An Upcoming Supreme Court Case May Affect Congress's Power to Tax

March 18, 2024

To better understand the case, and the weighty impact its decision could have on the income tax code, we spoke with Chye-Ching Huang, executive director of the Tax Law Center at NYU, and law professor David Kamin ’09. Kamin: The Moores have claimed that a tax enacted by Congress to help partially finance the 2017 tax cut law and that ended the deferral of unrepatriated foreign income is not an income tax under the 16th Amendment. They argue that the case is a good vehicle for the Supreme Court to decide the constitutionality of a wealth tax and which they claim is akin to the tax Congress enacted in 2017 in this provision. The Supreme Court began hearing oral arguments in December. The outcome of this case could have major consequences on the corporate tax code.

While it may not draw the media attention that celebrity or political trials generate, one of the most talked-about cases in DC  this term is the Supreme Court’s Moore v. United States, a challenge to Congress’s power to tax. 

The matter pertains to the 2017 Mandatory Repatriation Tax—a one-time tax imposed on profitable foreign investments, regardless of whether or not investors had cashed in on them. The plaintiffs, Charles and Kathleen Moore, were among those subject to the tax, which was established by the Tax Cuts and Jobs Act under President Donald Trump. The Moores contend that the tax is unconstitutional under the 16th Amendment, interpreting it to include a “realization requirement” on taxable income. The federal government denies this interpretation of language in the 16th Amendment, arguing over 100 years of precedent in taxing unrealized corporate gains.

To better understand the case, and the weighty impact its decision could have on the income tax code, we spoke with Chye-Ching Huang, executive director of the Tax Law Center at NYU, and law professor David Kamin ’09.

Tell us more about the plaintiff’s perspective and argument. 

Kamin: The Moores have claimed that a tax enacted by Congress to help partially finance the 2017 tax cut law and that ended the deferral of unrepatriated foreign income is not an income tax under the 16th Amendment. They argue that the case is a good vehicle for the Supreme Court to decide the constitutionality of a wealth tax and which they claim is akin to the tax Congress enacted in 2017 in this provision. 

The problem is that this tax is not a wealth tax. It is an income tax, and ending the deferral of unrepatriated foreign income reflected Congress attempting to address a key weakness in the taxation of income across borders and in transition to a newly reformed system. Not to mention that the provision raised hundreds of billions of dollars. Further, if the Court takes up Moore’s invitation to issue a broad ruling in their favor, the Court’s decision could threaten many parts of the existing income tax code enacted on a bipartisan basis over decades and spawn a raft of litigation. 

The Supreme Court began hearing oral arguments in December. What has surprised or struck you the most in following the case so far? 

Huang: I was struck by the varied and bipartisan voices who weighed in on the side of the government. It’s unusual for the government to receive much support from amici in tax cases, so the 18 amicus briefs filed in support of the government in this case are a testament to the risks of the petitioners’ argument, which could unsettle wide swaths of the tax code if accepted by the Court.  

In listening to oral argument, I was also struck by the justices’ clear and appropriate skepticism, across their usual ideological divides, about the damage that the petitioners’ theory could do to the existing tax code.  

The outcome of this case could have major consequences on the corporate tax code. How would these consequences impact the average American citizen? 

Huang: A ruling embracing the petitioners’ radical theory could have wide-reaching effects that extend beyond corporate tax. If the Supreme Court rules for the petitioners, there could be confusion, uncertainty, and likely litigation about the tax treatment of lots of different types of income, including income of pass-through entities, the most common type of small business. 

While average Americans could be harmed by this uncertainty, large multinational corporations could stand to gain from a decision striking down the specific provision at issue in the case, or from a decision that leaves room to challenge other tax provisions.  

The source of this news is from New York University

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