US supreme court rules against Washington couple in foreign investment taxation case

Lauren Aratani in New York

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Conservative bloc

  • Alito – Majority

  • Barrett – Majority

  • Gorsuch – Minority

  • Kavanaugh – Majority

  • Roberts – Majority

  • Thomas – Minority

Liberal bloc

  • Jackson – Majority

  • Kagan – Majority

  • Sotomayor – Majority

The US supreme court on Thursday ruled against a Washington couple who argued they were unconstitutionally taxed $15,000 for their investment in a foreign company – in a case some have argued was a backdoor attempt to ban future wealth taxes.

The case, Moore v US, put into question what assets are considered taxable income. Some experts say the case was used as a vehicle to give the supreme court an opportunity to weigh in on a hypothetical billionaire’s tax, which would raise similar questions on what assets can be taxed.

As the court was hearing the case in December, experts were worried that it put into question the long-established tax code, threatening to wreak havoc on what Americans may be taxed for.

The vote was 7-2 with Justice Clarence Thomas and Justice Neil Gorsuch dissenting. In his opinion, Justice Brett Kavanaugh described the ruling as “narrow”, leaving an opening for future challenges.

Senator Elizabeth Warren hailed the ruling. “Right-wing billionaires hoped an obscure legal case would blow up the tax code to avoid paying what they owe, but this effort failed at the supreme court. The fight goes on to tax the rich, pass a wealth tax on ultra-millionaires and billionaires, and make the system more fair,” she wrote on X.

The case focused on Charles and Kathleen Moore, a couple from Washington state who owned a small stake in an India-based company that sells affordable farm equipment in India.

Charles Moore met one of the future founders of the company, KisanKraft, when he was a software engineer at Microsoft. The Moores invested $40,000 into the company, which gave them an 11% stake.

In 2017, as part of a way to fund Donald Trump’s tax giveaway to US corporations, Americans who owned at least 10% of a foreign company were charged a one-time Mandatory Repatriation Tax (MRT) on their holding, regardless of whether the investment remained in the company, whereas such investments were previously exempt. Total tax revenue raised by the MRT is estimated to be $340bn.

Under the MRT, the Moores were charged about $15,000 in taxes, something they argued was unconstitutional because they didn’t receive any cash from the investment. Instead, they had reinvested any profit back to the company.

The lawsuit argued that the MRT was a tax on unrealized income, meaning the Moores never received any direct payment for their investment, and was a violation of the 16th amendment. The amendment gives Congress the right “to lay and collect taxes on incomes”.

The supreme court was tasked with deciding whether the Moores’ investment in the company was considered income. Ultimately, it agreed with the government that the investment was a form of income.

“So the precise and narrow question that the Court addresses today is whether Congress may attribute an entity’s realized and undistributed income to the entity’s shareholders or partners, and then tax the shareholders or partners on their portions of that income. This Court’s longstanding precedents, reflected in and reinforced by Congress’s longstanding practice, establish that the answer is yes,” Kavanaugh wrote in his opinion.

Trump is typically associated with tax cuts for the wealthy and personal tax avoidance, rather than taxes imposed upon the wealthy. But his policy of a one-off tax penalty on individuals to help fund his larger corporate tax cuts prompted critics to warn that ruling against such a levy, in this case on the Moores, could permanently “lock in” the right of billionaires to opt out of paying enough tax.

Bob Lord, senior tax policy advisor at the Patriotic Millionaires, a nonpartisan organization that promotes restructuring the US tax system so that wealthy people pay more tax, said he was pleased by the decision but the details of the ruling showed there would be challenges ahead.

“We now know there are at least four justices are in the tank for billionaires,” said Lord. “The narrow ruling does not bode well at all” for future attempts by any administration seeking to impose a tax on wealth or unrealized gains, he said.

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