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Supreme Court to Hear Case on Constitutionality of Mandatory Repatriation Tax

S.J. Steinhardt
Published Date:
Aug 2, 2023


A case currently before the U.S. Supreme Court could be the most important tax case in decades, as it concerns Congress’s power to levy taxes, Accounting Today reported.

The case, Moore v. U.S., centers on the 16th Amendment to the U.S. Constitution, which states, "The Congress shall have the power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration."

The case in question involves the mandatory repatriation tax (MRT), a provision in the Tax Cuts and Jobs Act (TCJA) of 2017. It applies to U.S. taxpayers with 10 percent or more shares of a controlled foreign corporation as of Dec. 31, 2017, Thomson Reuters explained. The one-time tax was designed to make such taxpayers pay their pro rata share of the controlled foreign corporations’s earnings—15.5 percent on cash and other liquid assets and 8 percent on nonliquid assets.

Charles and Kathleen Moore became investors in KisanKraft, an overseas company formed in 2006 to import and distribute affordable farming equipment in India. They owned a 13 percent stake in Machine Tools Private Ltd., a small company headquartered in Bangalore.

In 2018, they learned that, under the TCJA, they were liable for their share of KisanKraft's lifetime earnings and would owe a one-time tax amounting to $14,729 in addition to their 2017 tax liability, based on their pro rata’s share of KisanKraft’s retained earnings of $508,000.  Neither had ever received any income from the company, and did not expect to pay income taxes just for owning a minority interest in the company. They sued for a refund.

The Moores lost in the U.S. District Court for the Western District of Washington and again in the U.S. Court of Appeals for the Ninth Circuit. The circuit court held that the MRT does not violate the Apportionment Clause of the U.S. Constitution, nor the Fifth Amendment’s Due Process Clause.

"This could end up being one of the biggest cases in tax law in the past few years, or not," Tyler Martinez, senior attorney at the National Taxpayers Union Foundation, told Accounting Today. "Why is there all the fuss? People are worried over what might happen next. Conceivably, this could end up legitimizing a 'wealth tax' on unrealized income. That's the possibility—the value of a stock portfolio goes up and down. There is the possibility that the court could decide the case narrowly, on limited grounds."

“The petitioners in Moore are hoping the Supreme Court will toss out a Ninth Circuit ruling along with potentially decades of settled tax law and bipartisan agreement on Congressional authority, all for the benefit of the ultra-wealthy,” Sen. Ron Wyden (D-Ore.), chair of the Senate Committee on Finance, said in a statement. “If the Republicans on the Supreme Court take the petitioners’ side, they’d be handing a massive windfall to multinational corporations and could potentially lock in a right for billionaires to opt out of paying anything remotely close to a fair share in taxes. I designed my approach to taxing billionaires, the centerpiece of which is an accounting method already used in our tax code, with the understanding that special interests would come at it with well-funded legal challenges. I’m totally confident that it’s constitutional.”

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