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Tax obligations flow from holding onto a U.S. passport

Unlike many countries, the United States taxes the income of citizens and permanent residents regardless of where they live or earn the income. Recently, The Daily Telegraph reported that the Boris Johnson, the mayor of London has an unpaid tax bill with the Internal Revenue Service.

The London mayor was born in New York, but left the country with his parents at the age of five. However, he remains a U.S. citizen and still has a U.S. passport.

The unpaid IRS tax bill relates to capital gains from the sale of a London home. When the mayor sold his first London home, he made approximately $1.1 million dollars on the sale. The U.S. tax bill was approximately $160,000.

On a recent trip to the U.S. to promote a book, the mayor told NPR reporters that he viewed the bill as “absolutely outrageous” and would not pay it. He also cited the fact that he had not lived in the U.S since he was five years old. It is unclear what collection efforts the IRS has undertaken, but the agency may file a lien or seize money in a bank account through a levy when an individual fails to pay a tax bill.

The mayor complained that the U.S. embassy skirts a congesting charge, which charged to vehicles that travel through central London at peak hours on weekdays. He claims that the amount owed by American diplomats has reached more than $10 million dollars. The U.S. asserts that the fee is a form of a tax and diplomats are exempt.

While the disputes between Boris Johnson and the U.S. officials will likely drag on, other expats living abroad should take caution to ensure U.S. tax compliance. Maintaining a foreign bank account could carry a disclosure requirement, for example. Failure to file the Report of Foreign Bank and Financial Account (FBAR) could result in serious penalties and even a criminal charge.

When unsure whether you have complied with all U.S. tax laws, seek the counsel of an experienced international taxation attorney.

Source: CNN, "London mayor refuses to pay U.S. tax bill," Ivana Kottasova, Nov. 21, 2014 

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