I normally don't get into the policy issue of whether U.S. citizens abroad should be taxed. But this article showed up on the Washington Post and I thought some readers might like or dislike it. Adam Taylor, London mayor’s unpaid tax bill shows why some people don’t want to be Americans anymore (Washington Post 11/19/14), here. Excerpts:
Johnson's problem comes down to one important factor: His dual-citizenship. Despite being very, very British, Johnson was born in New York and lived in the United States until he was 5, hence becoming a natural born citizen. And despite some threats to renounce his citizenship ("After 42 happy years I am getting a divorce from America," he wrote in 2006 after a spat with a U.S. immigration officer), he renewed his U.S. passport just two years ago.
It's certainly tempting to dismiss Johnson's dilemma as the simple case of a very rich man attempting to float (sic - flout) the law ("Come on, Boris!," the New York Times's Roger Cohen wrote this week. "Give us a break.") but there is a degree of sympathy to be found here: American citizenship carries with it a uniquely vexing taxation problem. The United States is one of only two countries where taxation is based on citizenship rather than residence (Eritrea is the other). If Johnson lived in the United States, for instance, he would not have to file a British tax return.
The unusual U.S. policy dates back to the Civil War and the Revenue Act of 1862, which called for the taxing of American citizens abroad, in part to punish men who fled the country to avoid joining the Union army.
In practice, this is usually often just an annoying bit of paperwork for foreigners -- while the average citizen would have to file a tax return, it's unlikely they'll have to pay anything. However, it can become expensive for higher earners, especially when tax laws don't line up. As Lisa Pollack, an American expat herself, explains for the Financial Times, this is what appears to have happened for poor old Boris:
In the U.K., gain on the sale of one’s home is not subject to tax. In the U.S., a gain above $250,000 (for a single filer) is subject to capital gains tax. Also in the US, home ownership is subsidised by a deduction against income of mortgage interest. In short, the countries have different tax breaks on housing.
Johnson's U.S. tax bill for the sale of his home in London is thought to be in six figures. Given that the home is in the country he lives and works in, and he has not lived in the U.S. since he was 5, you can see why he thinks it's "outrageous."
Absolutely with Boris. It is utterly outrageous that the US presumes to tax wealth created entirely outside the US economy. This is money the US has done nothing to earn.
ReplyDeleteIt is outrageous in a second more subtle way. The tax regime of a country is not a set of unrelated, random rules. It is an interconnected whole constructed by that country as part of the management of its economy. The UK has decided as a matter of policy that the roof over one's head, one's primary residence, shall not be subject to capital gains tax. That is an important policy decision. But the US now comes along and presumes to impose its law extraterritorially and countermand that decision by imposing CGT on Boris's house. Doing so undermines the UK tax regime enacted by the UK Parliament and so impinges on the UK's sovereign right to manage its economy.
So, America, get your thieving hands out of the UK's till.
Does the Washington Post no longer have editors? It should be FLOUT the law, not float the law.
ReplyDelete"I normally don`t get into the policy issue of whether US citizens abroad should be taxed."
ReplyDeleteMaybe THATS the problem. Maybe too many people are not looking at this most basic of issues about the matter. Because citizenship-based taxation is immoral. It is a BAD law in many ways. Many Americans think it is going to get America out of its debt. What a fallacy. Churchill said "A country which tries to tax itself out of debt is like a man standing in a bucket and trying to lift himself up by the handles." Citizenship-based taxation is bad on so many many levels - which is probably why almost every other nation in the world has abandoned it.
It is also bad for american businesses all the more since globalisation, because it renders them unable to compete.
I am curious if the City of London, as a municipal corporation and having a US deemed citizen as its mayor, is exposed to FBAR rules?
ReplyDeleteThe differences in obligations to an Americans overseas residence and to the Us/IRS is just another reason global taxation just is not fair and ethical.
ReplyDeleteI know a few where they have no choice but to send their kids to expensive private school but in the states it would be paid for in taxes. Still yet the same American is subject to US taxation though not benefiting from it. What a joke taxing residents overeseas is. Just another shakedown scam by our bankrupt government employing scum muscle in the IRS to break some legs of its own citizens
Just pure crap. I am a cayman citizen lived in usa for only 5 years sold my house in cayman which was purchased before I got my green card. Bought the house for 400,000 30 years ago. Capital gains of of over 2 million, and the irs wants tax on that. They can kill me first.
ReplyDeleteMy situation is very similar to Mr Johnson's in that I only found out about my US tax filing obligations after I had already sold my home in Canada. Also like Mr Johnson, I left the US as a child. Where Boris thinks of his US citizenship as a mere curiosity, mine meant much more. Also unlike him, I've paid my tax bill and will renounce US citizenship to free myself of an almost completely rapacious government that's proven beyond a shadow of a doubt that it's determined to destroy any goodwill and affection left in its citizens abroad. I didn't leave America, America left me.
ReplyDeletesorry to be so ignorant but is it true if I send my kids to a private school in the US that the school fees/tuiton are tax deductible ?
ReplyDeleteI am really glad that I have found this post and I thank you
ReplyDeletefor letting us know about this information….This is a big help for
sure!!Thanks!
International Tax Planning
I'm curious to see what the IRS/DOJ do if Boris continues to refuse to pay. It almost forces them to indict him. That could create an interesting international dilemma. I don't think the Brits will extradite him but what if he travels?
ReplyDeleteI met a couple from California a few days ago. I asked them if they ever heard of FACTA or the issue of non-residency based taxation that the US imposes. They didn't have a clue. They were 50+, well educated and had their own business. Makes me wonder if the average American is aware of the situation. Maybe, if Boris wants to make an international incident over his tax bill, more people will find out about what is going on.
The other thing in the article that really strikes a nerve for me is the outstanding parking ticket bill by the US embassy. Why don't they just pay it? It appears that the American diplomats feel they can park wherever they like. Being guests in the country, it shows a complete lack of respect for their hosts and makes them appear as being very arrogant and having no class. It shows that they have no respect for the laws of other countries yet they try to impose US law on the entire world.
To Anon 5%--you can take no deductions for sending your children to private schools, no matter what your income. A few years ago Obama tried to give tax credits for education, which would allow people that wanted to send their kids to better schools the money to make that choice, Frankly if every one in America got a 10,000 education credit the public school system would shtick dramatically, because most people only send their kids to public schools because they don't have a choice.
ReplyDeleteThe US embassy in London claims that it pays parking fines. It refuses to pay the the congestion fee, the imposition of which made London much more pleasant.
ReplyDeleteWhy won't they pay the congestion fee? Because the fee is supposedly a "tax". Rather ironic in this context....
No choice on schools but to send their kids to expensive private schools? Most countries have public schools, many better than in the US. But then the kids might have to learn another language and the parents in question want to avoid that educational effect!
ReplyDeleteThere is usually a choice. You only mean that in the minds of the parents, the choice is easy. (It shouldn't be.)
School taxes in the US are local, often property taxes. US citizens living abroad don't have to pay them, unless they choose to keep their property in the US.
You are joking...."if the average American is aware of the situation"..... Keep in mind only 30% of americans have even passports - you will be lucky to find 3 out of 10 people in the US even today that know what CBT,RBT,FATCA or double taxation is with regards to expats.
ReplyDeleteThe answer to this question depends on whether the U.S. believes that it is PART of the world or whether the U.S. believes that it is THE world.
ReplyDeleteYou are correct about " rather ironic" .... another example of US hypocrisy . Foreign diplomats have to pay US highway tolls but US diplomats in London do not need to pay a congestion fee like everybody else.
ReplyDeleteActually, I wasn't joking. I don't know anybody who doesn't have a passport but I live in Europe. The fact that 70% don't have passports might be why or how come they think US law rules the planet.
ReplyDeleteWhat happens if the Mayor of London doesn't want to pay? It seems that he is saying "I recognize that the IRS wants me to pay the taxes. Although it is a valid assessment in accordance with US law, I don't think it is fair. Therefore, I refuse to pay."
ReplyDeleteIs that fraud or tax evasion? Can he be criminally indicted? Is refusing to pay a valid tax bill a crime or is it just a collection matter?"
Of course, he probably didn't include the sale of his house on his tax return. So that could be considered filing a fraudulent return. But, I'm more interested in the legal situation caused by someone simply refusing to pay.