In what is sure to be a blockbuster case for the coming term, NTUF’s Taxpayer Defense Center has offered its expertise to the Supreme Court of the United States in Moore v. United States. That’s no surprise: we have a long history of defending taxpayers and opposing abuses in tax administration. In this case, that means we submitted this Amicus Curiae (“friend of the court”) Brief in Support of Neither Party—a relatively rare move. That is because, while the Ninth Circuit’s opinion below was dangerously wrong, we also don’t think the Tax Cuts and Jobs Act (TCJA) of 2017 should be declared unconstitutional.
Charles and Kathleen Moore own 13 percent of an Indian corporation, KisanKraft, that has seen profits every year of its existence. Prior to 2017, U.S. citizens investing overseas like the Moores owed U.S. tax on those profits, but could defer paying taxes on those profits so long as they didn’t bring the money back to the United States. This “temporary” fix persisted from 1962 until 2017, when TCJA reformed large portions of the tax code, including moving away from a “worldwide” tax system to a “territorial” tax system that only taxes income earned in the United States. Part of the reforms ended deferral, instead enacting a one-time lower-rate Mandatory Repatriation Tax (MRT) on the accumulated deferred taxes. The Moores argue that it is a type of wealth tax, since they have not cashed out their stock in KisanKraft.
The Ninth Circuit ruled against the Moores, but by shredding most constitutional limits on federal taxing power. The Ninth Circuit held that realization is not a constitutional requirement before Congress may tax income, that retroactive taxes are ok, and that even a federal wealth tax would be permissible. Our brief walks through the extensive case law on why the Ninth Circuit is wrong, including rejecting their argument that key cases like Eisner v. Macomber and Commissioner v. Glenshaw Glass are outdated. We ask the Supreme Court to state that wealth taxes are unconstitutional.
But the Moores should not automatically win either. They invested in a business that did realize income. That business is a pass-through corporation, and the Moores’ tax returns intermix their personal income with the business’s income. To the extent the MRT applies only to that overseas business income, it’s an indirect business tax and therefore constitutional under court precedents.
If the Court does rule for the Moores, we explain, it should be focused in doing so. Invalidating the entire TCJA would raise taxes for hundreds of millions of people. Reversing that bill’s international tax reforms would make U.S. business uncompetitive, invite retaliation measures by other nations, and actually might increase the Moores’ tax bill in the end.
The TCJA reduced tax burdens and boosted economic growth, and its international changes produced a vast improvement over the tax system before. The Court shouldn’t strike down the MRT on accumulated business profits, but if they do, it should avoid needless disruption to both individual and business taxpayers.