STM Malta QROPS and US Compliance: What the Buzzacott and ICTS Memoranda Say, Where They Differ, and What We Recommend

If you hold an STM Malta QROPS and you are a US taxpayer, your compliance position has become considerably more complicated over the past few months. Two independent tax memoranda, each written by experienced practitioners, have now been circulated among members. They reach different conclusions on some significant questions. Understanding what each document says, where they agree, where they differ, and what that means for your own situation is what this article sets out to explain.

We also tell you clearly what Cameron James recommends and why, drawing on the outcomes we have observed from clients who have already worked through the IRS Streamlined Filing Compliance Procedures.

What Are the Two Memoranda?

Two detailed, independently prepared analyses of STM Malta QROPS member obligations under US tax law are now in circulation.

The Buzzacott Memorandum

The Buzzacott memorandum was prepared by Buzzacott Livingstone Limited, an accounting firm with specialist cross-border tax expertise. It was commissioned directly by STM Malta Pension Services Ltd, the plan trustee, giving the authors direct access to the plan structure and governing documents. The memorandum concludes that the STM Malta Pension Plan meets the IRS definition of a foreign grantor trust, that annual filings of IRS Form 3520 and Form 3520-A are required for US members, and that members who have not been filing those forms should address the gap through the IRS Streamlined Filing Compliance Procedures.

Our detailed breakdown of this document is available in our article: STM Malta QROPS and the Buzzacott Memo: What the May 2026 US Tax Notice Means for Cross-Border Members.

The ICTS Memorandum

The ICTS memorandum was authored by James M. Cassidy CPA of International Compliance and Tax Solutions LLC (ICTS) and is dated June 1, 2026. Rather than accepting that Form 3520 and Form 3520-A were always the required forms, it argues that members who have consistently reported their QROPS on Form 8938 under FATCA have a credible and defensible position. It contends that those members may not need to go through streamlined disclosure, and that doing so represents a costly corrective step that may not be warranted by the facts.

Where the Two Memoranda Agree

Despite reaching different conclusions on the filing question, both documents share a number of important common premises:

• The classification of foreign pension arrangements for US tax purposes has never been straightforward, and the regulatory landscape has evolved significantly over time.
• Many STM Malta QROPS members transferred their pension assets into the plan in good faith, on the basis of professional advice and written guidance from the plan trustee and related advisers.
• Members who disclosed the arrangement annually on Form 8938 and the FBAR were not concealing it from the IRS. That consistent, transparent reporting history is relevant to any compliance discussion.
• The US-Malta Competent Authority Arrangement (CAA) of 2021 changed the treaty landscape and has created real complexity around how Malta pension arrangements are treated for US tax purposes.
• Every member’s situation is fact-specific, and individual professional advice is essential before taking any action.

Where the Two Memoranda Differ

The Trust Classification Question

The most fundamental difference between the two documents is on whether the STM Malta Pension Plan is a foreign grantor trust for US tax purposes.

The Buzzacott memorandum, prepared on behalf of the plan’s own trustee with direct access to the governing documents, concludes that it does meet the trust definition and that Form 3520 and Form 3520-A obligations follow from that.

The ICTS memorandum does not accept that conclusion as settled. It points to a 2016 STM Malta reporting guide that characterised members’ interests as contractual rights to retirement benefits rather than beneficial interests in a trust, and argues that this historical contract-based classification may still be defensible. It also notes that the classification of foreign pension arrangements remains a genuinely uncertain area of US tax law. 

This is a real disagreement between experienced practitioners. However, we note that the Buzzacott memorandum carries particular weight because it was commissioned by the trustee with full access to the plan structure, whereas the ICTS position relies on 2016 guidance that the trustee itself has now moved away from.

The Significance of Form 8938 Reporting

The ICTS memo argues that consistent Form 8938 disclosure substantially satisfied the purpose of the international information reporting rules. The IRS received the existence, value, location, and identity of the account each year. On this basis, it contends that the failure to file Form 3520 should be treated as a technical reporting issue rather than a substantive compliance failure, and that a reasonable cause defence is therefore available.

The Buzzacott approach does not dispute that Form 8938 reporting is a mitigating factor. However, it treats Form 3520 as a distinct statutory obligation that is not discharged by Form 8938 filing. The streamlined procedures are presented as the correct and IRS-accepted mechanism for addressing that gap.

For a full explanation of Form 3520 and Form 3520-A obligations for Malta QROPS members, see our article: Malta QROPS Tax Reporting for US Residents: Form 3520 Explained.

Revenue Procedure 2020-17

The ICTS memo raises Revenue Procedure 2020-17, which exempts certain tax-favored foreign retirement trusts from the Form 3520 and Form 3520-A requirements, as a potentially applicable protection. The Buzzacott memorandum does not address this procedure in detail. Whether it applies to a specific member requires a detailed review of the plan’s governing documents, contribution structure, distribution restrictions, and local tax treatment. This is a legitimate question to raise with your own tax adviser.

The US-Malta Competent Authority Arrangement

Both documents discuss the CAA but with different emphasis. The ICTS memo makes a well-reasoned distinction between the specific arrangements the IRS was targeting, which involved contributions of appreciated securities and plans not operated principally for retirement purposes, and traditional QROPS funded purely by rolling over existing pension assets. It argues that many STM Malta members are not within the scope of what the CAA was designed to address.

The Buzzacott memorandum does not focus on this distinction. However, the ICTS analysis on this point has genuine merit for members whose QROPS was funded solely by a pension rollover and who did not contribute non-cash assets or use the arrangement other than as a straightforward retirement vehicle.

Side-by-Side: Buzzacott vs ICTS

The table below summarises the key differences between the two approaches across the issues that matter most to members.

Our Position and Why

We want to be direct with you: we think the streamlined disclosure route is the right path for most STM Malta QROPS members, and the ICTS memo, while thoughtful and well-argued, does not change that view.

The Outcome of the Streamlined Route Is Defined. The ICTS Route Is Not.

The ICTS reasonable cause argument may succeed in some cases. However, whether any individual member’s case is accepted depends on the specific facts, the case agent involved, and how the IRS views the overall picture. If the argument does not succeed, the exposure from unresolved back-year Form 3520 non-filings can be substantial. Penalties under Section 6677 can reach 35% of the gross value of trust assets for each missed year.

The streamlined procedures, by contrast, provide a defined and structured outcome. The 5% Streamlined Domestic Offshore Penalty (SDOP) is calculated on the highest aggregate value of unreported assets over the three relevant years, not on the total fund value. The IRS acceptance of the process means you emerge with a resolved compliance position rather than an ongoing negotiation.

The Reasonable Cause Argument Does Not Eliminate the Forward-Looking Obligation

Even if the ICTS argument succeeded and penalties were abated, the underlying compliance obligation does not disappear. The member would still be expected to file Form 3520 and Form 3520-A going forward and would need to address how prior years are treated. Streamlined disclosure achieves the same resolution more cleanly and with greater certainty.

The Evidence From Clients Who Have Completed the Streamlined Process

Cameron James has been referring affected STM Malta QROPS members to specialist US international tax advisers for some time. Those advisers have now worked through the streamlined process with a number of clients. The consistent feedback is that for members with a complete FBAR and Form 8938 history, the process has worked well and the outcomes have been better than many clients initially feared. The 5% SDOP penalty, while a real cost, has in a number of cases been significantly lower than clients expected once it was calculated correctly.

The Post-Tax Financial Case

Set aside the compliance risk for a moment and consider the financial outcome. If you go through the streamlined process and the arrangement is treated as a foreign grantor trust, investment gains, dividends, and income within the account become reportable annually, and withdrawals are taxed on a basis that reflects the fact you have already been reporting the assets. The original transfer into the QROPS is not treated as a taxable distribution. For most members, the 5% SDOP is the primary one-off cost of reaching that clean position.

Now consider the alternative: treating the QROPS as a qualifying foreign pension and leaving it in place indefinitely. If that position is accepted, what happens when you eventually draw from the fund? Distributions from a foreign pension arrangement are generally subject to US federal income tax at your ordinary marginal rate, and in most states, to state income tax as well. Combined federal and state marginal rates for many US residents in retirement reach 30% or more. The entire pot sits in a tax-deferred wrapper that converts capital and gains into ordinary income on withdrawal.

The streamlined route, by resolving the arrangement as a foreign grantor trust, avoids that deferred income tax burden on the full fund value. Gains accrued after the disclosure are taxed as they arise, at capital gains rates where applicable, rather than being converted entirely to ordinary income at retirement. For a meaningful fund value, the difference in net outcome over a retirement horizon is likely to be substantial.

How to Use the ICTS Memo Alongside the Streamlined Process

The ICTS analysis is genuinely useful in one important respect: it provides a well-structured framework for building the reasonable cause narrative that strengthens any streamlined disclosure. Its points about the historical reporting guidance, the reliance on professional advice, the absence of tax avoidance motive, and the substantial compliance achieved through Form 8938 disclosure are all factors your tax adviser should be documenting regardless of which route you take.

We would encourage any member going through the streamlined process to share the ICTS memo with their tax adviser so those arguments can be incorporated into the disclosure narrative. The two approaches are not mutually exclusive in that respect.

Frequently Asked Questions