Supreme Court Case: Moore v U.S.

Rianne

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This article is behind a paywall, sorry. But it sent a chill up my spine. Comes down to the definition of what is derived and what is received as income.

https://www.wsj.com/us-news/law/one...-the-tax-code-680a9ba6?mod=politics_lead_pos4

"Tax lawyers and the government say a sweeping ruling could also upend many longstanding rules affecting partnerships, multinational companies and bond investors. Former House Speaker Paul Ryan, a Wisconsin Republican who helped write the 2017 tax law, warned in September that the case could damage a third of the tax code."

"What is ‘income’?"

"After the Civil War, Congress sought to impose an individual income tax, but the Supreme Court ruled in 1895 that such a move was an unconstitutional direct tax. A response was the 16th Amendment, which says “income, from whatever source derived,” can be taxed without apportionment. That led to the modern federal income tax."
 
Uhh, thank you? I do have more time now that I'm ER. Not that much time. And I don't have a law degree. I guess I'll leave it up to the media articles to make sense of all this.

Based on my experience, I wouldn't count on the media to get it right. No need to read everything. The key documents are the Brief of Petitioners filed on August 30, 2023 and Brief of Respondent United States filed on October 16, 2023.
 
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This snippet summarizes what the case is about.
The Moore case stems from a piece of the 2017 tax law written by Republicans and signed by President Donald Trump. The provision itself was relatively uncontroversial.

Before then, U.S. companies paid foreign taxes on foreign profits but could defer any U.S. taxes until they brought earnings back home. Republicans switched to a system with a minimum annual U.S. tax on foreign profits and tax-free repatriation.

In that transition, to deal with 30 years of profits companies had accumulated overseas that hadn’t faced U.S. taxation, Congress imposed a one-time levy.
 
Just off the cuff, a key difference in this case is control. The foreign income by corporations mentioned in the article are instances where the US taxpayer controls (through 50% or more of the voting interests) the income distributions of their foreign subsidiary so by virtue of that control they can dictate when distributions are made to shareholders so the taxpayer has constructive receipt of that income.

Presumably the plaintiffs don't control KisanKraft so they can't control any distributions to themselves and don't have constructive receipt to any undistributed profits from KisanKraft so income would simply be dividends or other distributions declared or received. If they plaintiffs do control KisanKraft then there would be a reasonable argument that the income has been derived similar to a US corporation that controls a less than wholly owned foreign subsidiary.
 
Based on my experience, I wouldn't count on the media to get it right. No need to read everything. The key documents are the Brief of Petitioners filed on August 30, 2023 and Brief of Respondent United States filed on October 16, 2023.

Thank you. I am giving myself today off, but will review tomorrow.
 
Depending on what "come in" means... it come in when you have the legal right to take it, whether or not you take it... like a reinvested dividend... it has come in and is income once you have the right to take it whether you take it or reinvest it.
 
Just off the cuff, a key difference in this case is control. The foreign income by corporations mentioned in the article are instances where the US taxpayer controls (through 50% or more of the voting interests) the income distributions of their foreign subsidiary so by virtue of that control they can dictate when distributions are made to shareholders so the taxpayer has constructive receipt of that income.

Presumably the plaintiffs don't control KisanKraft so they can't control any distributions to themselves and don't have constructive receipt to any undistributed profits from KisanKraft so income would simply be dividends or other distributions declared or received. If they plaintiffs do control KisanKraft then there would be a reasonable argument that the income has been derived similar to a US corporation that controls a less than wholly owned foreign subsidiary.
Here’s an article from the blog TaxNotes (here). It states the plaintiffs have a substantial interest in the company but chose not to disclose in their brief.

I’m looking forward to reading about the trial.
 
I don’t have a legal or accounting background so I don’t dig down deep on this stuff. From what I’ve read it appears that part of the argument is taxation on unrealized gains. The alternate motive is to get the Supreme Court rule tax on unrealized gains are not allowed thus causing changes to some tax code and negating the possibility of a future wealth tax. My two cents and I might not even have read what I read correctly. I’m just an old retired engineer.
 
I will preface this by saying that I am not a tax lawyer. I have read the briefs and believe the Government has the better argument. The major issue for the petitioners is that the question of whether something is an "income tax" (rather than some other kind of tax) and hence exempt from apportionment under the 16th Amendment is different than the question of whether it needs to be "realized" so as to be taxed currently.

As an FYI, in our federal court system, you do not have an automatic right to appeal to the Supreme Court (unlike your right of appeal to the Circuit Courts of Appeal). Rather, you must file a petition for a writ of certiorari, which is basically a request for them to take up your case. The vast majority of cert petitions are denied (only about 3% are granted). Under its internal rules, for the court to grant certiorari, at least four of the nine justices must agree to do so, which means they have some issue with the decision below and (probably) that you've already got four votes in your pocket. Statistics show that, on average, the Court reverses about 71% of the cases that it accepts. So while your odds of getting into the Supreme Court are very slim, if you do get there, you have a good chance of winning.

https://supremecourtpress.com/chanc...ing a case heard by,success rate of only 2.8%.

https://ballotpedia.org/SCOTUS_case_reversal_rates_(2007_-_Present)
 
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The major issue for the petitioners is that the question of whether something is an "income tax" (rather than some other kind of tax) and hence exempt from apportionment under the 16th Amendment is different than the question of whether it needs to be "realized" so as to be taxed currently.

I haven't read the briefs yet. I should.

But a question for you about the above: Does the argument that the income needs to be "realized" in order to be taxed rest on the phrasing in the Sixteenth Amendment about "from whatever source derived"? As an amateur, it seems like it could, but that doesn't necessarily mean it does.
 
Here’s a good, easy to read summary of the arguments by Amy Howe at SCOTUSblog https://www.scotusblog.com/2023/12/oral-argument-suggests-narrow-ruling-to-uphold-disputed-tax/

The Supreme Court on Tuesday appeared likely to reject a challenge to the constitutionality of a provision of a 2017 corporate tax reform law that taxes the undistributed profits from U.S. shares of foreign corporations that are majority American owned. The Washington state couple at the center of the case is seeking a refund of the one-time $15,000 increase in their tax bill as a result of the law, but the federal government’s top lawyer told the justices that a ruling in the couple’s favor could cause a “sea change in the operation of the tax code” and cost “several trillion dollars” in lost revenue – an argument that seemed to draw support from a majority of the justices.
 
Depending on what "come in" means... it come in when you have the legal right to take it, whether or not you take it... like a reinvested dividend... it has come in and is income once you have the right to take it whether you take it or reinvest it.
That is true: It is called "Constructive Receipt" - if it is set aside, free and unhindered, and you only need to ASK for it, you are deemed to have received it.
 
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