So, We Now Know Moore Than We Did Before…

On Thursday, June 20, 2024, the Supreme Court handed down its long-awaited tax decision in Moore v. U.S. (S Ct. Docket No. 22-800, June 20, 2024). And, an interesting set of opinions it is (all 83 pages of them)!

This blog post offers a compressed summary of the page-turning majority, two concurring, and one dissenting opinions (a 7-2 decision) with our color commentary sprinkled throughout (in boldface).


We first called attention to this case on July 27, 2023.

You will recall that the taxpayers, Charles and Kathleen Moore, had invested $40,000 in 2005 in a friend’s start-up company (KisanKraft) formed in India, and received a 13% stock interest. The company manufactured and distributed farm equipment in India. KisanKraft was classified as a controlled foreign corporation (CFC) for all years in question. There were no distributions of profits to the Moores (and no stock sales by them). KisanKraft had reinvested its profits in its business.

As part of the Tax Cuts and Jobs Act in 2017, a new Code provision was enacted, Section 965, which imposed tax on all U.S. shareholders of CFCs on all previously untaxed earnings and profits of their CFCs (back to 1986) as of the relevant date in December 2017. This one-time “catch up” tax was called the Mandatory Repatriation Tax (MRT). The tax was reportable on taxpayers’ 2017 year returns, although Congress permitted those MRT taxpayers to pay the tax over eight years. Tax rates imposed on that E&P varied based on the nature of the assets held by the CFC: 15.5% for cash/equivalents, 8% for other investments.

The prorata amount of MRT income required to be included by the Moores for 2017 was about $133,000. They paid their required tax (about $14,700) and sued for a refund in 2019. The District Court (WD WA) dismissed the claim on summary judgment; the taxpayers appealed to the Ninth Circuit, which affirmed in 2022 and denied a request for a rehearing en banc. The Moores petitioned the Supreme Court on a writ of certiorari, which the Court accepted on June 26, 2023. The Court received 43 amicus briefs. Argument was held on December 5, 2023, and the opinion handed down on June 20, 2024.

The Arguments

The Moores argued that the Sixteenth Amendment and established law required “realization” in order to properly impose tax but that there had been no realization by the Moores in December 2017 (referencing Eisner v. Macomber and other cases). Hence, the MRT violated the Constitution and those precedents. Further, taxpayers caught by imposition of the MRT as of December 2017 would not necessarily have had ownership of their stock interest in the CFCs for the entire period caught by the MRT (back to 1986), so taxing them with respect to all that prior E&P — in which they may have had no interest in the CFC — was a due process violation and unconstitutionally retroactive.

The government responded that there was “realization,” since the CFC itself had earned/received the income in question, and that it was a proper congressional decision to tax it even if the taxpayers did not personally realize the income. Its attorneys drew analogies to various other provisions in the Code, such as partnerships, Subchapter S corps, OID rules, MTM provisions, etc., including, of course, Subpart F itself, whose constitutionality had been upheld previously. Acceptance of the taxpayers’ “no realization” argument would potentially jeopardize all those provisions and others in the Code, a calamitously adverse impact on U.S. Government revenues and programs. The decision to impose tax on the owners in December 2017 complied with “substantive due process” and, as the Court acknowledged during arguments, only required a “rational” basis to be constitutionally permissible.

The Opinions

The Majority Opinion

On June 20, 2024, the Court sustained the constitutionality of the MRT, 7-2 and affirmed the Ninth Circuit. There were four opinions: The majority opinion of the Court (five members, written by Justice Kavanaugh), a concurring opinion (by Justice Jackson), another concurring opinion (by Justice Barrett with Justice Alito), and a dissenting opinion (by Justice Thomas with Justice Gorsuch).

The majority quickly identifies (slip op. at 1 - 5) “long” congressional treatment of “some corporations and partnerships as pass-throughs” that attribute their undistributed income to the shareholders or partners. Congress extended that comparable tax treatment to U.S. shareholders of CFCs since 1962, noting that Subpart F dealt with “mostly passive income.” The MRT attributed “more [no pun intended] income, including active business income” of CFCs to their U.S. shareholders and taxed it, consistent with “this Court’s longstanding precedents.” Id.

Further, the majority provides that, notwithstanding the Moores’ argument, “the MRT does tax realized income — namely, income earned by the corporation.” Slip at 8, emphasis in original. Hence, the Court’s “longstanding precedents” provide that Congress may permissibly “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.” Id. The Court noted that the Moores sought “to contain the blast radius of their legal theory” by trying to distinguish the “longstanding” Court precedents from their case by arguing “that only the MRT is unconstitutional,” having conceded the constitutionality of partnership, Subchapter S and Subpart F taxes… Slip at 16.

The Heiner decision (Heiner v. Mellon) is a “situation closely akin to the Moores’ case here.” Slip at 10. There, the partnership earned income but state law prohibited the partners from receiving it; nonetheless, the Supreme Court held that the partners were properly taxable on their share of such income, since Congress had chosen to tax the partners on that partnership’s income, and that case and others “by 1938 … had established a clear rule that directly contradicts the Moores’ argument in this case.” Id. 

Further, the Court held that the Moores’ reliance on Eisner v. Macomber was “misplaced,” since that was “not a case about Congress’s power to attribute income of an entity to the entity’s shareholders or partners.” Id., emphasis in original. Instead, Eisner was distinguishable because “neither the corporation nor the shareholders had realized income from the corporation’s creation and distribution of additional stock.” Slip at 12.

So, and as predicted, the crux of the majority opinion is that if the Subpart F scheme is constitutional, then so is the MRT.

Interestingly, the majority opinion of the Court specifically limits its decision, however, saying it is limited to taxation of shareholders or partners on undistributed income attributed to them when the entity has not itself been taxed on it; but that the opinion does not apply to approve “taxes on holdings, wealth, or net worth or … appreciation.” Slip at 8, 22-23. 

Further, and perhaps of longer-term interest, the Majority says “The Moores argue that realization is a constitutional requirement; the Government argues that it is not. To decide this case, we need not resolve that disagreement over realization.” Id. at 24.

This, of course, addresses the entire purpose of this appeal in the first place — an attempt to preemptively challenge any proposals that would tax wealth or net worth. The Court wanted to be clear — by sustaining the MRT, they are not holding that taxes on wealth would also automatically be constitutional. So those who wanted this opinion to preclude any proposals to tax wealth are back to square one — even though three of the four opinions expressly offer dicta that this case does NOT address a future wealth tax.

Concurring Opinions

Justice Jackson’s concurring opinion refers to Eisner v. Macomber saying that it “has long been deemed outmoded, if not overruled. Any litigant seeking to sustain her case on the basis of Macomber would have to bring back from the dead its Court-created limit on Congress’s power.” Slip at 3. In the future, Justice Jackson notes, if future taxes “outrage one group or another … ‘the remedy for such abuses is to be found in the ballot-box … not in the disregard by the judiciary of powers that have been committed to another branch.’” Id. at 4-5. Does this mean that Eisner v. Macomber is completely dead? While the majority distinguished it, Justice Jackson’s strong language certainly poses this question.

Justice Barrett’s concurring opinion (joined by Justice Alito) discusses the continuing vitality of “realization” though distinguishing the MRT tax imposition on U.S. shareholders of a closely held foreign corporation from a comparable tax on a widely held or domestic corporation, which “would present a different case.” Slip at 1. Here, she says the Moores have “not realized income from their KisanKraft shares.” Id. at 5. Notably, she says that “derived” (in the Sixteenth Amendment sense) and “realized” have been used “somewhat interchangeably” (Id. at 4), but that the Ninth Circuit “misread our cases” when it said the “‘Supreme Court has made clear that realization of income is not a constitutional requirement.’” Id. at 7. 

Yet, while the Moores “did not realize income as shareholders, KisanKraft realized income as a corporation,” so the issue here is “whether Congress has the power to tax the Moores on income that KisanKraft realized.” Id. at 9-10. In conclusion, she says that while the Court is “too quick to bless attribution of corporate income to its shareholders, its holding is narrow.” Slip at 15. 

Ultimately, and despite all of the twists and turns of her concurrence, Justice Barrett agrees with the majority that the taxation rules of Subpart F (which has been upheld constitutionally) is “not meaningfully different from the MRT,” and that the Moores have not met their burden to show unconstitutionality here. Slip at 17. 

The Dissenting Opinion

The dissent, authored by Justice Thomas (in which Justice Gorsuch joins), sides with the Moores and cites Eisner v. Macomber saying the taxpayers “never actually received any of their investment gains,” hence, they were unrealized and not taxable under the Sixteenth Amendment. Slip at 1. So, it seems at least Justices Thomas and Gorsuch think Eisner v. Macomber is still good law. Further, the dissent says that the Ninth Circuit erred saying realization is not a constitutional requirement (a statement common to Justice Barrett’s concurring opinion) and that the majority’s “‘attribution’ doctrine is an unsupported invention.” Id. at 2.  

The dissent contrasts the Code’s taxation of partners on partnership income (including the Heiner decision), S shareholders on S corp income, and U.S. shareholders taxation under Subpart F with the MRT. Partnerships have “no existence separate from their partners” and thus a partner’s share of income is “understood to be his own income.” Id. at 30. An S corporation has key eligibility criteria that “make it clear that … [it] is merely an extension of the pass-through taxation of partnerships.” Id. at 31. 

The MRT, however, is different than the other provisions in Subpart F, which align with the corporation’s earning of income in the same year as the U.S. shareholders take it into account; hence, Subpart F includes “some minimal requirements to ensure that taxable ‘income’ belongs to the shareholders in some way.” Id. at 31-32. However, the “MRT turns solely on the ownership of stock on a certain date” and has no connection to a recognition event or constructive receipt, hence provides, “no rational basis for Congress to attribute income to a taxpayer.” Id. at 31. These differences between the MRT and the rest of Subpart F have “constitutional implications.” Id. “Because the MRT is imposed merely based on ownership of shares in a corporation, it does not operate as a tax on income.” Id. 

The dissent’s point is well taken — the retroactive nature of the MRT feels unfair and is concerning because it can reach back to periods before the taxpayer owned the CFC. The majority did not fully address this issue because they found that the CFC’s realization of the income is sufficient. However, we note that this factual scenario did not actually apply to the Moores — they owned their stock of KisanKraft effectively since its inception.

Lastly, it is worth noting that both the majority and dissent agree on one thing: The position of the Moores “‘would deprive the U.S. Government and the American people of trillions of lost tax revenue’ and ‘require Congress to either drastically cut critical national programs or significantly increase [other] taxes.’” Majority Slip at 21-22, Dissent Slip at 33. “The Constitution does not require that fiscal calamity.” Majority Slip at 22.

Ultimately, as unfair as the MRT seems on its face, the Court’s majority sustained the MRT and declined to address its constitutionality; the Moores do not get their refund of $14,700; those who wanted the Court to preclude the possibility of taxes on wealth or net worth have some dicta to take comfort in (even though the issue has not been squarely presented); and the validity of Eisner v. Macomber is in question. But, at the very least, our entire system of taxation is not in jeopardy and the U.S. Government is not out “trillions” of dollars.

  • Kenneth S. Levinson
    Of Counsel

    Ken focuses on worldwide tax planning, transaction structuring and a number of tax issues related to mergers and acquisitions, IP licensing, employee relocation, and international franchising. He has extensive experience ...

  • Masha M. Yevzelman

    Her experience includes resolving and litigating numerous types of tax disputes:

    • State Corporate Income and Franchise Taxes: including nexus and Public Law 86-272, combination, business versus non-business income ...
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