Moore: Attribution and Income Realization

Moore: Attribution and Income Realization

Academic Unit

College of Business

Publication Date

1-27-2025

Document Type

Article

Abstract

In the early 2000s, Charles and Kathleen Moore contributed $40,000 to help a friend establish KisanKraft Machine Tools Private Ltd., an Indian corporation. In exchange, they received about 13 percent of KisanKraft’s common shares. The corporation was established to supply farmers in India’s most impoverished regions with basic tools and equipment readily available in the United States but not in India. Under the IRC, the Moores were shareholders in a U.S. controlled foreign corporation. The mandatory repatriation tax (MRT) was enacted as part of the Tax Cuts and Jobs Act in 2017. The MRT targeted U.S. persons who own shares of a CFC and imposed a one-time tax based on the CFC’s undistributed accumulated earnings as the United States shifted its approach to taxing foreign earnings from worldwide to territorial. When the MRT was enacted, the Moores became responsible for tax on their proportional share of KisanKraft’s undistributed earnings. They declared an additional $132,512 as taxable 2017 income and paid an additional $14,729 in tax. The Moores filed a claim for refund and later a lawsuit in federal district court. The district court entered judgment for the government in 2020. The Moores appealed to the Ninth Circuit, which affirmed the district court in 2022. The Moores sought a writ of certiorari from the Supreme Court, presenting the question: “Whether the Sixteenth Amendment authorizes Congress to tax unrealized sums without apportionment among the states,” and the Court granted certiorari in 2023. On June 20, 2024, the Supreme Court held that the MRT was constitutional. Justice Brett Kavanaugh wrote the five-person majority opinion, which did not address whether the 16th Amendment authorizes Congress to tax unrealized sums without apportionment. Rather, the majority held that the 16th Amendment allowed Congress to attribute income realized by the CFC KisanKraft to the Moores, the 13 percent shareholders. The 7-2 decision included two concurring opinions and a dissenting opinion. This article examines the issues addressed by the Supreme Court in Moore.

Journal Title

Tax Notes International

Volume

117

Issue

4

Beginning Page Number

587

Last Page Number

597

Moore: Attribution and Income Realization

Share

COinS