On December 5, 2023, the U.S. Supreme Court expressed concern over changing the foreign profit tax for Americans, as it contemplates the meaning of “income” in a case that could hinder efforts by some Democratic members of Congress to impose a tax on the very wealthy.
Initial Concerns of the Supreme Court
The Supreme Court heard arguments in an appeal brought by Charles and Kathleen Moore – a retired couple from Redmond, Washington – against a lower court’s decision that rejected their challenge to the tax on foreign corporate profits, even though those profits were not distributed to shareholders.
The Mandatory Export Tax
The Mandatory Export Tax (MRT) is part of the tax law signed by former President Donald Trump in 2017, applying to owners of foreign companies controlled by American firms at a rate of at least 10%. The case in this instance concerns whether this tax on unrealized profits is permissible under the Sixteenth Amendment to the U.S. Constitution, which allows Congress to “levy taxes on income.”
Concerns of the Supreme Court
Some justices expressed concern that a ruling in favor of the Moores could jeopardize a broader range of tax law provisions regarding other business entities such as partnerships and limited liability companies and S corporations.
Call for Recusal
The case has become entangled in the ongoing debate over the ethical conduct of judges due to revelations about issues including unreported luxury travel funded by wealthy benefactors. A Democratic senator urged justices to recuse themselves due to the connection of David Rivkin Jr., one of the Moores’ attorneys, to articles in the Wall Street Journal where he defended the court and argued that Congress has no authority to regulate the Supreme Court. Senate Democrats have sought ethical legislation applicable to the court.
A ruling is expected by the end of June.
Source: https://www.reuters.com/world/us/us-supreme-court-ponders-meaning-income-tax-dispute-2023-12-05/
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