Boris and the American tax bill

Boris Johnson is to renounce his US citizenship, removing a potential obstacle to becoming Prime Minister.

The London mayor has dual nationality as he was born in New York – but has now revealed he wants to hand back his American passport.

”The reason I’m thinking I probably will want to make a change is that my commitment is, and always has been, to Britain,” he told the Sunday Times during a week-long tour in the States.

”It’s an accident of birth that has left me with this thing. I’ve got to find a way of sorting it out.”

But the really interesting thing is that when you do renounce US citizenship then you’ve got to pay tax. Effectively, it’s as if you sold all your belongings and crystalised the tax bill. Boris is a wealthy man: this could get interesting.

26 thoughts on “Boris and the American tax bill”

  1. So Much for Subtlety

    I guess he could just avoid the US for the indefinite future.

    A bit embarrassing in an PM, but perhaps not fatal.

  2. More interesting still is an outside bet on Boris being PM by Christmas.

    Cameron loses the election and resigns, Boris wins his seat and is elected leader post-Cameron.

    Labour form a coalition/minority government but can’t hold it together due to the usual Lefty fraternal infighting and Miliband being a tosser. Second election in the autumn, Boris wins a majority after winning back a lot of votes from UKIP voters who voted for a gobby bloke.

    The only thing that makes me doubt this scenario is that a Labour/SNP coalition probably will be able to survive especially with the new 5 year term rules.

  3. Boris, though he has many outstanding qualities, including being a gobby bloke, is a bought-and-paid-for Federast. That won’t impress Kippers.
    When there is a tax code 3700+ pages long, which is indecipherable even to tax lawyers, there’s plenty of room for Boris to manoeuvre. No doubt La Hodges will be able to give Boris a hint or two. They’re both in it together, after all.

  4. Watch Ritchie now commend the US for its tax treatment of Boris, thus contradicting his latest U-turn on citizenship-based taxation………..

  5. Boris Johnson as Prime Minister? The mind boggles. Does anyone take the priapic fraud seriously apart from himself? Arthur Askey was funny but I wouldn’t have made him PM either.

  6. What would be more believable would be Boris becoming President of the USA at the same time as being PM of the UK. Then the two countries can be joined back together again after centuries of warfare and distrust.

  7. Boris, as a dual-at-birth, is not subject to the exit tax. He did have to pay US capital gains on his UK bought-and-sold house.

    Don’t you find it outrageous that a foreign nation is effectively levying taxes on the UK economy? Not only does the UK government not object, it actively facilitates this with the unreciprocal FATCA agreement.

  8. “Don’t you find it outrageous that a foreign nation is effectively levying taxes on the UK economy? Not only does the UK government not object, it actively facilitates this with the unreciprocal FATCA agreement.”

    Yes. It’s worse in e.g. France where unemployment insurance payouts are rather more generous for a period after losing your job – they are taxed by the US as unearned income. So there is thus a direct transfer from the French taxpayer to the IRS.

    In Canada there are certain savings accounts where the state puts in matching funds. The US considers these matching funds income and taxes them.

    And the US had the gall to criticise Eritrea at the UN over its 2% diaspora tax…

  9. The US way of taxing its citizens abroad does seem outrageous, aren’t there any countries that simply refuse to disclose US citizens earnings to the US treasury?

  10. Given that Boris has done diddly-squat for London in his time as mayor, why would anyone expect him to make a good PM?

  11. The US way of taxing its citizens abroad does seem outrageous, aren’t there any countries that simply refuse to disclose US citizens earnings to the US treasury?

    I think the onus is on the individual to file a tax return, and whereas it would probably be quite easy to lie, the fact that the IRS operates with more ruthlessness than the Gestapo serves to persuade most people to file truthfully.

    What amused me post 9/11 was the lament from the US security services that their operatives have been unable to penetrate into whole swathes of the world, including the Middle East. Small wonder that few Americans speak Arabic when the primary motivation for emigrating to the Middle East – the absence of tax – is not available to them. I wonder how much the Americans’ bone-headed understanding of the world comes down to the tax clobbering American expats get?

  12. Tim N., Banks in other countries that have a presence or correspondents in the US have to report the details of their US citizen account holders to the IRS. The paperwork is an unholy and time-consuming mess, hence US citizens finding their accounts suddenly closed. The IRS also often demands all sorts of information from commercial companies that trade with US citizens; I shred all such requests but just to be on the safe side I’m not going to be travelling to the USA for the foreseeable future.

  13. “when you do renounce US citizenship then you’ve got to pay tax. ”

    Well, yes and no.

    The US will certainly *charge* you tax. But as long as Boris doesn’t wish to come back into the US, he doesn’t have to *pay* it. He’ll just keep receiving threatening letters.

    Hmm, maybe the IRS will hire some bounty hunters to ‘capture’ (read: kidnap) him and bring him back for trial.

    That might bring this whole extra-jurisdictional tax nonsense to a head.

  14. Though it would be fun to watch, with him as PM, making an official visit and the process servers trying to get at him.

  15. It’s not just the tax clobbering that’s the problem, it’s the raft of duplicate information returns.

    Try to find out from first principles how an ISA is treated, and how many forms it requires for someone breaking both the $10k FBAR and 200k FATCA thresholds. Then calculate the minimum and maximum penalties if you get it wrong. An ISA is treated as a Foreign Passive Investment Corporation, by the way.

    Btw, if Boris had sole or joint signatory authority over any public accounts, he technically had to declare them on an FBAR or face vast penalties. If he was treasurer of the village fête committee and had a signature on the account, that has to be declared too. It’s madness.

  16. Tim N. Indeed. I have a contract with a regional oil company and because of the FATCA shite, they’re replacing Americans with Argies and Venezolanos to save on hassle and reporting requirements. The Yanks are becoming unemployable outside their own country; as you say, truly mental.

  17. He doesn’t need to go that far – he just issues everyone with a green card. Cos the US system applies to green card holders too, even if they never act on it and actually go to the US.

    This also applies even if the green card is expired and the system was not correctly exited with the correct form (and they don’t publicise well how to exit it properly), which is the most perverse – (attempting to) tax foreigners living abroad who have no right to live in the US any more.

  18. The problem with expatriate American taxation is that it goes back to at least the American Civil War.

    The first U.S. income tax, enacted in 1861 in the early months of the American Civil War, levied a 3% tax on incomes over $800, but a 5% tax on income earned in the U.S. by “any citizen of the United States residing abroad.”

    The aim was to prevent wealthy people ducking their military and civic obligations by fleeing the U.S. in its time of crisis. In 1864, the tax was expanded to include income from all sources, no matter where generated.

    Tax History: Why U.S. Pursues Citizens Overseas

  19. @ Andrew M

    “Given that Boris has done diddly-squat for London in his time as mayor, why would anyone expect him to make a good PM?”

    A PM who’ll spend 5 years doing nothing except twat around on a zip slide sounds like a great idea. Leave the rest of us alone for a while.

  20. Ah, finally a chance to flex my expertise muscles. I was envious of Tim Newman, a while back when he was lecturing the undergrads on backup systems. Since I do not hold the Queen’s travel document but am a mere colonial subject (Dominion of Canada), I will refrain from making any comment about the political aspirations or record of Mr. Johnson. However for simplicity, I will henceforth refer to him as “BJ”.

    First things first

    -In order to lose his future US tax liability to the US, BJ will have to:

    a) bring all his US tax filings and payments for the past five years up to date. He will probably be able to offset most of the income and capital gains tax by claiming a foreign tax credit under the tax treaty. However, as he discovered on the house sale, the tax treaty does not perfectly prevent double taxation or taxation by the US in situations where the UK does not tax. Along with any tax owed, BJ will have to pay all interest and penalties applicable;
    b) file the paperwork to renounce his US citizenship at a US Embassy or Consulate (presumably in London) and pay the $2350 USD fee;
    c) Complete IRS 8854 http://www.irs.gov/pub/irs-pdf/f8854.pdf) along with filing a terminal IRS 1040NR.

    -If BJ triggers either of the two tests noted in IRS 8854 (i.e. 5 year average US tax paid or net worth) then he will prima facie be a “covered expatriate” http://www.irs.gov/Individuals/International-Taxpayers/Expatriation-Tax). I don’t know what BJ’s US tax bill will be, but let’s assume that he had managed to squirrel away at least $2,000,000 USD in assets;

    -Since I understand that BJ was a British national from birth (via his UK parents) AND that he had not resided in the US since the tender age of 5, he would probably be able to rebut the presumption that he is a covered expatriate as BJ fits the following:

    An individual shall not be treated as meeting the requirements of subparagraph (A) or (B) of section 877 (a)(2) if—
    (i) the individual—
    (I) became at birth a citizen of the United States and a citizen of another country and, as of the expatriation date, continues to be a citizen of, and is taxed as a resident of, such other country, and
    (II) has been a resident of the United States (as defined in section 7701 (b)(1)(A)(ii)) for not more than 10 taxable years during the 15-taxable year period ending with the taxable year during which the expatriation date occurs.

    -rebutting the covered expatriate presumption means that he does not trigger a deemed disposition for US capital gains purposes (which would require him to immediately pay the capital gains tax) and he does not pass on US estate issues if he leaves some money for the four little BJs (who may all Americans because BJ was an American).

    So in summary, in order to bring his affairs in order with the IRS AND sever his future US tax liability and filing obligations, BJ will be enriching a qualified accountant (IOW Richard Murphy need not apply) and probably a tax lawyer to go through his last five years of income; stock or other asset sales; corporate ownership (i.e. is there a US controlled foreign corporation in the woodshed); ‘vanilla’ tax planning like trusts; ‘dodgy’ tax planning (see ‘vanilla’); etc. etc. They will calculate his tax, interest and penalties.

    In addition, BJ will need to do a number of filings which will include at a minimum Foreign Bank Account Reports for EVERY account he has signing authority (single or joint) which has more than $10K US in total holdings in a year. That would include not just personal accounts but also any business or government accounts where he had any type of signing authority.

    If he is a settlor or beneficiary of a trust; owns shares in a corporation which when his shareholding is combined with other US shareholders is more than 50% of the total shareholding; or has any other type of financial ’stuff’, he will need to work through the US tax and filing implications of same. He also has to pay penalties for failure to previously file these FBARs etc.

    Once this is done, then BJ can book an appointment with US Citizen Services (about 3 weeks ahead) and do the dirty. In approximately 3 to 4 months (currently) BJ will be issued a Certificate of Loss of Nationality by the US State Department which will confirm that the US agrees that he ceased to be an American on the day of his renunication. After that it is more filing of the IRS 8854 and the rebuttal paperwork along with his final tax return. Easy peasy

    Now to the fun of speculating as to the turn around from his “FU IRS” in the interview to his docile retreat from bravado. I would STRONGLY suspect that it had nothing to do with his upcoming book tour in the US. Rather it may be the discovery that he was quite mistaken in thinking that the IRS need him to pick up his chequebook in order to collect. The IRS would just have gone to his bank, brokerage firm etc., all of whom are Qualified Intermediares (http://en.wikipedia.org/wiki/Qualified_intermediary), and had them seize BJ’s accounts to settle any outstanding bill they thought he owed.

    I think that BJ received a quiet late night call from his private banker informing him of this reality, which had the same sphincter tightening effect as hearing the pump action of a shotgun while playing around with the farmer’s daughter in the hayloft.

  21. An excellent summary, except for one thing – the FBAR is not triggered by us$10k in an account, but us$10k total “offshore”.

    I think we can safely say that BJ has more than 10k kicking around, so it’s every account of any nature that has to be reported – even a couple of quid in a club account that he can (joint) sign for.

    As for the penalties, they could be vast. Mind-blowingly vast. If he enters the current “amnesty” it’ll cost him 27.5% (if he’s not unlucky) of the maximum in the accounts for the last 6 years (and remember the accounts of London could be counted towards this). If they let him do Streamlined, he might get away with a much lower penalty.

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