Supreme Court Upholds Foreign Investment Tax

(No Ratings Yet)

Loading...

In a significant ruling, the U.S. Supreme Court has upheld a tax imposed on American investors in certain foreign corporations. The decision, delivered on Thursday, comes amid ongoing discussions among Democratic lawmakers about implementing a wealth tax on the ultra-rich.

The Case of the Moores

The ruling, made with a 7-2 majority, confirmed a lower court’s decision against Charles and Kathleen Moore, a retired couple from Redmond, Washington. The Moores had challenged the tax on earnings from foreign companies, even when those profits were not distributed to shareholders.

The “Mandatory Repatriation Tax”

The tax in question, known as the “mandatory repatriation tax” (MRT), was part of a 2017 tax law passed by a Republican-led Congress and signed by former President Donald Trump. This tax targets owners holding at least a 10% stake in a foreign company controlled by Americans.

  

What

Where

Search Jobs

Constitutional Debate Over Unrealized Gains

The core issue in the case was whether the tax on unrealized gains aligns with the U.S. Constitution’s 16th Amendment, which authorizes Congress to “collect taxes on incomes.” The Moores, supported by the Competitive Enterprise Institute and other conservative groups, argued that “income” should only refer to gains realized through payment, not just an increase in property value.

The Majority Opinion

Justice Brett Kavanaugh, writing for the majority, stated that the MRT taxes realized income—specifically, income realized by the corporation—which is then attributed to shareholders and taxed accordingly. This, he concluded, falls within Congress’s constitutional taxing authority. Chief Justice John Roberts and the court’s three liberal justices joined Kavanaugh’s opinion.

Want to know if you’re earning what you deserve? Find out with LawCrossing’s salary surveys.

Divergent Views Among Justices

Justice Amy Coney Barrett, while agreeing with the case’s outcome, wrote a separate opinion, joined by Justice Samuel Alito. Barrett contended that the Constitution does not permit Congress to tax unrealized gains without apportionment among the states. Justices Clarence Thomas and Neil Gorsuch dissented, also asserting that unrealized gains cannot be taxed as “income” under the 16th Amendment.

Implications of the Ruling

The Moores were seeking a refund of approximately $14,729 in taxes paid as minority shareholders in KisanKraft, a company in Bangalore, India, that supplies equipment to farmers. During the case’s arguments in December, justices explored the limits of congressional taxation powers, with concerns that ruling in favor of the Moores could jeopardize various tax provisions affecting partnerships, LLCs, and S-corporations.

Whether you’re a recent law school grad or an experienced attorney, BCG Attorney Search has the job for you.

Financial Impact and Legislative Proposals

The Justice Department warned that invalidating the MRT could cost the U.S. government $340 billion over the next decade and potentially more if other tax provisions were affected. Such a ruling could also hinder legislative efforts by Democrats, such as Senator Elizabeth Warren’s proposal for a wealth tax on the net worth of super-rich Americans. These proposals face challenges in Congress, especially with a Republican-controlled House of Representatives.

Ethical Concerns and Judicial Impartiality

Democratic senators had urged Justice Alito to recuse himself from the case due to David Rivkin Jr.’s involvement. Rivkin, one of the lawyers for the Moores, had co-authored articles in the Wall Street Journal defending the court and arguing against Congressional regulation of the Supreme Court. The senators argued that Rivkin’s access to Alito raised doubts about the justice’s impartiality. Alito maintained that Rivkin’s role was as a journalist, not an advocate.

Don’t be a silent ninja! Let us know your thoughts in the comment section below.