In our upcoming book, Flight of the Golden Geese, we have a chapter on what we call Accidental Americans. Around the globe hundreds of thousands of unsuspecting individuals are totally unaware of their tax obligations towards the American state. Most Accidental Americans do not hold, and have never held an American passport. Not that that means anything. Most US citizens don’t possess a passport. More than half of the members of the Congress in Washington do not hold a US passport; they have never left the ‘States’, and have no intention of ever doing so.
So who are the Accidental Americans? There are a number of categories. The most obvious group is the children of South Americans, Arabs and Chinese. Nervous of the hospital facilities in their own countries, families have paid for highly pregnant mothers to fly to the US so that their children can be delivered in state-of-the-art American hospitals. With a healthy child, and mother recovering, they fly home at the first opportunity, not registering the birth with US authorities. There are also the children born to international businessmen and women while working in the US. Some of these children grow up to become successful in their own right, possibly never visiting the USA again, and certainly never claiming citizenship. They may not realize it, but they are Accidental Americans, and according to US tax law liable for US taxes.
Then there are all those who have at some point held a ‘green card’, even if those cards have expired. They too are Accidental Americans for tax purposes, albeit without any of the benefits of citizenship. Although they may no longer be allowed to get a job in the US, the IRS can still call on them anywhere in the world.
Most Accidental Americans are blithely ignorant of their status. Some will have chatted in passing to their accountants/lawyers about their US experience, only to be told ‘of course you don’t have US tax liabilities. It doesn’t make sense. It wouldn’t be fair.’ Fairness! International tax laws are extremely complex, and unless the persons advising are experts, then trust us, they don’t know what they are talking about.
London Mayor Boris Johnson is one such high profile Accidental American, who was recently forced to settle a large tax claim from the IRS. Johnson actually holds dual citizenship, having been born in New York, not that he has ever made use of the US status. He left the United States with his parents when he was 5. Not thinking any more about it, he kept both U.K. and U.S. passports. He should have given up the US document, but didn’t because the procedure was expensive and time consuming. Accident prone Boris thought it didn’t matter, that is until a huge tax demand from the IRS landed on his doormat late in 2014.
In 1999 Johnson and his wife purchased a house in Islington for £470,000 and sold it in 2009 for £1.2 million, a gain of £730,000. Because it was his principal residence, no UK taxes were due. However, in the US a 15 percent capital gains bill was owed, over and above some base figure. Johnson had not been resident in the U.S. for over 40 years, and there was no question of domicile – but the IRS pounced.
Of course once he appeared on the IRS radar, he was now liable for tax on, to the IRS his `foreign` salary, earned `abroad` in home country of England. He earns £144,000 a year as mayor, and another £250,000 as a columnist for The Telegraph. Add in royalties and appearance fees and the total far exceeds the foreign earned income exclusion (of around £60,000), and so tax is owed on the balance. Then of course there was his filing obligations on any `foreign` British bank account, as well as the implications of the Foreign Account Tax Compliance Act.
Last November Johnson spoke out of his outrage at the tax bill and the inconvenience, but nevertheless he paid up. Otherwise he faced arrest whenever he entered the US.