People leave the Supreme Court building in Washington, D.C., Tuesday, June 27, 2023.
Min Connors | Washington Post | Getty Images
The Supreme Court is scheduled to hear oral arguments Tuesday in a case that could have far-reaching implications for U.S. tax law and federal revenue.
The high-profile case, Moore v. United States, involves the Washington couple, Charles and Kathleen Moore. They own controlling interests in profitable foreign companies that are subject to taxes enacted by former President Donald Trump’s 2017 tax reform.
Experts say the Moores are fighting taxation on corporate profits not distributed to them, which calls into question the definition of income, and could have far-reaching implications for U.S. tax law. .
“This has the potential to have the largest fiscal policy effect of any court decision in modern times,” said Matt Gardner, a senior fellow at the Institute on Taxation and Economic Policy, who co-authored a report on the case.
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The lawsuit challenges a levy known as “deemed repatriation” enacted under the Tax Cuts and Jobs Act of 2017. Designed as a transition tax, the law mandated a one-time tax on earnings and profits accumulated by foreign corporations after 1986.
Although the Sixteenth Amendment outlines the legal definition of income, the Moore case calls into question whether an individual must “realize” or receive benefits before paying taxes. This is an issue that has been raised in past federal “billionaire tax” discussions and could influence future proposals that include a wealth tax.
Former House Speaker Paul Ryan, who helped write the Tax Cuts and Jobs Act, said at a Brookings Institution event in September that the goal was to “fund the transition from one system to another, and the wealth tax It’s not about justifying it.” ”
Mr. Ryan does not support a wealth tax, but he used the Moores’ argument to say that stopping a wealth tax would require repealing “a third of the tax code.”
Pass-through business may be affected
Depending on how the courts decide on the case, there could be small ripples in the tax code, said Daniel Bunn, president and CEO of the Tax Foundation, who has written on the matter. It can have a big impact.
If the court finds that the Moores have taxed their unrealized gains, and that tax is unconstitutional, it will affect future taxation of so-called pass-through entities, such as partnerships, limited liability corporations, and S corporations. He said it was possible.
“You have to pay attention to how the rules impact your business, especially if you’re doing things across borders,” Ban said.
Bunn said there could also be a “significant impact” on federal revenue, which could affect future tax rules. If deemed transfers to corporate and noncorporate taxpayers were completely eliminated, the Federal Tax Foundation estimates that federal revenue would decrease by $346 billion over the next 10 years.
However, it is difficult to predict how the Supreme Court will rule on this case, as a decision is not expected until 2024. “There is a lot of uncertainty about the scope of this case,” Gardner added.
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