UK: Mayor of London exempt from US taxes?

[The Dog]

I'm not sure whether this classifies as US or "Other Countries".

Bosis Johnson, who is the Mayor of London (not to be confused with the Lord Mayor of Dick Whittington fame), is a dual national holding a US passport.

Accordingly, the US authorities are pursuing him for taxes.

Boris refuses to pay US tax bill: London Mayor say demand for unpaid capital gains over his home is 'outrageous'
http://www.dailymail.co.uk/news/article ... z3JiJOdIda

[Famspear]

So, he bought a house for 470,000 pounds (say, about $740,000) and sold it for 1.2 million pounds (about $1,888,000), for a capital gain of about $1,148,000.

Poor fellow. With what appears to be an annual gross income in excess of 394,000 pounds (about 620,000 United States dollars?), why should people expect him, as a U.S. citizen, to comply with the laws of the United States of America?



Jerk.

[fortinbras]

Well, the Mayor is not the only US citizen with dual citizenship. Does the fact that he retains his US citizen on the side make him susceptible to US taxes even if his entire career and the source of all his income is in the UK?

[Famspear]

Based on the news report, it appears that his argument that, as a U.S. citizen, he should not have to pay U.S. federal income tax on the sale of his British residence, goes roughly as follows:

yes I know I’m an American citizen and I haven’t renounced my American citizenship so naturally I still enjoy the benefits of being an American but why should I have to comply with American tax law because after all I left America when I was five years old and British law does not impose a tax on this sale so it’s unfair for American law to impose the tax on the sale and it’s just not faaaaaaaaaiiiiiiiiiiiirrr!

He is a Special Snowflake.

[Famspear]

Well, the Mayor is not the only US citizen with dual citizenship. Does the fact that he retains his US citizen on the side make him susceptible to US taxes even if his entire career and the source of all his income is in the UK?

Basically, yes.

[Famspear]

A U.S. citizen, regardless of the place of residence, is generally taxed (under the U.S. federal income tax) on world wide income. There are many specific exclusions available, though.

For example, Internal Revenue Code section 911, relating to certain foreign earned income of U.S. citizens or U.S. residents living abroad. See Form 2555. For year 2014, the maximum amount of foreign earned income that can be excluded is $99,200. It's adjusted for inflation annually.

[Famspear]

From the news report:

Presenter Susan Page then pressed him whether he would pay the bill, to which he said: 'I think it's outrageous.

'Well, I'm - no is the answer. Why should I? I haven't lived in the United States for, you know, well, since I was five years old.

'I could but I pay - I pay the lion's share of my tax, I pay my taxes to the full in the United Kingdom where I live and work.

In his support, I would say that the article does not claim that he is engaging in any sort of scam or dishonesty. He is simply saying that the American tax is unfair. Of course, what he is specifically saying in his communications with the U.S. Internal Revenue Service is unknown.

The fact that he has not lived in the United States since he was five years old might be relevant to the fairness of the U.S. tax, but it's not generally relevant to the legal validity of the tax.

The fact that he pays the "lion's share" of his tax (meaning, apparently, that he pays all his British taxes), as he puts it, may be relevant to fairness. But, there is nothing in the U.S. tax law that says it's generally OK to pay less than 100% of what you legally owe merely because you've paid "the lion's share" -- whether the "lion's share" be United Kingdom taxes or the United States taxes or the taxes of any other country.

Sounds like he may have on-going U.S. federal tax problems, aside from the gain on the sale of his British residence back in 1999. His annual earned foreign income apparently far exceeds the annual inflation-adjusted limit under section 911.

[Famspear]

I wonder whether he's been filing U.S. federal income tax returns all these years. He generally would be entitled to a tax credit for certain foreign taxes.

[noblepa]

Wouldn't he be eligible for the tax exemption on the sale of his personal residence?

I am not a lawyer or tax expert, but I believe that the tax code allows an individual to claim an exemption on the gain from the sale of a personal residence, as often as every two years. It used to be a once-in-a-lifetime exemption for retirees.

Of course, to claim this exemption, he would have to file a US tax return, which would expose his other income to US taxation.

Also, aren't there any tax treaties with the UK that would at least partially reduce his US tax liability because of the taxes he paid to the UK?

Paul Noble

[Famspear]

Wouldn't he be eligible for the tax exemption on the sale of his personal residence?

I am not a lawyer or tax expert, but I believe that the tax code allows an individual to claim an exemption on the gain from the sale of a personal residence, as often as every two years. It used to be a once-in-a-lifetime exemption for retirees.

Of course, to claim this exemption, he would have to file a US tax return, which would expose his other income to US taxation.

Also, aren't there any tax treaties with the UK that would at least partially reduce his US tax liability because of the taxes he paid to the UK?

Paul Noble

Yes, but his gain was reportedly over a million dollars. The amount of gain excluded from income under Internal Revenue Code section 121 does not exceed $250,000 (or $500,000 on a "married filing joint" return). The income tax would still be incurred on the amount in excess of that.

EDIT: And yes, there is a tax credit for foreign taxes paid.

As far as his other income, it's subject to U.S. federal income tax regardless of whether he files a return or not.

[Arthur Rubin]

Wouldn't he be eligible for the tax exemption on the sale of his personal residence?

I am not a lawyer or tax expert, but I believe that the tax code allows an individual to claim an exemption on the gain from the sale of a personal residence, as often as every two years. It used to be a once-in-a-lifetime exemption for retirees.

Of course, to claim this exemption, he would have to file a US tax return, which would expose his other income to US taxation.

Also, aren't there any tax treaties with the UK that would at least partially reduce his US tax liability because of the taxes he paid to the UK?

Paul Noble

Yes, but his gain was reportedly over a million dollars. The amount of gain excluded from income under Internal Revenue Code section 121 does not exceed $250,000 (or $500,000 on a "married filing joint" return). The income tax would still be incurred on the amount in excess of that.

EDIT: And yes, there is a tax credit for foreign taxes paid.

As far as his other income, it's subject to U.S. federal income tax regardless of whether he files a return or not.

The foreign tax credit doesn't help him on the sale of the house. If, as he says, the sale is exempt from UK taxation, the (US) capital gains income doesn't count as "double-taxed" income, so it's not included as "foreign-sourced income" on form 1116.

In other words, he owes a boatload of money to the US for the year of sale, even if UK taxes are normally higher than US taxes. In previous years, although the earned income exclusion (form 2555) doesn't eliminate his US income tax or the penalty for failure to file, form 1116 probably would eliminate his US income tax; and, if so, would eliminate the penalty for failure to file.