In response to the government’s motion to dismiss, a Washington State couple not only opposed that motion, but last week filed for summary judgment in its constitutional challenge to the Mandatory Repatriation Tax, part of the Trump tax reform package of 2017. This provision taxes U.S. citizens on certain accumulated earnings of foreign corporations going back 30 years, even if the earnings have not been distributed. The husband and wife taxpayers, Charles and Kathleen Moore, argue that the tax violates the Constitution’s requirement that direct federal taxes must be apportioned among the states, as well as the Constitution’s due process protection against harsh retroactive taxation.
The motion was filed this past Friday in federal district court (W.D. WA) by the law firm of Baker & Hostetler LLP and the Competitive Enterprise Institute.
At issue are the Moores’ shares in a foreign company founded by a friend that provides agricultural equipment to underserved small farmers in India. The couple has owned the shares for over a decade. They have never received any income from the shares, because the company reinvested all its profits in its business. Normally, such profits are not considered income unless shareholders either receive dividends or sell the shares for a capital gain. The new law, however, attempts to tax these funds as income through a legal fiction, by simply declaring them to be taxable income.
Andrew M. Grossman of Baker Hostetler, lead counsel in the case, stated: “Families like the Moores can’t be forced to pay taxes on so-called ‘income’ that doesn’t even exist. That’s not only common sense, but also constitutional command. The only precedents for the Mandatory Repatriation Tax are taxes that have been struck down by the Supreme Court for violating the Constitution. We’re confident that this one will meet the same fate.”
Co-counsel Sam Kazman, General Counsel of the Competitive Enterprise Institute said: “Constitutional restrictions on the taxing power need to be zealously protected. When it came to the Mandatory Repatriation Tax, Congress dreamed up a one-time windfall in order to fund a spending bonanza. Neither the Moores nor any else in their shoes ought to be illegally forced to foot this bill.”
Read the Moores’ filing: https://cei.org/sites/default/files/Moore_Opp_to_Mtn_to_Dismiss_and_Cross_MSJ.pdf
Visit the case page: https://cei.org/litigation/charles-and-kathleen-moore-v-united-states