A retired couple says a 2017 tax on income they never actually received from an investment abroad violates the 16th Amendment.
A retired Washington state couple urged the Supreme Court on Dec. 5 to strike down a 2017 tax on “unrealized” income from overseas investments, a move some say could jeopardize current tax code provisions and handcuff Congress.
Legal observers are watching the case, Moore v. United States (court file 22-800), because the court could use it to strike down the Mandatory Repatriation Tax (MRT), also known as the Section 965 transition tax, which was part of the Tax Cuts and Jobs Act approved by the Republican-controlled Congress in 2017 and signed into law by then-President Donald Trump.
Conservative constitutionalists say if the Supreme Court finds that the MRT violates the 16th Amendment to the Constitution, which allowed an income tax without having to determine it based on population, such a legal precedent could prevent Congress from enacting legislation to tax wealth.
The amendment, ratified in 1913, states: “The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.”
Wealth tax proposals routinely come up in Congress. For example, Sen. Ron Wyden (D-Ore.) introduced a plan last month to tax the unrealized capital gains of high earners.
Most Important Tax Case in a Century?
Liberal groups say invalidating the tax law could wreak havoc. The left-leaning Institute on Taxation and Economy Policy said the case “could become the most important tax case in a century.”
That’s because “a broad ruling could destabilize our tax system, enrich many profitable corporations, and widen existing economic and racial inequalities.”
Since the 1960s, corporations have been able to move income across borders to avoid taxation. If the law is erased, “the floodgates to offshore tax dodging” could be opened “on a scale never seen before,” the group said in recent commentary.
The 2017 law changed the way foreign income of U.S. corporations was taxed. Lawmakers created the tax because, in their view, too much money was being invested abroad and not benefiting U.S. tax coffers.
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