London's Mayor paid his outrageous IRS bill and now is renouncing his U.S. Citizenship

It seems counter intuitive. Why pay the IRS and then renounce? I would think he would renounce and not have to pay the huge IRS burden.

Boris Johnson, London's Mayor since 2008 and dual U.S. and British citizen, paid his outrageous IRS bill and now is renouncing US Citizenship. Well who can blame him, It’s about the only way for him to safely get the IRS off the hunt and get free of the yoke of U.S. worldwide taxation.

Conservative Boris Johnson was hit with an IRS bill on his London house sale. His gain was exempt from U.K. tax, so no tax credits or other U.S. tax moves would satisfy the IRS. Like many dual citizens and Americans living abroad, Mr. Johnson was caught within two tax systems. He publicly railed against the worldwide U.S. tax regime, calling it “absolutely outrageous.” The Londoner was born in the U.S., but left at age 5. Still, the IRS wants its pound of flesh from his global income…forever. For a time, the tousled blond mayor refused to pay.

He had toyed years ago with renouncing his American passport, but he never gave it up, despite threats in his column for the spectator. In hindsight, perhaps Mayor Johnson should have renounced in 2006. More and more Americans are doing it, spiking in a 221% increase in 2013, with record numbers of Americans renouncing. What’s more, 73% of Americans abroad are tempted to give up their U.S. passports.

Americans abroad may have trouble with basic banking and home loans. There are now many new forms of what can only be called discrimination against Americans. Some U.S. persons abroad are taxed on their pension contributions, end up with big penalties, or at least the fear of them. And renouncing, as Mr. Johnson has noted, isn’t easy.Besides, renouncing wouldn’t have solved his current IRS tax bill.The IRS would keep trying to collect, and the statute of limitations might never run. Indeed, there was more than idle talk that Mayor Johnson could face arrest on his next U.S. visit. So he paid his “absolutely outrageous” U.S. tax bill. It was really the only way he could have solved it.

When you exit you must certify 5 years of U.S. tax compliance to the IRS. And any tax for the current or prior years must be paid. Some Americans get their U.S. status via birth and may not have ever filed returns with the IRS. Some stopped filing with the IRS when they moved abroad. They may owe U.S. taxes even if they are paying taxes where they live.

Ironing out the difficulties can be daunting. Apart from proving 5 years of U.S. tax compliance, leaving can trigger a U.S. exit tax. If you have a net worth greater than $2 million or average annual net income tax for the 5 previous years of $157,000 or more for 2014 (that’s tax, not income), you pay an exit tax. It is a capital gain tax as if you sold your property when you left. At least there’s an exemption of $680,000 for 2014. Long-term residents giving up a Green Card can be required to pay the tax too.

Pouring salt in the wounds, the U.S. State Department recently raised the fee for renunciation of U.S. citizenship from $450 to $2,350. Critics note that it’s more than twenty times the average level in other high-income countries. The new IRS Streamlined program is a huge help, but some think it does not go far enough to help Americans abroad.

For Mayor Johnson, as he completes the renunciation he has now said he will follow, it is clearly a smart move. Mayor Johnson has stressed his non-tax patriotic reasons for renouncing, though he denies he’s eyeing the Prime Minister chair. His commitment, he notes, is to Britain.

Credit:AtlantaLeader