Finance cases dominate Supreme Court’s December session

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The Hill

The Supreme Court will return for its final argument session of the year on Monday, hearing several major finance and administrative law disputes.

Among the highlights of the two-week session include the Justice Department’s bid to block Purdue Pharma’s bankruptcy deal and a couple’s attempt to strike down a key provision in Republicans’ 2017 overhaul of the tax system.

 

As the justices take the bench for the seven scheduled arguments, they are also weighing whether to take up a number of major cases for later in the term.

The court during their Dec. 8 closed-door conference is scheduled to consider whether to take up the legal battle over mifepristone, the common abortion pill. The justices have also been sitting on petitions implicating the Biden administration’s now-defunct vaccine mandates for federal employees and the military, among others.

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Moore money, Moore problems

 

A Supreme Court case over a $15,000 tax bill could have multibillion-dollar ramifications. The court must rule narrowly — because if it doesn’t, much of our tax code could enter constitutional purgatory.

In December, justices will hear oral arguments in Moore v. United States, a landmark tax case to decide the legality of taxing unrealized income. The stakes are high: If the court sides with the plaintiffs, it could inject great uncertainty into our already complex tax code, result in billions (or even trillions) of lost revenue, and invite mountains of new litigation. But if it sides with the lower court’s ruling, it could open the door for wealth taxes, widely regarded as both economically harmful and unconstitutional.

The saga begins with a Washington state couple and the Tax Cuts and Jobs Act of 2017.

Charles and Kathleen Moore owned 13% of a small company in India that made farm equipment. Each year, the company generated profits but reinvested them in the business rather than distributing them to the Moores and other investors. Before 2017, U.S. citizens were required to pay taxes on their overseas profits but could defer those payments if they kept the money abroad. This created a “lockout effect,” incentivizing keeping profits in foreign countries.

 

The TCJA changed this. It moved the country toward a “territorial” tax system, only taxing profits earned in the U.S. It ended deferral and created a one-time Mandatory Repatriation Tax at a low rate on income held abroad and all the deferred taxes coming back into the U.S.

As a result, the Moores were hit with a $14,729 tax bill, even though they hadn’t sold their stock in the company or received a dividend. ( Recent reporting , however, suggests the Moores did receive compensation from the company, and they may have simply received bad tax advice.)

The question before the court: Can Congress tax this income given the 16th Amendment and subsequent case law generally requiring that income be “clearly realized” before it is taxed?

The court’s answer could have widespread implications. On one extreme, it could endorse a new definition of income, paving the way for taxes that target unrealized assets — a policy that inhibits the very financial growth it plans to tax. Conversely, other scenarios could render large portions of the U.S. tax base (far beyond the provision contested by the Moores) legally uncertain, putting significant revenue at stake.

 

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Supreme Court to consider ‘quadrillion-dollar question’ in major tax case

The Supreme Court will hear oral arguments in early December on a case that has the potential to broadly reshape the U.S. tax code and cost the government hundreds of billions of dollars in revenue.

At issue in Moore v. United States is the question of whether the federal government can tax certain types of “unrealized” gains, which are property like stocks or bonds that people own but from which they haven’t directly recouped the value, so they don’t have direct access to the money that the property is worth.

 

Large portions of the U.S. tax code require that income be “realized” before it can be taxed, but critics say it’s an inherently wishy-washy concept that courts have just been ignoring for years due to administrative impracticalities. 

Even if the court limits the scope of its decision to the specific tax referenced in the case, known as the mandatory repatriation tax, a ruling in favor of the plaintiffs could cost $340 billion over the next decade, according to the Justice Department.

Tax issue: $1 trillion in unpaid corporate taxes sparks UN tussleFor comparison, that would cancel out all the extra revenue generated by the $80 billion IRS funding boost and then add an additional $140 billion to the national deficit, which now stands between $26 and $33 trillion, according to various measurements.