The U.S. Supreme Court announced Monday that it will hear a challenge to a provision of the Tax Cuts and Jobs Act of 2017 that has been brought by BakerHostetler and the Competitive Enterprise Institute on behalf of clients Kathleen and Charles Moore.
The Mandatory Repatriation Tax deems the reinvested earnings of certain foreign corporations going back 30 years to be the 2017 income of their U.S. shareholders and then income-taxes them on it — despite that the shareholders themselves realized no income.
The Moores were hit with a tax bill of nearly $15,000 based on their investment in a friend’s business that provides affordable equipment to small-scale farmers in India’s most rural and impoverished regions. The business’s enormous success aiding that underserved community was funded by reinvesting its profits, and it has never distributed a dime to its shareholders, including the Moores. The Moores’ suit seeks a tax refund, arguing that the Mandatory Repatriation Tax is not an income tax authorized by the Sixteenth Amendment because it taxes property, not income.
The Moores’ challenge has been called the most important tax case in a century, and its outcome could have an enormous impact on taxpayers now and in the future.
“‘Income’ means the same thing now that it did when the Sixteenth Amendment was ratified: gains that have been realized by the taxpayer. We are confident that the Supreme Court will vindicate that fundamental principle,” said lead counsel Andrew M. Grossman.
Oral arguments will be heard in the upcoming Supreme Court term.