Supreme Court Allows the Moores to Be Taxed on Income They Never Received

Earlier today, the Supreme Court announced its decision in Moore v U.S. This case challenged the constitutionality of one part of the 2017 Tax Cuts and Jobs Act – the Mandatory Repatriation Tax. In Moore, the Court held that foreign corporate income could be attributed to corporate shareholders like the Moores.

The Moores had appealed a decision by the Ninth Circuit Court of Appeals upholding the Mandatory Repatriation Tax (MRT) as an income tax, despite the fact that the MRT taxes them on income they did not receive. The Moores were represented by attorneys from BakerHostetler and the Competitive Enterprise Institute (CEI).

Statement from Dan Greenberg, CEI general counsel:

“We are disappointed by the ruling today. This decision lets the government levy income taxes on foreign shareholders who have never received income. We think that is unfair, because the Constitution authorizes Congress to tax people on their income, not the income of foreign businesses that they do not control.”

“However, as the Court noted, its decision has an extremely narrow scope. It is limited to taxation of shareholders of an entity on the undistributed income realized by that entity which has been attributed to the shareholders, and only when the entity has not also been taxed on that income. In other words, as the Court said, ‘our holding applies when Congress treats the entity as a pass-through.’ What this means is that the constitutionality of other species of future taxes – such as a national wealth tax – remains entirely unaddressed by the Court’s opinion.”

“Because of the Moores’ decision to appeal the case to the highest court, the Supreme Court declined to affirm the Ninth Circuit’s claim that ‘realization of income is not a constitutional requirement.’ We believe that requiring the realization of income in order to levy an income tax is critical. That requirement ensures that people are taxed on their income, not their property. Any incursion on this long-understood limit on the federal taxing power would undermine the Constitutionally protected rights of the American people.”

“Notably, two Justices (Barrett and Alito) affirmed the realization requirement for the constitutionality of an income tax in concurrence, while another two Justices (Thomas and Gorsuch) affirmed the same requirement in dissent. In contrast, there was only one Justice (Jackson, in a solo concurrence) who provided significant criticism of the realization requirement. If there is a challenge to a future income tax in which the Court must deal with the realization requirement squarely, it appears that the challengers are likely to receive a friendly audience from a substantial portion of the Court.”

Statement from Kent Lassman, CEI President and CEO:

“We are grateful to the Moores for carrying the burdens of litigation. We realize the advance of liberty for all is not linear and requires patriots to show courage in the face of government overreach. And we are thankful for the sound reasoning and high principle of the attorneys who argued the Moores’ case, especially lead attorney and BakerHostetler partner Andrew Grossman.”