In a recent pivotal decision, the US Supreme Court upheld the constitutionality of the mandatory repatriation tax (MRT) in Moore v. United States, affirming Congress’s capacity to tax the undistributed income of non-US entities owned by US taxpayers. The 7-2 decision, detailed in a Bloomberg report, reassures the tax community that foundational tax frameworks, including Subpart F and the passive foreign investment company rules, remain unchallenged.
Justice Brett Kavanaugh’s majority opinion for the court performed a meticulous examination of constitutional provisions and precedents, such as Brushaber v. Union Pac. R.R. and Estate of Whitlock v. Commissioner. His opinion highlighted that the MRT functions similarly to US federal income taxation of partnerships, S corporations, and subpart F income, none of which were contested by the plaintiffs in Moore.
Importantly, the court avoided the broader and contentious issue of whether realization is a constitutional requirement for income taxes, leaving room for future debates on the legitimacy of wealth taxes. The decision also indicates potential pathways for taxpayers to challenge future tax regulations based on constitutional grounds.
Justice Ketanji Brown Jackson’s concurrence began to build an originalist argument that realization is not necessary for congressional tax authority, a stance opposed by Justice Amy Coney Barrett in her own concurring opinion, alongside Justice Samuel Alito. The dissent by Justice Clarence Thomas, joined by Justice Neil Gorsuch, criticized the majority’s narrow ruling and cautioned about future implications for wealth taxes.
The Moore decision likely closes the door on further constitutional challenges to the MRT while still leaving the path open for taxpayers to contest other tax statutes and regulations. If a wealth tax were enacted, future cases would likely test its constitutional validity based on the unresolved issue of realization, as suggested in the court’s opinion.
The case is Moore v. United States, U.S., 22-800, decided on June 20, 2024. Further analysis of this decision is available in the original article.