The opening appellate brief was filed yesterday in a constitutional challenge to the Mandated Repatriation Tax, part of the 2017 tax reform bill. The case, Moore vs. United States in the Ninth Circuit Court of Appeals, seeks to overturn the law on the ground that it retroactively imposes a direct, unapportioned tax on overseas business income, violating both the Constitution’s Apportionment Clause (Art. I, Sec. 9, clause 4) and the Fifth Amendment’s Due Process Clause. The case is being brought jointly by CEI and the law firm of Baker Hostetler.
In 2006, Charles and Kathleen Moore invested in a small overseas company devoted to providing affordable equipment to small-scale Indian farmers. The Moores have received no dividends from this investment because all profits were reinvested in the company. But based on a new tax enacted as part of former Pres. Trump’s tax reform law in 2017—a decade after they invested their money—they were hit with an unexpected tax bill of over $15,000.
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.
The opening brief states:
The MRT deems the reinvested earnings going back thirty years of certain foreign corporations with U.S. shareholders to be those shareholders’ 2017 income and then taxes them on it. That so-called “in-come” is, by definition, money that shareholders did not receive. And for minority shareholders like the Moores, it is money that they lack the power to force the corporation to distribute to them, assuming that it is even possible to distribute earnings that were invested years ago in growing a business.
The MRT is that rara avis, a tax on the ownership of personal property—the shareholders’ interest in the corporation’s capital—and therefore an unapportioned direct tax. And, as the Supreme Court recently reaffirmed, “taxes on personal property [are] direct taxes” that “must be apportioned among the several States.”
You can read the full opening brief for the case here.
For more information on Moore vs. United States: https://cei.org/court_case/charles-and-kathleen-moore-v-united-states/