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Boris’s dilemma: relinquish his US passport or pay American tax

24 November 2014

6:18 PM

24 November 2014

6:18 PM

When in doubt, blame wealthy foreigners for any political problems. That goes for pols in the US and the UK alike, and even the dual-national Mayor of London is not immune. Boris Johnson opposes blanket non-dom and mansion taxes, but wants councils to ‘whack up’ local levies on empty homes and advocates closing stamp-duty loopholes exploited by ‘mainly but not exclusively non-doms’.  Through these, he explained in one Telegraph column, and with ‘the agency of some clever lawyers, they avoid a tax that is paid by virtually everyone else’.

So it is with great interest – and some sympathy, on the part of yours truly – that we expatriates in London learn of Johnson’s dispute with the US Internal Revenue Service (IRS). Speaking to American National Public Radio (NPR) this month Johnson said:

‘They’re trying to hit me with some bill, can you believe it?’

Yes, we can.

The IRS apparently wants its 15 per cent cut from the sale of Boris’s first home, a north London four-storey that he and his wife sold in 2009 for more than twice the 1999 purchase price. The sale of a first residence ‘is not taxable in Britain’, Johnson explained to American listeners (so there’s one stamp-duty loophole that he’s not clamouring to eliminate).

However, it is taxable for US citizens, no matter where in the world the transaction takes place and particularly if the gain has gone untouched by other jurisdictions.  Asked if he plans to pay the bill, Boris retorted:

‘No. . . . I think it’s absolutely outrageous. Why should I?’

The short answer, to borrow the Mayor’s logic, would be because capital-gains tax on real estate is paid by virtually everyone else who holds US citizenship – except those who can afford the clever lawyers to avoid it.

 

That hardly makes it just, and this American wastes no love on the ‘incredible doctrine of global taxation’, as Johnson described it to NPR. Adding insult to absurdity, the IRS does not adjust for inflation in setting capital-gain tabs, so its bill to Boris probably reflects the full nominal increase on the sticker-price of his London home.

But US taxes have been technically global since 1861, in part to discourage Americans from fleeing our gory civil war. The Revenue Act called for duties to apply on income:

‘Whether such income is derived from any kind of property, or from any profession, trade, employment, or vocation carried on in the United States or elsewhere, or from any other source whatever.’

The Feds didn’t get really serious about it until just a few years ago, with the 2010 Foreign Account Tax Compliance Act (Fatca), which requires banks around the world to report on their US-national account-holders. If you spot an American in hysterics outside some City bank, take pity: she has likely been unable to do business with a financial institution (understandably) disinclined to serve as informant for the IRS.

It is no defence, as Johnson protested on NPR, that he hasn’t lived in the US since he was five years old. Boris and I were born in the very same New York General Hospital; I spent even less of my childhood there than he, and have done barely a lick of profitable work in America for a decade. Still, each year I account for my global income and assets in increasingly tedious forms, and mail cheques to the IRS as ordered to do so.

Unlike Johnson, I have no choice. Despite my equally diligent accounting to Her Majesty’s Inland Revenue and other tax-gatherers around the world, no nation other than America has seen fit to grant me citizenship. Boris, however, could turn in his passport and free himself from any future US tax liabilities without fear of statelessness. In a 2006 Spectator column, he purported to do just that:

‘Condi, Mr Ambassador, whoever is in charge — I hereby renounce my birthright. Strike me off the list. Consider me, as you put it, an “alien”.’

He never followed through, and in 2012 his office confirmed that he had renewed his US passport. He told NPR this month that ‘it’s very difficult to give it up’.

Mind you, none of this would be a problem under Boris’s Periclean ideal of citizenship and taxation. In a March essay in The Spectator, he exalted London as the contemporary paragon of Athenian democracy, noting that ‘neither Pericles nor his electorate were remotely soft on immigration’. In 451, the Mayor wrote, they:

‘Passed a decree that you could only be a full Athenian citizen if both your mother and father were born in Athens — with the result that thousands of people suddenly found themselves facing huge fines as they were reclassified as resident aliens. . . . And yet they came in huge numbers, at all levels of society.’

Boris has yet to propose the full-Periclean model for expats in London. But, like modern Britain, the Athenian rules would have excluded Boris from US citizenship.

Despite his protests, Boris appears to enjoy at least some of the privileges we get with our burdensome birthright. For instance, popping into New York without pre-authorisation to promote a book on US airwaves and moan freely about the government. It’s not clear that Johnson has ever exercised his right to vote in a US election, but he got more than his Constitutionally protected say in 2008, with a 1,063-word Telegraph endorsement of then-candidate Barack Obama.

That arguably, indirectly, contributed to Boris’s ‘outrageous’ predicament today: pursuit by the IRS on a transaction that occurred roughly 5,000 miles outside the US. Boris will no doubt play his tax delinquency in America to political advantage in Britain, even while joining calls to soak the jet-set for all they’re worth. The episode may even force the Mayor to take his US citizenship seriously enough to renounce it. Until then, he might spare the rhetoric on his own city’s ‘metics’ and the fellow Americans among us, facing equally outrageous demands from governments with which we can’t afford to argue.


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