Moore v. United States

Background

Charles and Kathleen Moore bought a 13% stake in an American-controlled foreign company called KisanKraft in 2006. KisanKraft earned and kept substantial profits through 2017 without paying those profits out as dividends. The 2017 Tax Cuts and Jobs Act created a one-time Mandatory Repatriation Tax (MRT) that attributed those accumulated foreign-company earnings to U.S. owners and taxed them at rates from about 8% to 15.5%. The Moores paid $14,729 under that rule and sued for a refund, arguing that the tax unconstitutionally treated their stock as taxable property without the required apportionment. Lower courts rejected their challenge and the Moores pressed their Direct Tax Clause claim here.

Reasoning

The Court explained that the Constitution separates taxes on income from direct property taxes that must be apportioned. The Justices said the MRT taxes income that the foreign company realized and then attributes that realized, undistributed income to U.S. shareholders for tax purposes. Relying on earlier decisions and a long history of Congress treating some entities as “pass-through” (taxing owners instead of the entity), the Court held the MRT falls within Congress’s taxing power. The opinion stressed the ruling is limited to situations when Congress treats an entity as a pass-through and does not allow taxing both the entity and its owners on the same undistributed income. The Court also said it would not resolve today whether a constitutional “realization” requirement governs all income taxes.

Real world impact

The decision lets the federal government collect taxes from U.S. owners of controlled foreign companies on accumulated foreign profits even if no dividend was ever paid. That affects Americans who hold stock in controlled foreign corporations and confirms long-standing practices like subpart F and other pass-through rules. The ruling is narrow, so some future forms of wealth or appreciation taxes might raise different questions.

Dissents or concurrances

Three separate opinions accompanied the judgment. One Justice concurred in the result but urged caution about broader questions. Another agreed with the outcome but raised concerns about how attribution should apply in other settings. A dissent argued the Sixteenth Amendment requires that income be realized by the taxpayer and would have struck down the MRT on that ground.