In the landmark case of Moore v. United States, the Supreme Court is deliberating a pivotal tax issue that could significantly impact the American tax code and potentially affect $340 billion in government revenue. The case centers on the constitutionality of the mandatory repatriation tax (MRT) introduced in the 2017 Tax Cuts and Jobs Act, which impacts U.S. shareholders with more than 10% ownership in foreign companies.
The MRT, part of a broad reform of foreign tax rules, required these shareholders to pay tax on their share of the foreign company’s accumulated and undistributed earnings, regardless of whether any dividend was declared or paid. This tax measure, intended to end the deferral of foreign earnings from U.S. taxable income and introduce anti-avoidance rules, was estimated to increase federal revenues by $338 billion over ten years from 2018 to 2027.
Charles and Kathleen Moore, the plaintiffs, argue that this tax on “unrealized” income is unconstitutional, as it applies retroactively to past earnings, equating to property, thereby violating the 16th Amendment and case law generally requiring income to be “clearly realized” before being taxed. If the Supreme Court rules in favor of the Moores, it could reshape the U.S. tax code, affecting taxes on foreign earnings, the new 15 percent corporate alternative minimum tax on book income, the tax on global intangible low-taxed income (GILTI), and Subpart F rules dating back to 1962.