Boris Johnson, the flamboyant mayor of London, has quietly agreed to pay substantial U.S. taxes on the sale of his home in the U.K.
This constitutes what political pundits might call a "flip-flop." After all, only a few months ago Johnson was denouncing the imperial overreach of U.S. taxes on expatriates. Though he has dual citizenship, Johnson hasn't lived in the U.S. since he was five years old -- and claimed it was therefore unfair to tax him. We wrote about this in our November 26 post last year.
Johnson is not alone in complying with America's ambitious efforts to tax the worldwide income of its citizens and legal residents. Indeed, it isn't only individuals who are acquiescing. Many banks and other foreign financial institutions (FFIs) are also taking concerted steps to get into compliance with the Foreign Account Tax Compliance Act (FATCA).
In part one of this two-part post, we will take note of the trend toward FATCA compliance. In part two, we will also discuss another issue that closely affects the 7 million Americans who live outside the U.S, namely the foreign earned income exclusion.
Congress passed FATCA in 2010, but it wasn't until last year that implementation really got underway. Under the pressure of this law, foreign banks are increasingly supplying the IRS with potentially compromising information about American taxpayers.
If you have offshore accounts and have not fully met reporting requirements for them, this could be an issue for you. Historically, accounts over a certain amount have required a Report of Foreign Bank and Financial Accounts, commonly known as FBAR.
With the advent of FATCA, however, the IRS now has a powerful new enforcement tool. That is why so many people have entered the voluntary disclosure programs for offshore accounts offered by the IRS. Participation in one of these limited-amnesty programs can enable a taxpayer to minimize tax penalties and obtain certain protections against the risk of criminal prosecution.
Source: Forbes, "3 IRS Strikes? FATCA, FBARs, an âAbodeâ in the U.S. Although You Live Abroad," Robert W. Wood, Feb. 1, 2015
Additional Source: International Adviser, "Boris Johnson bows to FATCA demand," Mark Battersby, Jan. 22, 2015