Moore et ux. v. United States, Docket No. 22-800

Have you ever considered how tax laws might impact you in ways you didn't expect? We're about to delve into a case that brings the complexities of tax law and the powers of Congress into focus. In Moore et ux. v. United States, the Supreme Court addressed the Mandatory Repatriation Tax, or MRT. This tax charges American shareholders for the income earned by foreign corporations they own shares in, even if they haven't actually received that money themselves.

The Court, led by Justice Brett Kavanaugh, decided that this tax is perfectly constitutional. They affirmed that Congress has the right to tax this income, even if it hasn’t been distributed to the shareholders. This means that if you own a piece of a foreign company, you might still owe taxes on the profits that company makes, regardless of whether you’ve received any of that money yourself.

The ruling was supported by several justices, including Chief Justice John Roberts and Justices Sonia Sotomayor, Elena Kagan, and Ketanji Brown Jackson. However, there was a dissenting opinion from Justice Clarence Thomas, joined by Justice Neil Gorsuch, who disagreed with the majority's view.

This case sheds light on how tax laws can impact American investors and the extent of Congress's power in shaping tax policy. It’s a reminder of the intricate balance between taxation and representation in our financial system.

Summary of the Case

The case of Moore et ux. v. United States arose from a challenge by Charles and Kathleen Moore against the constitutionality of the Mandatory Repatriation Tax (MRT), which was enacted as part of the Tax Cuts and Jobs Act of 2017. The Moores, who owned shares in an American-controlled foreign corporation, KisanKraft, were taxed on their pro rata share of the corporation's undistributed income accumulated from 2006 to 2017. They argued that the MRT constituted an unapportioned direct tax on their shares, violating the Direct Tax Clause of the Constitution. The District Court dismissed their suit, and the Ninth Circuit affirmed the dismissal, leading the Moores to seek review from the Supreme Court.

Opinion of the Court

The Supreme Court, in a majority opinion delivered by Justice Kavanaugh, upheld the MRT, concluding that it does not exceed Congress's constitutional authority. The Court reasoned that the MRT is a tax on income, which does not require apportionment among the states. The Court distinguished between direct and indirect taxes, asserting that income taxes are classified as indirect taxes under the Sixteenth Amendment, which allows Congress to tax income without apportionment. The Court emphasized that the MRT attributes the realized income of KisanKraft to its American shareholders, thereby taxing them on their share of that income. The Court also noted that longstanding precedents support Congress's authority to tax either the entity or its shareholders on undistributed income, and the Moores' arguments attempting to distinguish the MRT from other similar taxes were unpersuasive.

Separate Opinions

Justice Jackson filed a concurring opinion, emphasizing the broad power of Congress over taxation and the need for restraint before striking down a lawfully enacted tax. She highlighted that the realization requirement for income taxation is not explicitly stated in the Sixteenth Amendment and that the Court's decision should not be interpreted as a blanket endorsement of all future taxation practices.

Justice Barrett, concurring in the judgment, expressed that while the issue of realization is complex, the MRT's attribution of income to shareholders is permissible. However, she cautioned that different types of taxes, such as those on widely held or domestic corporations, might present different constitutional questions.

Dissenting Opinions

Justice Thomas, joined by Justice Gorsuch, dissented, arguing that the MRT is unconstitutional because it taxes unrealized gains, which do not qualify as "income" under the Sixteenth Amendment. He contended that the text and history of the Amendment necessitate a realization requirement, distinguishing between income and its source. Thomas criticized the majority for failing to address the realization issue directly and for creating an "attribution" doctrine that lacks constitutional support.

Nuance of the Law

The case highlights the nuanced interpretation of the taxing power granted to Congress under the Constitution, particularly the distinction between direct and indirect taxes. The Direct Tax Clause requires that direct taxes be apportioned among the states, while the Sixteenth Amendment allows Congress to impose income taxes without such apportionment. The Court's ruling reinforces the principle that income taxes are considered indirect taxes, which do not require apportionment. The decision also underscores the longstanding practice of Congress attributing undistributed income of entities to their shareholders for tax purposes, a practice that has been upheld in various precedents. The dissenting opinion raises critical questions about the definition of income and the implications of taxing unrealized gains, suggesting that the Court's interpretation may have broader consequences for future taxation.