Here's One way to deal with an IRS international tax problem: Boris Johnson has revealed that he is refusing to pay a tax demand issued to him by US authorities – despite previously lambasting the US embassy in London over its failure to pay the congestion charge. The mayor of London, who was born in New York and holds a US passport as well as a British one, visited the country last week to promote his book and said during an interview with NPR (National Public Radio) that he had been hit with a demand for capital gains tax. All US citizens, including those with dual citizenship, are legally obliged to file a tax return and liable to pay US taxes, wherever they are living, even if the income is earned abroad.
Asked whether he would pay the bill, Johnson initially avoided the question. But when it was put to him a second time, he replied: “No is the answer. I think it’s absolutely outrageous. Why should I? I think, you know, I’m not a … I, you know, I haven’t lived in the United States for, you know, well, since I was five years old … 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.
An alternative way to deal with an international IRS problem
Mayor Johnson received a proposed assessment from the IRS regarding a capital gains tax on the sale of his primary home. This assessment can still be contested, so hopefully Johnson has a legal team prepared to handle a battle with the IRS because the IRS seems to be wrong on this one.
The U.S.-U.K. tax treaties is one of the most beneficial treaties for foreign residents out of any of the double-tax treaties that is currently in place. U.K. resident-citizens who do not have a substantial presence in the U.S. can count themselves quite lucky under the terms of this treaty.
The article notes that Johnson received a bill from the IRS with regards to capital gains taxes from the sale of his primary home in the U.K. Under Article 13 of the U.S.-U.K. tax treaty, Johnson is not subject to U.S. taxes on the sale of his home in the U.K. He is only subject to tax (as imposed) in the U.K. on that sale. If the U.K. exempts this sale from tax, he doesn't pay any tax on the sale.
The article also notes that Johnson would be liable to pay US income tax on his earned income (presumably from being Mayor of London). However, salaries paid by the U.K. government (whether at the country or local level) are only taxable in the U.K. He would owe no U.S. taxes on those wages.
In order to claim these benefits each year, he would need to file a declaration that he is claiming these tax treaty benefits with his return. That being said, if he filed a return that did not include these items of income or did not file a return at all, he likely still has some pretty solid grounds to have any proposed assessment on this income overturned completely.