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Should London Mayor Boris Johnson Pay U.S. Taxes?

Robert-Goulder_avatar_1414006020-40x40.j Robert Goulder , Contributor

Recent discussion has focused on the proper jurisdictional reach of income taxation — namely the fact that the United States taxes individuals on the basis of citizenship. This cuts against the international norm. Almost all other nations (apart from the tiny African state of Eritrea) tax on the basis of residence or domicile. Even high-tax countries with costly social welfare regimes refrain from taxing on the basis of citizenship.

The U.S. approach can lead to some peculiar outcomes. Consider the strange case of London Mayor Boris Johnson, who was recently forced to settle a pending tax claim with the IRS.

Johnson is a flamboyant character. Among other things, he is known for commuting to work on his bicycle and purposefully ruffling his hair before public appearances. He’s especially popular with younger Brits, and his name is often floated as a possible Tory leader once Prime Minister David Cameron steps down.

He’s also brash. In 2011, when President Obama was visiting the U.K., Johnson asked him to write British taxpayers a check for £5 million, representing unpaid charges the U.S. Embassy had incurred under London’s traffic congestion charge. (The U.S. State Department argues that the congestion charge is a tax, not a fine, from which our diplomatic missions are immune.)

Although every aspect of his economic life is firmly rooted in Britain, Johnson holds dual citizenship. He was born in New York, but hasn’t lived in the United States since the age of 5. He keeps both a U.K. and U.S. passport. On numerous occasions he has considered relinquishing the latter, but declined to do so after learning the process was difficult, expensive, and time consuming.

By virtue of his continued citizenship, Johnson is a U.S. taxpayer. He learned that the hard way, when a correspondence from the IRS arrived in his mailbox seeking back taxes from a local real estate transaction. The following details soon emerged.

In 1999 Johnson and his wife purchased a home on Furlong Road in the Islington area of north London. The purchase price was £470,000. Because of a booming real estate market, the property’s value more than doubled over the next 10 years. The couple sold the house in 2009 for £1.2 million, realizing a gain of £730,000. That’s about $1.09 million.

We don’t know the exact size of Johnson’s U.S. tax bill. It’s likely well into the six figures, assuming a 15 percent capital gains rate that was in effect in 2009. He’s probably looking at interest and penalties as well. It matters not that the real estate is situated thousands of miles away from the nearest U.S. border, or that Johnson had not been a U.S. resident for 40 years at the time of sale. There is no claim of U.S. residence, and no claim of U.S. domicile. Nevertheless, the U.S. asserts a tax liability on the sale of a house in London. That leaves a lot of people scratching their heads.


Ironically, none of Johnson’s gain was taxable in the United Kingdom. British law does not impose tax on the gain from the sale of an individual’s first home. Thus, the bizarre outcome is that the mayor of London can sell a house in Britain and the resulting gain is exempt in the U.K. but fully taxable in the U.S.

And Johnson’s U.S. tax concerns don’t end with the Islington real estate transaction.

As a U.S. citizen, Johnson is also taxable on his foreign salary and wages. He reportedly earns £144,000 a year as mayor, and another £250,000 as a columnist for The Telegraph. Then there are book royalties from a recent biography he wrote about Winston Churchill. The foreign earned income exclusion (roughly £62,000) offsets a portion of those earnings, but the balance is subject to tax in the United States. Certainly the mayor of London maintains a British bank account, perhaps several, so let’s not forget his filing obligations for the foreign bank account report. And, of course, there are now Foreign Account Tax Compliance Act considerations.

Johnson spoke defiantly about his tax conundrum last November during an NPR interview. He pulled no punches when asked whether he intended to pay the IRS. “No is the answer. I think it’s absolutely outrageous. Why should I?” he said.

He was referring to the fact that, as a long-term U.K. resident and domiciliary, he doesn’t benefit from the public services the U.S. government provides. Our public schools, our roads and infrastructure, our police and military — it’s a stretch to argue that Johnson has benefited from them since leaving America as a preschooler in 1969.

As noted, he still owns a U.S. passport. That means he could, in theory, walk into a U.S. embassy anywhere in the world and receive assistance. Or he could move back to the U.S. for his retirement many years from now. Do these possibilities, however improbable, justify our citizenship-based tax policy? These questions are difficult to answer, and reasonable minds may differ as to the response. What we can safely conclude is that no other country, barring Eritrea, follows the U.S. stance.

True, there are tax treaty protections at play and foreign tax credits available. But the point of the story isn’t double taxation; it’s jurisdictional overreach. Many will argue that a citizenship-based tax regime is unfair and heavy-handed.

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Local municipalities are trying to duplicate the US gov's overreach.

Every year we have a battle with a few cities that try to collect tax for worldwide business done.
I don't even have an office in Seattle.

Have done a few medium sized commercial projects.

With an absurdly low threshold of $200K, they try to collect tax for business transactions done in other cities, in addition to the taxes paid to the host city, state, and feds.

As a independent contractor, set up as a C corp, foreign entity in WA state, I average 70% tax on every dollar I keep.

Then, you have 4 other cities trying to do the same thing.

They KNOW it's bull, I always demand to see a list of benefits I have received that the taxes are covering.

In the end I always refuse to comply.

Unfortunately, there are some that do comply.

Businesses are in fact getting taxed out of existence.

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Yes I agree soon the little business owners will be out of business. Such a sad state of affairs this country is in at the present. I'm still hopeful the USA can come out of this. JMHO.

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I thought that your primary residence is free from capital gains taxes if you reside in it for two years or more.

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Personally I think that long  arm should be cut off. Does this apply only to those who had the US citizenship first?  The outreach of this country is getting longer by the day and I agree that something should be done to keep it within it's own self. JMO

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Sadly our government is full of thieves, liars,pilferers,plunderers, and not to mention bad decision makers that waist money without any repercussions, no wonder that our debt ceiling has no boundaries. If anyone wants to add anything that I missed feel free to elaborate ! Thanks

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I want a flat tax - 10% for the feds, 3% for the state and 2% for the local governments - all on equal footing and no more tax dodging. Also, get rid of sales taxes etc. - we're taxed into our graves and the only way to get away from the IRS is to "kick the bucket."

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IRS under a spotlight for freezing assets
Rep. Roskam calls the seizure practice an “abuse by the federal government against citizens.”


By RACHAEL BADE 2/11/15 8:01 AM EST Updated 2/11/15 5:09 PM EST


On April 12, 2013, the IRS seized every penny of a nearly $1 million business account held by Georgia gun shop owner Andrew Clyde.


His misdeed — if you can call it that: depositing business checks into his bank account in increments under $10,000.



A bipartisan group of lawmakers on House Republicans are on Wednesday preparing to shine a spotlight on the government’s practice of seizing small business civil assets without charging them with a crime, signaling a new oversight focus on an issue gaining more attention and hinting at new legislation backed by both parties.


In one instance, a U.S. attorney suggested to one witness’s attorney that he may be getting a harsher punishment because the witness spoke to the press, according to an email reviewed by POLITICO.
“There is a strong indication that the IRS has been involved in civil forfeiture that has hurt innocent people,” said House Ways and Means oversight subcommittee chairman Rep. Peter Roskam (R-Ill.) in a brief interview, calling it an “abuse by the federal government against citizens.”


The hearing was the first for Roskam, who takes over the subcommittee that in the past year focused nearly exclusively on the IRS tea party targeting controversy.


But Wednesday’s hearing struck a rare bipartisan accord as Democrats joined their counterparts in lecturing the IRS.


“Whether or not it is within the law, it is wrong to, without any criminal evidence, seize somebody’s property,” New York Democrat Charles Rangel fumed. “Common sense and decency says that when the Congress screws up, we expect you people to come back and say this is not working.”


IRS Commissioner John Koskinen in the hearing apologized to “anyone who got caught up in this,” calling lawmaker’s concerns “legitimate and appropriate.” But he also said his agents were merely following the law.


Under the law, banks must report cash bank deposits of $10,000 or more to the federal government — a provision aimed at catching illicit traffickers. Criminals have tried to sidestep the reporting requirement by keeping their deposits under the $10,000 threshold that triggers the reports, a practice called “structuring” that is also illegal.


The IRS — like other agencies that engage in the practice, such as the DEA or FBI — has sweeping authority to take assets, having to prove only “preponderance of evidence.”


They don’t have to charge anyone with a crime or present any evidence that shows guilt beyond a reasonable doubt, but can get a seizure warrant solely by presenting bank statements showing that a business has deposited amounts under $10,000.


Critics say that shows nothing.


Although the seizure issue crosses several agencies, Roskam’s panel homed in on the IRS, bringing in small business-owner witnesses who had their money taken without a warning while the House Judiciary Committee held a separate hearing at the same time from a Justice Department perspective.


Koskinen said the agency is addressing the problem, having announced last October that it will seize assets only after finding “probable cause” that depositors are engaging in criminal activity, not just “structuring” — and only after it’s approved by an IRS senior executive.


Lawmakers from both sides of the aisle expressed interest in doing more. Rep. John Lewis (D-Ga.), for example, who apologized to the witnesses “for what IRS did to you,” told POLITICO after the hearing that he is interested in legislation that would allow the victims to regain money lost from their predicaments. That’s something the majority also has brainstormed.


There has been bipartisan backing to increasing the threshold for seizing assets before, including bills by Sen. Rand Paul (R-Ky.), Rep. Tim Walberg (R-Mich.), former Ways and Means Chairman Dave Camp (R-Mich.) and ranking member Sander Levin (D-Mich.).


The broad power in question was aimed at making it easier to catch the bad guys. But the IRS in recent years has used the authority to net small-business owners they believe could be intentionally keeping deposits under $10,000 to avoid reporting requirements.


The IRS between 2005 and 2012 seized more than $242 million for suspected structuring violations in more than 2,500 cases, according to data obtained in a Freedom of Information Act request by the Institute for Justice, a conservative nonprofit representing a number of individuals affected by the practice. It made 639 such seizures in 2012, up from 114 in 2005.


And, according to the group who testified Wednesday, “at least” a third of such seizures resulted simply because the businesses were making multiple bank deposits under $10,000. They say no other criminal activity was ever alleged.


“How can you be guilty on a suspicion?” asked Rep. Mike Kelly (R-Pa.). “This flies in the face of everything we are as a country.”


Koskinen retorted that IRS doesn’t make the decision on its own but with a U.S. attorney and a federal judge, though he later specified that IRS agents initially flag and bring the cases to the Justice Department.


He said the predicament of the small-business owners doesn’t happen often, noting that in 60 percent of the cases when there is a seizure, no one shows up, suggesting that a criminal is behind the pot of cash and has fled.


Still, those caught up in the storm have a tough job of showing they didn’t do anything wrong, but sometimes they don’t get to see a judge for months or years.


“The burden of proof basically shifts — it’s incumbent on small businesses to prove they’re innocent,” said Kevin Brown, former acting IRS Commissioner, who was flabbergasted by the way the policy was being used on small businesses.


That’s what happened with Clyde, the owner of Clyde Armory. He kept his deposits under $10,000 because his insurance limited coverage for losses due to robbery over $10,000, according to his testimony obtained by POLITICO.


After the IRS seized his $940,313 account, he ended up settling to pay $50,000 to avoid a public dispute that could hurt his business and reputation, he will tell the panel. He spent $149,000 on legal bills trying to get his money back.


Small businesses often end up settling for three reasons: It can hurt their public image; it can take years to unfreeze their assets; and it costs money to fight back.


Jeff Hirsch, who will also testify, fought for two and a half years with his brothers against the IRS to get back more than $446,000 worth of assets the IRS seized from his family business in May 2012.
They never got to bring their case before a judge because the government never started the forfeiture proceedings, locking up the assets used to operate their Long Island-based company that distributes snacks to convenience local stores. They relied extensively on credit, paid $25,000 to hire an outside auditing firm to dig through their books and another $25,000 in lawyer bills.


Three weeks ago, the IRS dropped the case. It returned the funds, without any interest and without ever charging the brothers with a crime.


But some can’t afford to wait as Hirsch did.


Randy Sowers, who also appeared Wednesday, decided he and his wife couldn’t operate their Maryland-based dairy farm and creamery without their capital after the IRS took their entire business account balance of more than $62,000. They settled, forfeiting $29,500.


Sowers may have gotten an even harsher settlement than others because he talked to the press about his predicament, according to an email exchange shared with POLITICO.


His lawyer had asked assistant U.S. attorney Stefan D. Cassella why his client, as part of the settlement, had to acknowledge that the government had “reasonable cause” to take his assets even though he disagreed — despite the fact that another person in a similar case did not have to knowledge this.
Cassella retorted in an email that the other person didn’t have have to do that because he “did not give an interview to the press.” Sowers had just talked to a Baltimore-based newspaper, which ran a story on his predicament.


IRS has said from now on it will only focus on seizing the assets of those suspected of illicit activity unless it is an “exceptional circumstance,” but at least two former IRS experts weren’t sure how they could classify which accounts were illegal and which weren’t upon initial inspection and seizure.


Republicans intend to also push the IRS to apply the recent policy change retroactively, giving businesses that settled in recent years the opportunity to re-open their cases and get some sort of reprieve.
They’ll also be seeking more information for the hike in asset seizures in 2012 and 2013. While the number of IRS seizures between 2005 and 2014 often averaged around 1,500, totals reached more than 3,000 during 2012 and 2013. It decreased again in 2014.


Republicans want to know why they doubled, then dropped again. IRS will say the recent drop is because it had to scale back its resources, according to a panel source briefed on the position they’ll take.
The GOP also wants to know what percentage of assets seized were illicit and which were legally earned. The IRS has told the committee it does not have such a breakdown between what’s called “illegal source versus legal source cases.”

Read more:

IRS Seizes First, Asks Questions Later
It’s time for Congress to review the IRS’s forfeiture program.




When Carole Hinders answered a knock at the front door of her home in August 2013, she was confronted by two IRS agents. They told her they had just cleaned out the entire bank account of the restaurant, Mrs. Lady’s Mexican Food, that Hinders had owned and operated in tiny Spirit Lake, Iowa, for the past 30 years. The IRS seized more than $32,000.


While Hinders stood in shock, the IRS agents told her that her cash deposits looked suspicious. Based on that suspicion alone, the IRS had authority to seize her entire bank account using a federal legal procedure known as civil forfeiture.


Hinders protested that she’d get a lawyer and fight the seizure. She still remembers the disdainful response of one of the agents: “Well, you can try.”


The government never alleged that Hinders’ money was the proceeds of illegal activity. In fact, Hinders has never been in trouble with the law in her life. The IRS took her money on the basis of an obscure banking law that requires banks to report all cash transactions of more than $10,000 to the U.S. Treasury Department. This banking law makes it illegal for account holders to “structure” deposits of less than $10,000 to avoid the filing of a report.


Even a casual investigation by the agents would have revealed that Hinders’ restaurant only accepted cash, which necessitated frequent cash deposits. But, seeing a pattern of deposits under $10,000, the IRS surmised that Hinders was evading the reporting law and grabbed her money on the principle of “seize first, ask questions later.”


Hinders is far from alone. Documents obtained using the Freedom of Information Act indicate that from 2005 to 2012, the IRS seized more than $242 million for suspected structuring violations in more than 2,500 cases. At least a third of those cases, like Hinders’, arose from nothing more than a series of cash transactions under $10,000, with no other criminal activity even alleged by the government.


The cavalier response by the IRS agent in Hinders’ case reflects a disturbing reality: The IRS and other federal agencies can use civil forfeiture to seize and keep a person’s cars, cash and other property without ever charging that person with a crime. To get property back, the person would have to prove his or her innocence in expensive and protracted litigation against the U.S. Department of Justice. The process can take years to complete.


Many business owners cannot go for months or years without access to their working capital, so they agree to coercive settlement terms proposed by the government. For instance, when Randy and Karen Sowers had over $64,000 seized from their business by the IRS, they agreed to allow the government to keep about half. Randy and Karen are dairy farmers in Maryland, and they sell their products for cash at farmers’ markets. The only thing they did wrong was make sub-$10,000 cash deposits at the bank, but they ultimately decided they could not afford to fight the IRS.


Legislation enacted in 2000, the Civil Asset Forfeiture Reform Act, was supposed to help property owners by enacting deadlines to ensure that government cannot drag out the civil forfeiture process. But government routinely disregards those deadlines. Under CAFRA, the government is supposed to commence forfeiture proceedings within 60 days of seizing property. But in one case, involving three brothers on Long Island, the government held almost half a million dollars for over 2½ years without taking any step to commence forfeiture proceedings — and, thus, without giving the brothers any opportunity to present their case to a judge.


Data obtained from the IRS for 2005-12 indicate that the average structuring-related forfeiture proceeding took about a year to complete. The longest such proceeding took more than 6½ years. These delays ratchet up the pressure for property owners to agree to settle.


The aggressive tactics adopted by law enforcement in structuring cases are, perhaps, unsurprising given that the proceeds of forfeited property are funneled back to the very agencies responsible for the forfeiture — an arrangement that gives law enforcement a perverse financial incentive to seize as much as possible.


Under federal law, funds seized by the IRS are deposited in the Treasury Forfeiture Fund. Those funds are then available, without any appropriation by Congress, for use by the IRS to fund law enforcement activities including seizures of additional property. The result is a vicious cycle, in which abuse of innocent Americans like Hinders makes it possible for government to seize even more property.



Indeed, the amount of money held in the Treasury Forfeiture Fund and an analogous fund maintained by the Department of Justice grew from $763 million in 2001 to nearly $3.2 billion in 2012.


In Hinders’ case, the IRS ultimately agreed to return the money. But only after 16 months of litigation. Hinders was able to fight the case thanks to free legal representation from the Institute for Justice, a national public interest law firm that litigates to protect property rights. Fighting the seizure might have cost Hinders more than twice what was seized, had she hired her own attorney.


Congress is just now waking up to the abuse of civil forfeiture laws.


Last month, Sen. Rand Paul (R-Ky.) and Rep. Tim Walberg (R-Mich.) introduced the Fifth Amendment Integrity Restoration Act, which would make it harder for the government to take property from people who have never been charged with, let alone convicted of, any crime, and easier for innocent owners to get the property back when it is wrongfully seized.


The only sure-fire way to reform civil forfeiture is to eliminate it entirely and to replace it with criminal forfeiture, under which individuals must be convicted of a crime before their property can be taken. Short of that, meaningful reform would include eliminating the financial incentive for law enforcement to pursue civil forfeiture by requiring that forfeited property be deposited in a general fund, as well as removing the threat of delay from the government’s arsenal by mandating a prompt judicial hearing after any property seizure. Congress also should reform the structuring laws, in particular, by adding a requirement that government prove that seized money came from an illegal source.


Nobody should have their money taken by the government merely because they deposited hard-earned cash in the bank. Reform is urgently needed to protect innocent, hardworking Americans from their own government.


Larry Salzman and Robert Everett Johnson are attorneys at the Institute for Justice, which represented Hinders. Salzman is a co-author of Seize First, Question Later: The IRS and Civil Forfeiture.

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Nobody should have their money taken by the government merely because they deposited hard-earned cash in the bank. Reform is urgently needed to protect innocent, hardworking Americans from their own government.

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I thought that your primary residence is free from capital gains taxes if you reside in it for two years or more.


This is true. I would think that this should apply to the London Mayor.

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Run my business into the ground. 50% tax rate. how are you supposed to do business with a 50% tax rate?


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Long enough to get it ripped off and themselves beaten to death with it.

And for those of you who want to do something LEGAL about it consider this.

When you go back to work tell Human Resources you want to change your W-4.

Then when it ask how many dependence you have claim 10 (that's the highest you can)

For most Americans that will stop FICA withholding. Then at the time you file taxes

you claim the correct amount. You will have to write a check. But look at it like this.

When the Federal government sends you a check from taxes, you've essentially loaned

Barack Hussein Obama money interest free. But think about what would happen to

the government if everyone decided to pay taxes only on the 15th of April.

Yea that'd get there attention quickly. Power is always in the control of money.

Worldly power that is.

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