In the coming days or weeks, the Supreme Court is expected to release an opinion on Moore v. United States, a case with potentially significant consequences for tax policy.
The case revolves around the question of “unrealized income.” Put simply: suppose you have a claim on some money, but the money is sequestered away in a box—a box that you can’t open immediately, or haven’t yet opened, or is located overseas. At what point can the government determine that you have earned the money, and subject it to income tax?
The plaintiffs, Charles and Kathleen Moore, owned a partial but significant stake in an Indian business called KisanKraft. Though KisanKraft was profitable, pre-2017 law typically did not tax the income of businesses like KisanKraft until the income was repatriated. The Tax Cuts and Jobs Act (TCJA) of 2017 made substantial reforms to international taxation, introducing a new tax on certain foreign earnings (called global intangible low-taxed income or GILTI) that would apply immediately, rather than upon repatriation. Furthermore, income unrepatriated as of 2017 was taxed under a provision called the Section 965 transition tax.
The Moores, who are payers of this transition tax under current law, have challenged the tax as unconstitutional, on the basis that income under the Sixteenth Amendment must be realized. The Supreme Court heard oral arguments in December and is expected to release an opinion soon.
For many kinds of income, realization is relatively clear-cut. For example, defined-benefit pension benefits are realized when pensioners receive their checks, not when they accrue years of service that theoretically entitle them to some increase in monthly benefit in the future. But some cases—including the Moores’—leave some room for argument.
The Supreme Court has ruled on the scope of the Sixteenth Amendment before, but cases like Moore offer it additional opportunities to refine that scope. The ruling will, in turn, have an impact on some important issues in tax policy.
For more see: https://taxfoundation.org/blog/moore-case/
Arthur H. Geffen
Attorney & Counselor at Law
17330 Preston Rd., Suite 200D-260
Dallas. TX 75252
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