London Mayor Boris Johnson to pay US tax
London Mayor Boris Johnson hit the world stage in 2012 when London hosted the very successful summer Olympics. He is outspoken, eccentric, and very British. Boris is an Old Etonian, having attended Eton as did 19 of the last 55 British Prime Ministers since Walpole (1676 – 1745), including his school mate, current Prime Minister David Cameron. He went on to Oxford with a powerful intellect and has recently written a very well received book on Winston Churchill.
Boris however, was born in the United States and is a dual citizen. Although he left the states as a small child, he never officially gave up his US citizenship. As most of you know from reading our blog posts and speaking to us, even though you have citizenship in another country paying taxes there locally as Boris has to the United Kingdom, it means you are still part of the unique global US tax system and therefore taxed on worldwide income, regardless of where you reside. In this particular case, the US tax bill came from his personal home sale in London in 2009. Although the gain on that sale is exempt from UK taxes, it is subject to capital gains in the US. He is what we call an ‘accidental American’, but the US law still applies to him.
Back in November when Boris was in NY promoting his new book, it was revealed that he had been handed a tax bill by the US authorities. He isn’t the first. The IRS wants money and increasingly, has made an increased global effort on collecting it’s taxes using big data, FATCA and local tax authorities. Boris came out publicly and refused to pay this ‘outrageous’ demand. Many expat groups and others came out in support and sympathy with his predicament, but it was clear that the IRS was not going to make an exception, especially when publicly taunted. We hear this same frustration frequently in our offices when someone is hearing these facts for the first time, but it’s important to understand the consequences.
Given the above, we’ve watched this story with interest over the last couple of months because as we’ve been telling our clients for years – if you are a US person, you are subject to US taxes on your worldwide income, no matter where you live.
Boris has an upcoming trip to the US next month to support his Mayor Export Programme, UKTI (UK Trade & Investment) and TechCityUK. Ultimately, the risk of a huge embarrassing public incident with the IRS or worst case arrest, made him weigh the consequences and agree to pay.
It will be interesting to see if Boris does ultimately give up his US citizenship. Over the last couple of years, we have seen many people giving up their US citizenship through the expatriation process. Renouncing isn’t quick or simple. You still have to show the IRS that you have been compliant for 5 years and then you may have to pay an exit tax.
In response to the difficulties of getting up to date with US tax filings, last year the IRS launched more Voluntary Disclosure programs, in many cases avoiding penalties if you meet certain criteria.
This is a public reinforcement that the IRS has a very long reach, no matter where you live and doing nothing when you know the facts is not an option.