Supreme Court Tax Case Poses Significant Implications for Federal Policy, Say Experts

As the Supreme Court commences its new term, experts are closely monitoring a case that has the potential to bring about far-reaching effects on the United States tax code, including corporate revenue and prospective wealth tax proposals.

During this past summer, the highest court in the land agreed to hear the case of Moore v. United States, which involves a Washington-based couple holding a controlling interest—more than 10% investment—in KisanKraft, a profitable farming corporation based in India.

The plaintiffs are challenging taxes on earnings that were not distributed to them, raising questions about the definition of income, which could have broader implications, as per policy experts.

Matt Gardner, a senior fellow at the Institute on Taxation and Economic Policy, who recently co-authored a report on the case, remarked, "This could potentially yield the most significant fiscal policy repercussions of any court decision in the modern era."

The case contests a tax known as "deemed repatriation," introduced via the Republicans' 2017 tax reform. Framed as a transitional tax, the legislation imposed a one-time tax on earnings and profits accumulated in foreign entities since 1986.

While the 16th Amendment establishes the legal definition of income, the Moore case raises questions about whether individuals must "realize" or receive profits before becoming subject to taxes. This is an issue that has arisen during previous federal discussions on taxing billionaires and could impact future tax proposals.

The outcome could affect pass-through businesses. Depending on the court's ruling, there may be either minor repercussions or a substantial impact on the tax code, according to Daniel Bunn, President and CEO of the Tax Foundation, who recently wrote on the subject.

Bunn noted, "You must pay attention to how the rules will affect your business, particularly if you engage in cross-border activities."

Furthermore, there is the potential for a "significant impact" on federal revenue, which could shape future tax policies. If deemed repatriation were entirely invalidated for both corporate and non-corporate taxpayers, the Tax Foundation estimates a $346 billion reduction in federal revenue over the next decade.

However, with a decision not anticipated until 2024, it remains challenging to predict the Supreme Court's ruling on this case. "There's a great deal of uncertainty regarding the scope of this matter," added Gardner."