Just how the US Foreign Account Tax Compliance Act (FATCA) is impacting on the lives of Americans in sometimes unintended is illustrated in the tax troubles of the Mayor of London.
Boris Johnson, a former British MP, has dual British and US nationality.
He was born in New York but left the USA for Britain when he was five years old.
Nevertheless, he has a British and US passport.
Johnson is well-known for his gaffs and for often speaking without thinking too much about what he is saying.
In the past, he has criticised the US embassy in London for failing to pay a backlog of £7 million of congestion charges, a fee for driving vehicles in grid-locked Central London.
Refusal to pay CGT bill
However, Johnson has now revealed he is at the centre of a FATCA tax tug-of-war with the Internal Revenue Service (IRS).
On a trip to New York to promote a new book, Johnson told radio listeners that he was astonished to have received a tax bill for the sale of a home in London.
He explained that selling a home is tax-exempt for British taxpayers, but due to his dual nationality, he was also expected to pay tax in the USA on the disposal as a capital gain.
The IRS is demanding Johnson pays 15% of the cash he made from the sale of a four-storey London townhouse bought in 1999 which he sold for a handsome 100% profit 10 years later.
“The IRS is chasing me for this money which you do not have to pay in Britain,” said Johnson. “I can’t believe it and I’m not going to pay it.
US passport
“It’s an outrage. I’m not American and have not lived in the States since I was five. I pay all the taxes due on my income and other earnings in Britain.”
The US tax system differs from most others, including Britain. The US government taxes citizens on their worldwide gains and income even if they are expats, which is why Johnson has received his tax demand.
Recent tax treaties, including FATCA, allow HM Revenue & Customs (HMRC) in Britain collect and automatically pass financial data on US citizens to the IRS.
Asked whether he would give up his US passport to avoid FATCA, Johnson made no reply other than: “It’s difficult to hand back.”
Technically, the problem is citizenship-based taxation rather than FATCA. FATCA has simply made a lot of people come into compliance with some rather skewed and very nasty tax laws.