It seemed like a run of the mill wonky tax case. The plaintiffs want to overturn a tax regime pushed by the Trump administration with bi-partisan support, dealing with the repatriation of foreign income, which has been a big issue for Presidential candidates of both party until this legislation.
Charles and Kathleen Moore challenge the repatriation tax, which applies to U.S. persons owning at least 10 percent of a controlled foreign corporation. It requires those U.S. shareholders to pay a one-time tax on the undistributed earnings and profits of the foreign corporation dating back to the end of 1986. The tax rate is 15.5 percent for earnings held in cash and 8 percent otherwise. In return, the US taxpayers don't have to pay taxes on the income brought to the US.
The Moores, who are do gooders that wanted to help the poor in India (and thus make an ideal plaintiff as opposed to companies like Apple that stashed billions of dollars in overseas affiliates), own slightly more than 10 percent of an Indian agricultural toolmaker named KisanKraft; they now seek a refund of the roughly $15,000 they paid under the mandatory repatriation tax. They argue that the mandatory repatriation tax lies outside the 16th Amendment's conception of income tax because it applies to earnings and profits accumulated by KisanKraft that were never distributed to shareholders. And because the mandatory repatriation tax isn't an income tax within the meaning of the 16th Amendment, the Moores say, Congress cannot levy the tax unless it apportions the burden among the states based on population. The Constitutional apportionment prohibition had to be amended by the 16th amendment to even allow for income taxes, and most tax experts believe that result would bar the imposition of wealth taxes.
The upshot is that for almost everyone except the Moores themselves, the outcome in the case matters less than the reasoning that the Justices embrace, and thus the case if full of amicus briefs debating accounting concepts and the wealth tax. But here are the two major concepts at play:
1) the tax does something unusual in that it requires payment of tax without receiving the income to pay the tax (e..g, realization), which tax practitioners hate as tax policy at its worst. For example, in this case, the Moores would have to sell their interest in KisanKraft to pay the tax. The Moore's rely chiefly on Eisner v. Macomber, in which SCOTUS held that the 16th Amendment did not allow Congress to tax a shareholder on the earnings of a corporation until the shareholder had "realized" those earnings (for example, through a cash dividend). That said, SCOTUS has held the Congress can generally have the power taxes. The Moores want the prior SCOTUS case overruled, to not allow taxations without realization. This would invalidate the few exceptions to the general income tax regimen that only tax realized income, and have implications for the ongoing budget negotiations. But if this conservative SCOTUS follows Macomber, there at least would be a narrow ruling, Congress can either increase the deficit, cut spending and/or raise taxes in some way. How it applied Macomber might also require anew tax regime on repatriation scheme. But it gets even more interesting because
2) Buried in the plaintiff's briefs was an argument that the mandatory repatriation tax stress-tests the income/wealth tax distinction (note the right in financing the case). The earnings and profits of this corporation are really the value of the stock (at least for the privately held corporations), and thus the tax is a disguised wealth tax which should be struct down under the prior SCOTUS decisions which disallowed income taxes and led to the 16th amendment. Moreover, they argue a wealth tax is, after all, a tax on all unconsumed items of income realized or not accruing to a taxpayer up to that point, and that the earnings and profits of the foreign entity which itself can't be taxed by the US have not accrued to the taxpayer in a way that they can consume (this disregards the approach used by some billionaires who borrow against assets). This alarmed the left that the case will allow SCOTUS the opportunity to bar wealth taxes (the article I'm attaching from Vox, which admittedly has some over the top commentary and sees conspiracies everywhere, does a good explaining the wealth tax issue). Then again, some other parti of the left has seen an opportunity with many liberal think tanks filing amicus briefs, that in fact this is a wealth tax and that earlier case law which led to the 16th Amendment should be overturned; thus, wealth taxes are legal. Given the predilection of SCOTUS, that might be a lot to swallow, but the strategy is to presumably have the liberal justices base their dissent on this reasoning should the majority go against them on more narrow grounds, in order to set in motion a move to validate wealth taxes as constitutional as the SCOTUS Justices change.
In any event, here are two articles from different perspectives on the case:
https://www.vox.com/scotus/2023/11/27/23970859/supreme-court-wealth-tax-moore-united-states
The Vox article is good about what is at stake and why, but is factually lacking from a tax case analysis. For example Macomber, like the Moores, deals with a case where a minority shareholders who can't compel a dividend doesn't have income, but the opposing cases discussed by Vox deals involve wholly owned subs, where the courts expressly do not overrule Macomber, but just indicate the wholly owned entities issues constructive dividends to themselves through loans.
https://news.bloombergtax.com/tax-insights-and-commentary/us-wealth-tax-could-gain-footing-with-supreme-court-moore-ruling?utm_source=Email_Share (tax heads discuss)
Is a U.S. Wealth Tax Constitutional?Wall Street Journalhttps://www.wsj.com Opinion Review & Outlook
(view opposing Vox, with big busines bias)
How the Supreme Court Case Moore v. United States Could ...YouTube Urban Institute1 hour, 57 minutes, 18 secondsSep 22, 2023. (really major tax heads discussing the case to death for those who are disturbing into tax policy stuff)
Charles and Kathleen Moore challenge the repatriation tax, which applies to U.S. persons owning at least 10 percent of a controlled foreign corporation. It requires those U.S. shareholders to pay a one-time tax on the undistributed earnings and profits of the foreign corporation dating back to the end of 1986. The tax rate is 15.5 percent for earnings held in cash and 8 percent otherwise. In return, the US taxpayers don't have to pay taxes on the income brought to the US.
The Moores, who are do gooders that wanted to help the poor in India (and thus make an ideal plaintiff as opposed to companies like Apple that stashed billions of dollars in overseas affiliates), own slightly more than 10 percent of an Indian agricultural toolmaker named KisanKraft; they now seek a refund of the roughly $15,000 they paid under the mandatory repatriation tax. They argue that the mandatory repatriation tax lies outside the 16th Amendment's conception of income tax because it applies to earnings and profits accumulated by KisanKraft that were never distributed to shareholders. And because the mandatory repatriation tax isn't an income tax within the meaning of the 16th Amendment, the Moores say, Congress cannot levy the tax unless it apportions the burden among the states based on population. The Constitutional apportionment prohibition had to be amended by the 16th amendment to even allow for income taxes, and most tax experts believe that result would bar the imposition of wealth taxes.
The upshot is that for almost everyone except the Moores themselves, the outcome in the case matters less than the reasoning that the Justices embrace, and thus the case if full of amicus briefs debating accounting concepts and the wealth tax. But here are the two major concepts at play:
1) the tax does something unusual in that it requires payment of tax without receiving the income to pay the tax (e..g, realization), which tax practitioners hate as tax policy at its worst. For example, in this case, the Moores would have to sell their interest in KisanKraft to pay the tax. The Moore's rely chiefly on Eisner v. Macomber, in which SCOTUS held that the 16th Amendment did not allow Congress to tax a shareholder on the earnings of a corporation until the shareholder had "realized" those earnings (for example, through a cash dividend). That said, SCOTUS has held the Congress can generally have the power taxes. The Moores want the prior SCOTUS case overruled, to not allow taxations without realization. This would invalidate the few exceptions to the general income tax regimen that only tax realized income, and have implications for the ongoing budget negotiations. But if this conservative SCOTUS follows Macomber, there at least would be a narrow ruling, Congress can either increase the deficit, cut spending and/or raise taxes in some way. How it applied Macomber might also require anew tax regime on repatriation scheme. But it gets even more interesting because
2) Buried in the plaintiff's briefs was an argument that the mandatory repatriation tax stress-tests the income/wealth tax distinction (note the right in financing the case). The earnings and profits of this corporation are really the value of the stock (at least for the privately held corporations), and thus the tax is a disguised wealth tax which should be struct down under the prior SCOTUS decisions which disallowed income taxes and led to the 16th amendment. Moreover, they argue a wealth tax is, after all, a tax on all unconsumed items of income realized or not accruing to a taxpayer up to that point, and that the earnings and profits of the foreign entity which itself can't be taxed by the US have not accrued to the taxpayer in a way that they can consume (this disregards the approach used by some billionaires who borrow against assets). This alarmed the left that the case will allow SCOTUS the opportunity to bar wealth taxes (the article I'm attaching from Vox, which admittedly has some over the top commentary and sees conspiracies everywhere, does a good explaining the wealth tax issue). Then again, some other parti of the left has seen an opportunity with many liberal think tanks filing amicus briefs, that in fact this is a wealth tax and that earlier case law which led to the 16th Amendment should be overturned; thus, wealth taxes are legal. Given the predilection of SCOTUS, that might be a lot to swallow, but the strategy is to presumably have the liberal justices base their dissent on this reasoning should the majority go against them on more narrow grounds, in order to set in motion a move to validate wealth taxes as constitutional as the SCOTUS Justices change.
In any event, here are two articles from different perspectives on the case:
https://www.vox.com/scotus/2023/11/27/23970859/supreme-court-wealth-tax-moore-united-states
The Vox article is good about what is at stake and why, but is factually lacking from a tax case analysis. For example Macomber, like the Moores, deals with a case where a minority shareholders who can't compel a dividend doesn't have income, but the opposing cases discussed by Vox deals involve wholly owned subs, where the courts expressly do not overrule Macomber, but just indicate the wholly owned entities issues constructive dividends to themselves through loans.
https://news.bloombergtax.com/tax-insights-and-commentary/us-wealth-tax-could-gain-footing-with-supreme-court-moore-ruling?utm_source=Email_Share (tax heads discuss)
Is a U.S. Wealth Tax Constitutional?Wall Street Journalhttps://www.wsj.com Opinion Review & Outlook
(view opposing Vox, with big busines bias)
How the Supreme Court Case Moore v. United States Could ...YouTube Urban Institute1 hour, 57 minutes, 18 secondsSep 22, 2023. (really major tax heads discussing the case to death for those who are disturbing into tax policy stuff)
