Supreme Court Upholds Tax on Foreign Income, Declines Challenge on Wealth Tax
In a significant ruling on Thursday, the Supreme Court upheld a tax on foreign income over a challenge backed by business and anti-regulatory interests. The 7-2 vote by the justices left in place a provision of a 2017 tax law that is expected to generate $340 billion, mainly from the foreign subsidiaries of domestic corporations that had parked money abroad to avoid U.S. taxes.
The law, passed by a Republican Congress and signed by then-President Donald Trump, includes a provision that applies to companies owned by Americans but operating in foreign countries. It imposes a one-time tax on investors’ shares of profits that have not been distributed to them, to offset other tax benefits.
The case, brought by Charles and Kathleen Moore of Redmond, Washington, challenged a $15,000 tax bill based on Charles Moore’s investment in an Indian company. They argued that the tax violated the 16th Amendment, which allows the federal government to impose an income tax on Americans. Moore claimed he never received any money from the company, KisanKraft Machine Tools Private Ltd.
Justice Brett Kavanaugh, in the majority opinion, clarified that the ruling should not be interpreted as authorizing a hypothetical congressional effort to tax both an entity and its shareholders on the same undistributed income realized by the entity.
The case had attracted attention because some groups argued that the challenged provision is similar to a wealth tax, which would apply to assets like stock holdings of the very richest Americans. A ruling for the Moores could have called into question other provisions of the tax code and threatened significant losses to the U.S. Treasury.
The case also raised ethical concerns and questions about the Moores’ lawyers’ court filings. Justice Samuel Alito rejected calls from Senate Democrats to recuse himself from the case due to his ties to David Rivkin, a lawyer representing the Moores. Public documents revealed that Charles Moore’s involvement with the company was more extensive than initially indicated in court filings.
The decision in Moore v. U.S. has broader implications for tax policy and enforcement. The Biden administration had warned the court that a ruling in favor of the Moores could have resulted in substantial revenue losses for the government.
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