The U.S. Supreme Court has upheld a key provision of the 2017 corporate tax reform law, commonly referred to as the mandatory repatriation tax, which targets the undistributed profits of foreign corporations controlled by American shareholders. In a 7-2 decision, the court ruled that this tax does not violate the Constitution, as recently detailed on SCOTUSblog.
The case centered on Charles and Kathleen Moore, who invested in an Indian company, KisanKraft, in 2005. Despite not receiving any dividends from their investment, the Moores faced an additional $15,000 tax bill due to the repatriation tax, which covers profits earned by controlled foreign corporations since 1986, regardless of distribution.
Justice Brett Kavanaugh, writing for the majority, underscored the narrow scope of the ruling and stated that a contrary decision could jeopardize broad sections of the Internal Revenue Code. He explained that Congress has the authority to attribute income realized but not yet distributed by an entity to its shareholders, as established by longstanding precedents.
Justice Ketanji Brown Jackson, in her concurring opinion, emphasized the limited role of the court in tax matters, suggesting that recourse for grievances against tax laws should be sought through legislative processes. On the other hand, Justice Amy Coney Barrett concurred with upholding the lower court’s decision but disagreed with the majority’s reasoning.
Justices Clarence Thomas and Neil Gorsuch dissented, arguing that “income” under the 16th Amendment should only cover received earnings and thus, the unpaid gains from KisanKraft could not be taxed as income. Thomas criticized the perceived reliance on dicta by the majority to prevent future unconstitutional taxes, pointing out that such statements hold no binding power in future cases.
For a more detailed analysis, the original article can be read here.