Planet Money - The leaked tapes that show how the rich avoid taxes

Episode Date: May 27, 2026

Tax avoidance -- that is, legally reducing your tax bill -- is as American as apple pie. But the line between tax avoidance and tax evasion is often a grey one. On today’s show, a collaboration with Tax Notes, we listen in on the secret tapes that show how the wealthiest Americans avoid taxes. We trace the lifecycle of a tax loophole: how it was born (in Malta), how it grew, how the Feds cracked down, and how the industry came to its rescue -- with the help of one high-ranking Trump administration official.  Support:Planet Money+Read: Our book: Planet Money: A Guide to the Economic Forces That Shape Your Life Our weekly longform Planet Money newsletterOur weekly Indicator round-up newsletterFollow: InstagramTikTokYouTubeFacebookThis episode was produced by Luis Gallo and Emma Peaslee and edited by Marianne McCune. It was fact-checked by Sierra Juarez and engineered by Cena Loffredo and Robert Rodriguez. Alex Goldmark is Planet Money’s executive producer.See pcm.adswizz.com for information about our collection and use of personal data for sponsorship and to manage your podcast sponsorship preferences.NPR Privacy Policy

This is Planet Money from NPR. 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 Shank. She spent nearly two decades at the IRS. And she says the way the IRS uncovered the newest, hottest tax crimes, ran the gamut. surveillance, wiretaps, old school trash pools, which is obviously a phenomenal source of

information. Yeah? Kind of dirty, but, you know, could be very fruitful. 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 whistleblow. 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. Have you been in one of those interviews? Not with a bag over my head. 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 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 where I was staying? Exactly. She says she changed rooms. And the documents, they turned into a case. Can you say any more details about it? 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? Yeah, come on, guys. Right. 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.

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? Yes, Malta. Tiny Island Nation in the middle of the Mediterranean, known for amazing beaches.

And apparently, an attractive tax arrangement with the, U.S. that was helping Americans avoid paying piles and piles of taxes. I think I was oscillating between a woe and WTF. Hello and welcome to the Planet Money. I'm Nick Fountain here with Lauren Luricchio, reporter over at the nonprofit tax reporting outlet, tax notes. Lauren, hi. Hi. Hi. How are you? 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 somehow gets tax lawyers to open up and spill all of their dirtiest secrets. What do you think about that theory? I think you're wrong. Really? No, I think you're probably right. I'm just a tax nerd. I can't help it.

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 avoidance. The life cycle of a loophole. And you have secret recordings. I do.

There is a litany of reasons why the IRS is going to lose. If they had any brains, they would be stopping right now going back. 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. Welcome to my life. 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 is Andrew Gradman.

Andrew is a tax lawyer, and he's looked into the Malta loophole. 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? 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. That's exactly what I'm looking for.

Yeah, tell me about the bath. Andrew says we cannot definitively figure out who this came from. But we have some clues as to where it came from. It all started because of a treaty with Malta, the U.S. Malta, Tax treaty of 2008. And boy, treaties are complicated. Yeah, I did not know this before working on the story. But Lauren, you taught me we have tax treaties with many countries.

In alphabetical order, Armenia, Australia, Austria, Azerbaijan, Bangladesh. I'm going to stop you there. There are dozens of them. More than 50. And the general idea is the U.S. is unique. We tax our citizens' income even when they live outside of the U.S. 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. It's like a pre-nup, but for taxes. And this treaty with Malta, it left a few key details up for interpretation. Yes. In particular, details about how each country would tax retirement accounts. The context here is that when the U.S. and Malta were drafting this treaty, there was this relatively new retirement account in the U.S. called the Roth IRA. Roth, you might remember, from the haze of trying to figure out retirement options, allow you to put your already tax 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. We didn't have a system that would protect the U.S. 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. So the drafters of that tax treaty with Malta put in language that says if a U.S. retirement account is going to be tax exempted, then Malta will also exempt it from taxes. And vice versa. 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. Right. And these accounts were much more lucrative than the American ones.

Because in the U.S., the amount of money you can put into Ross 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. 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. 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. Nah, that's not something that people actually do, because if they're loud about it, the government might come and close the loophole. 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. I did. It's a pitch deck put together by people selling this loophole idea that was passed around behind closed doors. Yeah, I got some of those materials. How did you get your hands on that? Someone shared it with me. What's the pitch to the ultra wealthy?

Okay. This one's from Dominion fiduciary services. Which is like an international money manager. And this is its sales pitch for Americans to use a 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. So the materials say he would have to pay federal and New York tax on the gain of approximately $4.725 million.

But the bottom line is that he would, quote, really prefer to have the full amount available for his retirement. 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 a 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. Andrews says, unlike a lot of loopholes, this one actually had an error of legitimacy. So people started to advertise it publicly 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. Unlike some of these other loophole type things, the authors and people really believed in it. I think it'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. 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. 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. Huh. And so you have to figure out how do I squeeze the juice

out of it as much as possible? And squeeze they did. 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 $100,300 million stashed away in Malta. 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. The crackdown. 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.

I mean, I guess it sounds a lot sexier than it probably is. But it's literally like a laundry list of all of the. abusive schemes. Everyone at the IRS is duking it out to get their favorite tax scheme on the list. And Carolyn is digging into the Malta thing. I called up my friends, the 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.

That means tax lawyers? 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 weren't invited to this party. 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.

There's a technical term for this that holds up in tax court, the economic substance doctrine. is the real purpose of this? Like, is there a business reason a person or a company might need a Maltese account? 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. 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 shenanigans. a move that ultimately denies the American government and people the money there due. My pitch was, this is an incredibly abusive scheme. We got to put this out there because it seems legitimate. We think taxpayers are going to get pulled into this. We need to get the word out there. This is got to go. In 2021, the IRS makes its first big public announcement that it's aware of the Malta loophole and skeptical.

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.

We got them. Drop the list. 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 to the taxpayer

is like, hey, we got you. Like, don't do this. 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-backseas clause, which said basically, if there's something that's not clearly defined in the treaty, we can come back to it. And so, in late 2021, the IRS and Maltese officials met and clarified something. 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. They 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. 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. 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. So like the wealthiest Americans always do, they said, okay, we won't. 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 on tape leading the charge to protect the Malta tax loophole. So you've got all these very wealthy people with millions, even bold.

billions of dollars in these Maltese retirement accounts. But 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-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. Especially people with a lot at stake. Right.

So that's where the story goes next. The tax lawyers and wealth managers and peddlers of these Maltese retirement accounts started to organize. In early 2022, they had their first meeting. It was a video call. So how many people have you got coming on the call? Someone recorded it and I ended up with a copy. 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 than taxes. In these tapes, you hear how malleable that line between legal loophole and not-so-legal tax shelter really is. On the call, they introduced this high-powered lobbyist, Kenneth Keyes. If not, the major tax lobbyist in Washington, D.C.

So with that, Ken, I'm turning them program over to you. Okay, so let me... Ten Keys today. has some very important jobs at the Treasury Department and the IRS. The government told us in a statement that Mr. Keyes 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. 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. Just because you were able to affect bully Malta into signing this.

document, it doesn't make what it says accurate or correct. He argues treaties are the domain of Congress, so the IRS overstepped. Their changes don't count. And if you want to change the Malta Treaty, you have to follow the process that is essentially laid out in the Constitution. He talks about the senators he hopes to get on their side. Rand Paul potentially is a good candidate for us to talk to. This is the kind of thing that would just drive him crazy.

They're also basically talking about delay tactics. 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. For some things and tax, if you can make it past the statute of limitations, you can sleep easy. Over 20 members of the Senate Foreign Relations Committee, we probably only need to win one. 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. 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 Maltese account, you got to come tell us. Come clean, pay what you owe. And if you don't, we can penalize you. 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 rid of. Act. 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. I thought for sure, hey, we are going to finally be able to round out some of these issues. In 2023, 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 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? 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? The goal is to identify the John Doe. And so by getting their address, like, boom, that's awesome. 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. Assistant Secretary of the Treasury and Acting IRS Chief Counsel, meaning Keyes became the head of all tax policy and tax policy. and tax enforcement in the country. We reached out several times over several weeks to the Treasury and the IRS asking for an interview with Keys. 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 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 is staffed, she left when Doge was gutting the agency. After 20 years of working there, she took early retirement. Did you have more work to do on the Malta thing? I did. I think that, yeah, I mean, there were other things to do on Malta. Yeah.

Meanwhile, we don't know what's going to happen with that comb clean regulation at the IRS, the one that would force everyone who did this thing to reveal them. What is the status of this rule? As far as I know, the regulation did not become final. I think it died on the vine. At this point, I don't even know where it is. I think it's nowhere. I think it's nowhere.

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. Carolyn now works for a big fancy law firm. So she's on the other side of things, defending. clients against the IRS. 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? Well, I think the government missed an opportunity to not only protect the Treasury and the FISC, but also to help taxpayers from either getting put into these schemes or being convinced to be put into these schemes. So it's disappointing. Yeah. Did you say the FISC? Is that how you say the fiscal situation of the U.S.? Like protecting the bank account of the Gulf?

I mean, right? Like America's checking account, right? 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 got to 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 in taxes, was true. Now I'm not so sure about the taxes thing. If you aren't 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 subscribe to it at npr.org slash 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 this story? Tax Notes Legal Reporter, Schaer Wallace and the editorial staff. Thank you guys. Their website is TaxNotes.com.

This episode of Planned Money was produced by Luis Gairo, with help from Emma Peasley. It was edited by Marianne McCune. It was fact-checked by Sierra Juarez, engineered by Sina Lafredo and Robert Rodriguez. Alex Goldmark is Plano Money's executive producer. I'm Nick Fountain. I'm Lauren Luricchio. This is NPR. Thank you for listening.