According to Tax Notes Today (January 23, 2015) Boris Johnson the Mayor of London has settled tax claims of the IRS. The claim arose because Johnson who holds U.S and U.K. citizenship sold his residence at a gain and failed to report the gain for U.S. income tax purposes. Johnson, who apparently travels to the U.S. and had pending travel plans must have feared that the IRS/DOJ would detain Johnson on entry into the U.S. under Internal Revenue Code Section 7402. As stated in Tax Notes Today,

“Section 7402 provides U.S. district courts with jurisdiction to enforce orders, processes, judgments, and summonses related to revenue laws. If a taxpayer visited the United States, a federal court “could issue a writ ne exeat republica at the behest of the DOJ’s Tax Division and keep the taxpayer in the U.S.,”

The case illustrates the effect of “worldwide taxation” under U.S. tax law. The U.S. taxes income from whatever source derived and wherever the taxpayer resides. Tax treaties can reduce the effect of local taxation by providing credits for foreign taxes paid or exempting certain transactions from taxation. Unfortunately for Johnson, the U.K. does not tax capital gains on the sale of owner occupied residential property and, therefore, there was no credit available to him. As a U.S. citizen he was required to file income tax returns and report his capital gain, just like all U.S. taxpayers.

What this case illustrates is the importance of timely and proper tax planning advice for dual nationals and permanent residents . Had Mr. Johnson done a careful analysis of his tax reporting requirements prior to the sale, he could have avoided the expense of non-compliance, including legal and accounting fees, interest and penalties.

We provide expert advice on reporting requirements for dual nationals and permanent residents, regardless of where they reside. We also provide excellent advice on the proper use and timing of Streamline Procedures and Offshore Voluntary Disclosures.