Supreme Court could make massive tax impact — or none at all

The Supreme Court will hear arguments tomorrow in a case that could carry massive implications to tax policy and a revenue-raising provision of the Tax Cuts and Jobs Act.

Moore v. United States will test two lower-court decisions against a couple of investors who contend that they never realized their earnings from a 13% stake in an India-based company and therefore should not be subject to a payment of $14,729 from the "mandatory repatriation tax" of the 2017 law. The case revolves around language in the 16th Amendment and larger political questions surrounding calls for wealthy Americans to pay higher taxes, in addition to a part of the Tax Cuts and Jobs Act that's expected to bring in $340 billion in revenue.

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"Although Moore v. U.S. involves a narrow challenge to the Section 965 transition tax, it has the potential to make vast changes to other, well-established components of the U.S. tax system," George Abney, a partner in the Atlanta office of Alston & Bird, said in a statement.

"The plaintiffs in Moore have argued that the Section 965 transition tax is unconstitutional because it imposes a tax on 'unrealized' income — that is, income the Plaintiffs did not receive or control," Abney continued. "A broad Supreme Court ruling that Congress cannot impose a tax on unrealized income could disrupt other instances where Congress has imposed tax on unrealized income — such as income from pass-through entities like partnerships, S-corporations and controlled foreign corporations. A ruling that Congress can impose a tax on unrealized income could open the door to a wealth tax or a tax on appreciation."

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Many business and anti-tax advocates have lined up in support of Kathleen and Charles Moore's case, which has drawn opposition from President Joe Biden's administration and former House Speaker Paul Ryan, one of the main writers of the 2017 law, The Washington Post reported. Potential factual omissions within the Moores' case about their connections to the Indian company and critics' contention that Justice Samuel Alito should recuse himself due to personal links to their legal team are also adding further complications.

"A lot of the tax code would be unconstitutional if that thing prevailed," Ryan said about the case at a Brookings Institution event, according to the Post. "I'm not for a wealth tax, but I think if you use this as the argument to spike a wealth tax, you're going to basically get rid of, I don't know, a third of the tax code."