillating between a woe and wtf.” — Carolyn Schenck (02:53)
• On the Sales Pitch:
  “He would have to pay... approximately $4.7 million, but... he would ‘really prefer to have the full amount’.” — Lauren Loricchio (11:16)
• On the Nature of Loopholes:
  “A tax loophole is a wasting asset... How do I squeeze the juice out of it?” — Andrew Gradman (12:43)
• On Strategy Calls:
  “Just because you were able to bully Malta into signing this document, it doesn't make what it says accurate or correct.” — Kenneth Keys (21:24) “If you get one senator... he can bring the whole place to a dead stop.” — Kenneth Keys (22:02)
• On Disappointment:
  “The government missed an opportunity to... protect the treasury and... help taxpayers... So it's disappointing.” — Carolyn Schenck (26:28)

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Important Timestamps

• IRS investigative methods & whistleblowers: 00:48 – 01:46
• Birth of Malta loophole: 02:28 – 03:45; 07:00 – 10:14
• How loophole functions for the rich: 10:14 – 12:07
• Industry promotion and lag: 12:07 – 13:22
• IRS "Dirty Dozen" crackdown: 13:21 – 15:53
• Treaty amendment closes loophole: 16:54 – 17:45
• Wealthy strategize fightback (leaked tapes): 20:06 – 22:21
• IRS escalates (“Come Clean Rule”): 22:49 – 23:46
• Political reversal, IRS stalls, Keys promoted: 24:15 – 24:52
• Disappointment & no closure: 25:31 – 26:45

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Overall Tone

• Inquisitive, wry, and slightly incredulous, balanced by the guests’ insider perspective and dry humor.
• Reveals the perpetual cat-and-mouse game between the IRS and wealthy taxpayers; clarity and certainty are elusive, as legal and illegal shift in the shadows of law, lobbying, and political change.

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This summary distills the episode's exploration of the Malta tax loophole and the larger war over drawing the line between tax avoidance and evasion, illustrated through insider accounts, leaked tapes, and trenchant quotes from regulators and industry players.

Transcript

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[Lauren Loricchio]

This is Planet Money from NPR.

[Nick Fountain]

People go to incredible lengths to pay the smallest amount of taxes, sometimes in legal ways, sometimes in less than legal ways. In the shadows, and it's not always clear which is which. Figuring that out, that used to be the job of Carolyn Schenck. She spent nearly two decades at the irs, and she says the way the IRS uncovered the newest, hottest tax crimes ran the gamut.

[Carolyn Schenck]

Surveillance wiretaps, old school trash pools. Which is obviously a phenomenal source of information.

[Nick Fountain]

Yeah.

[Carolyn Schenck]

Kind of dirty, but, you know, could be very.

[Nick Fountain]

I'm shocked y' all still do that. That's incredible. Then, of course, there are the times when people reach out to them and say, I've got information. I'd like to whistle blow.

[Carolyn Schenck]

We've seen people come forward and sit with, you know, in a dark room or a bag on their head, and they've gone through the most intricate banking details.

[Nick Fountain]

Have you been in one of those interviews?

[Carolyn Schenck]

Not with a bag over my head.

[Nick Fountain]

She says the bag thing is just a term of art. Sometimes, though, people are afraid to talk, even anonymously. Carolyn says one time after a long day at a conference, she got to

[Carolyn Schenck]

her hotel room and someone shoved. And I'm not sure how they even did it because it was so thick, an enormous manila envelope with a whole bunch of bank documents in it underneath my hotel room door, which was totally unnerving because how did they know I was staying? Exactly.

[Nick Fountain]

She says she changed rooms, and the documents, they turned into a case. Can you say any more details about it?

[Carolyn Schenck]

No, other than I was extremely freaked out. And I also was thinking to myself, you know, what if this thing got shoved and stuck? Like they should have put it in two different envelopes, right?

[Nick Fountain]

Yeah. Come on, guys.

[Carolyn Schenck]

Right?

[Nick Fountain]

The case I wanted to talk with Carolyn about came from a much less dramatic tip. And it really paints a picture of how hard it is to draw a clear line between what is okay and what is not when it comes to taxes. Carolyn first heard about this questionable tax move in 2021. She was at a meeting with another top IRS lawyer.

[Carolyn Schenck]

He just said, there's this weird thing out there that I think taxpayers are doing. This maybe is the new thing. What do you think about it? And I said, where is it? And he said, malta. And I said, what?

[Nick Fountain]

Yes, Malta. Tiny island nation in the middle of the Mediterranean, known for Amazing beaches and apparently an attractive tax arrangement with the US that helping Americans avoid paying piles and piles of taxes.

[Carolyn Schenck]

I think I was oscillating between a woe and wtf.

[Nick Fountain]

Hello and welcome to Planet Money. I'm Nick Fountain here with Lauren Loricchio, reporter over at the nonprofit tax reporting outlet Tax Notes. Lauren, hi.

[Lauren Loricchio]

Hi. How are you?

[Nick Fountain]

I'm well, thanks. Normally, the world of tax can be kind of dry and procedural. But, Lauren, I have this theory about you, and that's that you have this deadpan, matter of fact way about you that that somehow gets tax lawyers to open up and spill all of their dirtiest secrets. What do you think about that theory?

[Lauren Loricchio]

I think you're wrong.

[Nick Fountain]

Really?

[Lauren Loricchio]

No, I think you're probably right. I'm just a tax nerd. I can't help it.

[Nick Fountain]

All right, well, today, how do the rich avoid taxes? We try to trace how a loophole is born and how it dies and is maybe put on life support. You might call this a tale of a tax shelter, an anatomy of an

[Lauren Loricchio]

avoidance, the life cycle of a loophole.

[Nick Fountain]

And you have secret recordings?

[Lauren Loricchio]

I do.

[Kenneth Keys]

Ooh. There is a litany of reasons why the IRS is going to lose. If they had any brains, they would be stopping right now and going back to.

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[Nick Fountain]

New shows, new music, new movies. Keeping up with pop culture sometimes feels like a full time job. Thankfully, over at Pop Culture Happy Hour, it's literally our job. We break down what's actually worth watching, listening to, and pretending you already knew about. So the next time someone says, did you see that? You can say, yeah, obviously. Follow NPR's Pop Culture Happy Hour wherever you get your podcasts. To be clear, it is perfectly fine and reasonable and understandable to want to pay as little in taxes as possible. When you do that legally, we call it tax avoidance. This story is about the mushy area between tax avoidance and doing illegal things. To avoid taxes, tax evasion. And it turns out the line between those two things is not hard and fast. It's ever changing and contested. People and the government are constantly pushing it back and forth. It's a battlefield. And because it is a battlefield, people don't love to talk openly about their tactics. I've made many calls for this story where people say, I would want to talk to you, but my lawyer says, don't do it.

[Lauren Loricchio]

Welcome to my life.

[Nick Fountain]

Yes, but one person who, Lauren, you suggested might agree to go on the record and try to help us understand how the wealthy move their money around to pay fewer taxes and is Andrew Gradman.

[Lauren Loricchio]

Andrew is a tax lawyer and he's looked into the Malta loophole.

[Nick Fountain]

And what we wanted to learn from Andrew in particular was how exactly these loopholes came into existence. In particular, how this loophole having to do with Malta came to be like, where did this all start? Who discovered it?

[Andrew Gradman]

You're asking the human story about who thought of it? And then, you know, what kind of a bath were they thinking of when they said Eureka, which is pleasant?

[Nick Fountain]

That's exactly what I'm looking for.

[Andrew Gradman]

Yeah. Tell me about the bathroom.

[Lauren Loricchio]

Andrew says, we cannot definitively figure out who this came from, but we have

[Nick Fountain]

some clues as to where it came from. It all started because of a treaty with Malta, the US Malta Tax Treaty of 2008.

[Andrew Gradman]

And boy, treaties are complicated.

[Carolyn Schenck]

Yeah.

[Nick Fountain]

I did not know this before working on this story, but, Lauren, you taught me. We have tax treaties with many countries in alphabetical order.

[Lauren Loricchio]

Armenia, Australia, Austria, Azerbaijan, Bangladesh.

[Nick Fountain]

I'm going to stop you there. There are dozens of them, more than 50. And the general idea is the US is unique. We tax our citizens income even when they live outside of the US but we generally do not like to tax their income that has already been taxed by the country they're living in. So we create treaties like the one with Malta, which say, among other things, if Malta has already taxed this, we won't, and vice versa.

[Lauren Loricchio]

It's like a prenup, but for taxes. And this treaty with Malta, it left a few key details up for interpretation.

[Nick Fountain]

Yes. In particular, details about how each country would tax retirement accounts. The context here is that when the US And Malta were drafting this treaty, there was this relatively new retirement account in the US Called the Roth ira. Roth, you might remember, from the haze of trying to figure out retirement options, allow you to put your already taxed money into an account, let it grow, and then when you reach a certain age, you can take it out tax free, which Andrew says is all fine and good until an American moves to some other country and that country wants to tax what's supposed to be tax free.

[Andrew Gradman]

We didn't have a system that would protect the US Worker who moves to a foreign country, takes the money out to retire, expecting that it'll be tax free, but finds that the foreign country under the treaty has the right to tax it for some other reason.

[Nick Fountain]

So the drafters of that tax treaty with Malta put in language that says if a US Retirement account is going to be tax exempt, then Malta will also exempt it from taxes and vice versa.

[Lauren Loricchio]

Yeah, and this ended up being very important because a few years later, Malta created their own Roth like retirement accounts to help their citizens save more money.

[Nick Fountain]

Right. And these accounts were much more lucrative than the American ones because in the US the amount of money you can put into Roths is capped. It's actually pretty small. And if you have assets like stocks or real estate or fancy paintings that have gone up a lot in value, you can't put those in. You have to sell them first and pay taxes on the gains. But these Maltese accounts were way supercharged. They allowed people to put in unlimited amounts, and not just cash, but whatever. Real estate, ownership of a company, Bitcoin, then sell it and pull out the proceeds entirely tax free, starting when people hit 50 years old.

[Lauren Loricchio]

And because of the U.S. s tax treaty with Malta, it seemed like the U.S. would need to abide by those rules too.

[Nick Fountain]

Which means, in theory, if Americans stashed their appreciated assets in these Maltese accounts, then sold them and took the proceeds back to the U.S. the IRS couldn't tax them. So if you were a tax lawyer trying to figure out how to help your favorite client avoid paying capital gains taxes on her Google stock, you'd have hit the jackpot. This was an enormous loophole just sitting there for the using and seemingly legit. You might be tempted to yell about it from the rooftops.

[Lauren Loricchio]

Nah, that's not something that people actually do, because if they're loud about it, the government might come and close the loophole.

[Nick Fountain]

Maybe they don't yell it from the rooftops, but they do pitch their wealthy clients. And it is rare for normies like me to see those pitches. But, Lauren, you actually got your hands on one of them.

[Lauren Loricchio]

I did.

[Nick Fountain]

It's a pitch deck put together by people selling this loophole idea that was passed around behind closed doors.

[Lauren Loricchio]

Yeah, I got some of those materials.

[Nick Fountain]

How did you get your hands on that?

[Lauren Loricchio]

Someone shared it with me.

[Nick Fountain]

What's the Pitch to the ultra wealthy.

[Lauren Loricchio]

Okay, this one's from Dominion Fiduciary Services,

[Nick Fountain]

which is like an international money manager. And this is its sales pitch for Americans to use the loophole. The pitch lays out how lucrative one of these Maltese accounts could be for different kinds of people. Like, for example, they talk about this made up person, Max Franklin, a venture capitalist at a boutique private equity firm in New York who owns a chunk of a company that's about to be sold for $15 million profit.

[Lauren Loricchio]

So the materials say he would have to pay federal and New York tax on the gain of approximately $4.725. But the bottom line is that he would, quote, really prefer to have the full amount available for his retirement.

[Nick Fountain]

Luckily, the pitch goes on. If Max hires the right people, there is a way for him to avoid this. Because of Malta's amazing retirement laws. If he just puts a chunk of the company into Maltese retirement account, when the company is sold, the proceeds will land in his account tax free. And when he hits 50, he can start getting his money out also tax free, without ever setting foot in Malta because of our amazing tax treaty with Malta.

[Lauren Loricchio]

Andrew says unlike a lot of loopholes, this one actually had an air of legitimacy. So people started to advertise it publicly

[Nick Fountain]

in law journals saying, yeah, we know this looks too good to be true, but whether it was a mistake or not, it's right there in the treaty.

[Andrew Gradman]

Unlike some of these other loophole Y type things, the authors and people really believed in it. I think that's really important to emphasize. The public might look at this and say there's something really shady and creepy about this. But I think the fact that they published public articles about this meant they really believed in it and that they were not trying to hide anything.

[Nick Fountain]

But it seems like they also knew this might not last for long. Like there was a ticking clock. Talking about this publicly meant the IRS would see it and take a good hard look.

[Andrew Gradman]

A tax loophole is a wasting asset. If you really believe that this was a mistake that was made, then you know it has a limited life. And so you, you have to figure out, how do I squeeze the juice out of it as much as possible?

[Nick Fountain]

And squeeze they did.

[Lauren Loricchio]

Yeah. My sources say hundreds of taxpayers use the loophole and they estimate billions of dollars went into these accounts. One attorney told my colleague that his client had between 100 and $300 million stashed away in Malta.

[Nick Fountain]

And when those taxpayers put that money in there, nobody was giving them any trouble. That didn't happen until the next chapter of the story.

[Lauren Loricchio]

The crackdown.

[Nick Fountain]

Right. This next part is about the moment that line between legit loophole and illegitimate tax shelter comes into focus. These tax professionals have been pushing on one side of that line. Now the government is going to start pushing back from the other side. Which brings us back to Carolyn, the lawyer who spent nearly two decades at the IRS. In 2021, she says the IRS was soliciting from their staff candidates for this list they put together every year where they call out tax schemes that people should be very wary of. Like, do this at your own risk because it might come back to bite you. It's called the Dirty Dozen list.

[Carolyn Schenck]

I mean, I guess it sounds a lot sexier than it probably is, but it's literally like a laundry list of all of these abusive schemes.

[Lauren Loricchio]

Everyone at the IRS is duking it out to get their favorite tax scheme on the list.

[Nick Fountain]

And Carolyn is digging into the Malta thing.

[Carolyn Schenck]

I called up my friends, lovely agents at the Offshore Compliance Initiative group, and these are awesome crack agents. I mean, they scraped a lot of the data that we already had. They did a deep dive to any mention of it on the Internet, on YouTube, on any of these videos, on any of these websites. We also floated it around to some of the private practitioners at the time.

[Nick Fountain]

That means tax lawyers.

[Carolyn Schenck]

Tax lawyers, right. Said, hey, have you heard of this? And they more or less confirmed that they were aware of this and aware of, you know, clients that were doing this. You know, we seem to be the only ones who. Who weren't invited to this party.

[Nick Fountain]

And she says one way the IRS figures out if something is legit or not is whether there's any economic logic to it other than avoiding taxes.

[Lauren Loricchio]

There's a technical term for this that holds up in tax court, the economic substance doctrine.

[Carolyn Schenck]

What is the real purpose of this?

[Nick Fountain]

Like, is there a business reason a person or a company might need a Maltese account?

[Carolyn Schenck]

Does this make economic sense other than the purpose of doing a turn and burn on the asset and then sheltering the gain? It does not.

[Nick Fountain]

Yeah, it did not. So she nominated it for that year's Dirty Dozen list, arguing that putting your highly appreciated assets into a Maltese retirement account, like imaginary Max Franklin sticking his chunk of a company in there, is a tax shenanigan, A move that ultimately denies the American government and people the money they're due.

[Carolyn Schenck]

My pitch was, this is an incredibly abusive scheme. We gotta put this out there because it seems legitimate. We think taxpayers are gonna get pulled into this. We need to get the word out there this is. This has gotta go.

[Lauren Loricchio]

In 2021, the IRS makes its first big public announcement that it's aware of the Malta loophole and skeptical.

[Nick Fountain]

It sends out a big press release saying putting appreciated assets into Maltese retirement accounts in order to avoid taxes is probably sketchy. We're looking into it and officially adding it to the Dirty Dozen. Is that a huge day for you? Just walk into the office with a lot of bravado, you got him, drop the list.

[Carolyn Schenck]

Boom. I mean, it was a shot across the bow to those promoters out there. Like, hey, we see you. You know, but then also the taxpayer is like, hey, we got you. Like, don't do this.

[Nick Fountain]

Yeah, Dirty Dozen activated. Industry put on notice. But the loophole was still out there. They needed to figure out a way to truly close it. And it turned out that inside of the treaty there contained a little important take backsies clause, which said, basically, if there's something that's not clearly defined in the treaty, we can come back to it.

[Lauren Loricchio]

And so in late 2021, the IRS and Maltese officials met and clarified something.

[Nick Fountain]

They said, oh, by the way, when the treaty said the U.S. would honor the terms of these Maltese retirement accounts for Americans, it didn't mean that Americans could put in highly appreciated assets. It meant they could deposit their already taxed cash, just like in the U.S. in other words, no real estate, no Bitcoin, no chunks of companies. And just like that, less than a year after Carolyn first learned about the loophole, the IRS was able to clarify a previously mushy mouthed area of tax law.

[Carolyn Schenck]

It was awesome. I mean, the flash to bang is pretty fast, right? I mean, there was a very short period of time that transpired here, and then all of a sudden we're standing here with our treaty partner right next to us, standing in a joint statement.

[Nick Fountain]

This was a scary time for people who did this Malta thing and the whole cottage industry that encouraged them to do it because the government had sort of shifted that line between legitimate and illegitimate. They said, you cannot use that loophole and actually you maybe never could.

[Lauren Loricchio]

So, like, the wealthiest Americans always do. They said, okay, we won't.

[Nick Fountain]

No, of course they didn't do that. Their lawyers and advisors started to meet to strategize on how they were going to fight back against the IRS and protect their loophole. After the break, we hear someone who is now one of the most powerful tax officials in President Trump's administration, registration on tape, leading the charge to protect the Malta tax loophole.

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[Nick Fountain]

So you've got all these very wealthy people with millions, even billions of dollars in these Maltese retirement accounts. And now the IRS is telling them, no, you can't be putting your chunks of companies or any appreciated assets in there. But just because the IRS says, uh doesn't necessarily make it so. As much as they want to draw a clear line between legit loopholes and illegitimate tax shelters, sometimes people fight back.

[Lauren Loricchio]

Especially people with a lot at stake.

[Nick Fountain]

Right, so that's where this story goes next. The tax lawyers and wealth managers and peddlers of these Maltese retirement accounts started

[Lauren Loricchio]

to organize in early 2022. They had their first meeting. It was a video call.

[Nick Fountain]

So how many people have you got

[Carolyn Schenck]

coming on the call?

[Lauren Loricchio]

Someone recorded it and I ended up with a copy.

[Nick Fountain]

20 thumb ish.

[Carolyn Schenck]

Scheduled.

[Nick Fountain]

Now in these tapes you're hearing, nobody's saying anything illegal. They're not a gotcha kind of recording. What's extraordinary about them is that we don't usually get to hear how the wealthiest Americans or the tax professionals who help them push to pay less in taxes. In these tapes, you hear how malleable that line between legal loophole and not so legal tax shelter really is.

[Lauren Loricchio]

On the call, they introduce this high powered lobbyist, Kenneth Keys, one of the

[Kenneth Keys]

top, if not the major tax lobbyists in Washington, D.C. so with that, Ken, I'm turning the program over to you. Okay, so let me.

[Nick Fountain]

Ken Keys today has some very important jobs at the treasury department and the IRS. The government told us in a statement that Mr. Keys never lobbied on behalf of the Malta pension issues. But in the recordings, you hear him walking people on the call through some of the possible strategies to defend the Malta loophole.

[Lauren Loricchio]

He's hoping to get Congress involved because in his telling, the IRS should not be allowed to modify the American Tax Treaty with Malta.

[Kenneth Keys]

Just because you were able to bully Malta into signing this document, it doesn't make what it says accurate or correct.

[Nick Fountain]

He argues treaties are the domain of Congress. So the IRS overstepped. Their changes don't count.

[Kenneth Keys]

And if you want to change the Malta Treaty, you have to follow the process that is essentially laid out in the Constitution.

[Lauren Loricchio]

He talks about the senators, he hopes to get on their side.

[Kenneth Keys]

Rand Paul potentially is a good candidate for us to talk to because this is the kind of thing that would just drive him crazy.

[Nick Fountain]

They're also basically talking about delay tactics.

[Kenneth Keys]

If you get one senator who decides he's going to be outraged about this, he can bring the whole place to a dead stop.

[Nick Fountain]

For some things in tax, if you can make it past the statute of limitations, you can sleep easy.

[Kenneth Keys]

Over 20 members of the Senate Foreign Relations Committee, we probably only need to win one.

[Lauren Loricchio]

This group holds several meetings. I've listened to hours and hours of them talking, and at times they sound pretty confident that they're going to get their way.

[Nick Fountain]

But in 2023, the IRS really goes on the offense about this. They propose a rule, we'll call it the Come Clean Rule, which says if you or someone you advise stashed your appreciated assets into a Maltese account, you gotta come tell us Come clean. Pay what you owe, and if you don't, we can penalize you.

[Lauren Loricchio]

And there's an important political context here. This is under the Biden administration, and the IRS has all this extra money for enforcement coming in from the Inflation Reduction Act.

[Nick Fountain]

Yeah, they're hiring tons of people. The wind is at Carolyn's back. She thinks this rule has a great chance of making it officially into the Federal Register as a finalized rule.

[Carolyn Schenck]

I thought for sure, hey, we are going to finally be able to round out some of these issues in 2023.

[Nick Fountain]

According to reporting by Tax Notes and others, the IRS even issued criminal summonses to gather more information on who was using these retirement accounts and who was telling them it was okay. Carolyn wouldn't go into specifics, but she says they have very powerful tools. They can go to the promoters of these schemes and say, tell me who your clients were, who hired you to set up a Maltese retirement account.

[Lauren Loricchio]

Or they go to parcel delivery companies like, say, FedEx and give them a list of tax professionals they're looking at and ask, who have these people sent documents to?

[Carolyn Schenck]

The goal is to identify the John Doe. And so by getting their address, like, boom. That's awesome.

[Nick Fountain]

But in the middle of this big push to close up this loophole, a few things happened. Donald Trump was elected president. Doge cleared out a bunch of IRS staff. And that guy you heard on the calls describing the industry's defense of these Maltese retirement accounts. Kenneth Keyes. He got two huge jobs in the administration.

[Lauren Loricchio]

Assistant Secretary of the treasury and acting IRS Chief counsel, meaning Keys became the head of all tax policy and tax enforcement in the country.

[Nick Fountain]

We reached out several times over several weeks to the treasury and the irs, asking for an interview with Keyes. They didn't give us one, but they gave us a statement saying Assistant Secretary Keyes has recused himself from all matters related to Malta pension plans in his capacity at treasury and. And the irs. Carolyn, if it isn't obvious, is no longer on the case. She does not work for the government anymore. Like a quarter of the IRS's staff. She left when Doge was gutting the agency.

[Lauren Loricchio]

After 20 years of working there, she took early retirement.

[Nick Fountain]

Did you have more work to do on the Malta thing?

[Carolyn Schenck]

I did. I think that. I'm trying to figure out how to answer this. Yeah. I mean, there were, there were other things to do on Malta. Yeah.

[Nick Fountain]

Meanwhile, we don't know what's going to happen with that come clean regulation at the irs, the one that would force everyone who did this thing to reveal themselves. What is the status of this rule?

[Carolyn Schenck]

As far as I know, the. The regulation did not become final. I think it died on the vine.

[Nick Fountain]

You think it's nowhere at this point?

[Carolyn Schenck]

I don't even know where it is. I think it's nowhere. I think it's nowhere.

[Nick Fountain]

Which means that effort to make stark the line between legit loophole and illegitimate tax shelter, which started back in 2021, has so far not succeeded.

[Lauren Loricchio]

Carolyn now works for a big fancy law firm, so she's on the other side of things, defending clients against the irs.

[Nick Fountain]

Nothing to do with Malta, though her law firm does have clients who are involved in the Malta thing, and it was among many firms that joined those strategizing calls. But that was long before Carolyn's time, and she has recused herself from any Malta cases since. She's recused from the cases and is outside of government now. Carolyn can't really say what's happening with the government's efforts to close the Malta loophole. All we know is that they haven't publicly moved on it for a while. How do you feel about that?

[Carolyn Schenck]

Well, I think the government missed an opportunity to. To not only, you know, protect the treasury and the fisc, but also to help taxpayers from, you know, either getting put into these schemes or being convinced to be put into these schemes. So it's disappointing.

[Capital One / American Home Shield Announcer]

Yeah.

[Nick Fountain]

Did you say the fisk? Is that how you say the fiscal situation?

[Carolyn Schenck]

Of the US like protecting the bank account of the gov. I mean, right? Like America's checking right?

[Nick Fountain]

Before I worked on this story, and maybe this is naive, I kind of assumed that tax law was pretty black and white. Like if the IRS says something is off limits and you get caught, you gotta pay. Their word wins. I did not know that you could just fight back against the feds, tell them that off limits line that you're so sure of you're wrong and that you could maybe win. In other words, I thought the Ben Franklin maxim nothing is certain except death and taxes was true. Now I'm not so sure about the taxes thing. If you are in the mood for more Planet Money in your life, and I know you are, I have a suggestion for you. It is free. It is the Indicator newsletter with fun insights about the economy every week in your inbox. You can you can subscribe to [e-mail] indicator newsletter. You will not regret it. Lauren, an extra special thanks to you for bringing us this story. And who else at Tax Notes should we thank for helping with the story?

[Lauren Loricchio]

Tax Notes Legal reporter Chandra Wallace and the editorial staff.

[Nick Fountain]

Thank you guys. Their website is tax notes.com this episode of Planet Money was produced by Luis Gallo with help from Emma Peasley. It was edited by Marianne McCune. It was fact checked by Sarah Juarez, engineered by Sina Lofredo and Robert Rodriguez. Alex Goldmark is Planet Money's executive producer. I'm Nick Fountain.

[Lauren Loricchio]

I'm Lauren Luricchio.

[Nick Fountain]

This is npr. Thank you for listening.

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