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Supreme Court maintains tax on foreign income
WASHINGTON (AP) – The Supreme Court On thursday maintained a tax on foreign income on a challenge supported by business and anti-regulatory interests, refusing their invitation to give their opinion on a broader decision that was never promulgated wealth tax.
The judges, by a vote of 7 to 2, left in place a provision of a 2017 tax law This is expected to generate $340 billion, mostly from the foreign subsidiaries of domestic companies that have parked money abroad to protect it from US taxes.
The law, passed by a Republican Congress and signed by then-President Donald Trump, includes a provision that applies to companies that are owned by Americans but do business in foreign countries. It imposes a single tax on investors’ profit shares that were not passed on to them, to offset other tax benefits.
But the greater significance of the decision is what it did not do. The case has attracted wide attention because some groups allied with the Washington couple who brought the case have argued that the contested provision is akin to a wealth tax, which would apply not to the incomes of the richest Americans but to their assets, such as stock holdings. . These assets are now taxed only when they are sold.
Justice Brett Kavanaugh wrote in his majority opinion that “nothing in this opinion should be construed as authorizing any hypothetical effort by Congress to tax both an entity and its shareholders or partners on the same undistributed income realized by the entity.”
Underscoring the limited nature of the court’s decision, Kavanaugh said in reading a summary of his opinion before the court, “the precise and very narrow question” of the 2017 law “is the only question we answer.”
AP correspondent Haya Panjwani reports on a Supreme Court ruling on a tax on foreign income.
The court ruled in the case of Charles and Kathleen Moore of Redmond, Washington. They challenged a $15,000 tax bill based on Charles Moore’s investment in an Indian company, arguing that the tax violates the 16th Amendment. Ratified in 1913, the amendment allows the federal government to impose an income tax on Americans. Moore said in a sworn statement that he never received money from KisanKraft Machine Tools Private Ltd.
But Kavanaugh said the tax challenged by the Moores was similar to other taxes, including those on foreign-earned income and partnerships. A decision by the Moores could have called into question these other provisions of the tax code and threatened losses to the US Treasury of several billion dollars, Kavanaugh noted, echoing the argument made by the Biden administration.
Justice Clarence Thomas, joined by Justice Neil Gorsuch, wrote in dissent that the Moores paid taxes on an investment “that never earned them a dime.” Under the 16th Amendment, Thomas wrote, the only income that can be taxed is “income realized by the taxpayer.”
Lawyers for the Moores said they were disappointed by the ruling but had some hope in its narrowness. “What this means is that the constitutionality of other types of future taxes – such as a national wealth tax – remains completely ignored by the court’s opinion,” said Dan Greenberg, general counsel at the Competitive Enterprise Institute.
Greenberg pointed to a separate opinion by Justice Amy Coney Barrett, joined by Justice Samuel Alito, who agreed that the Moores should lose this case. But Barrett also supported the dissenters in arguing that income must be realized — in essence, received — to be taxed under the Constitution.
Kavanaugh’s opinion left the question of achievement open and there are now four justices, one short of the majority, who have stated their opposition to taxes, such as a wealth tax, that do not require achievement.
Leslie Samuels, a tax expert who served at the Treasury Department during the Clinton administration, said the court’s decision was disturbing because it appeared to encourage more legal challenges to the taxes and warn Congress that its ability to impose new taxes could be restricted.
“Although the government won, Moore supporters did achieve some important and unsettling successes for the future,” Samuels said.
The case also raised ethical concerns and raised questions about the story the Moores’ lawyers told in court filings. Alito rejected calls of Senate Democrats to step aside from the case because of their ties to David Rivkin, an attorney representing the Moores.
Public documents show that Charles Moore’s involvement with the company, including serving as a director for five years, is much more extensive than court documents indicate.
The case is Moore v. USA, 22-800.
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Associated Press writer Fatima Hussein contributed to this report.
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