A Supreme Court dispute over a $15,000 IRS bill may be aimed at a never-enacted tax on billionaires

The main issue in the Supreme Court case involving Charles and Kathleen Moore is a $15,000 IRS tax bill that the couple contends is unconstitutional. They argue that they had to pay this tax due to their investment in an Indian company from which they claim to have never received any returns.

This case has broader significance because it could call into question other parts of the U.S. tax code and potentially rule out a never-enacted tax on wealth, often referred to as a “wealth tax.” The outcome of this case could have implications for how the U.S. taxes the assets of the wealthiest individuals, such as stock holdings.

The case revolves around a provision of the 2017 tax bill enacted by a Republican-controlled Congress and signed by then-President Donald Trump. This provision applies to companies owned by Americans that do business in foreign countries. It imposes a one-time tax on investors’ shares of profits that have not been distributed to them, aiming to offset other tax benefits. This provision is expected to generate significant tax revenues, around $340 billion.

Charles and Kathleen Moore, along with the U.S. Chamber of Commerce and conservative think tanks, argue that this provision violates the 16th Amendment, which allows the federal government to impose an income tax on Americans. They question the imposition of income tax when they haven’t received any income from their investment.

Contrary to their claim of being passive investors, evidence indicates that Charles Moore had more significant involvement with the Indian company than his testimony suggested. He served on the company’s board of directors for five years, received paid travel to India multiple times, and made additional investments beyond his initial stake.

Experts in international tax law suspect that this case might have been strategically manufactured to address the larger issue of a wealth tax on billionaires. This proposed tax would apply to the assets of the wealthiest Americans, not just their incomes. Some believe that the Supreme Court’s decision on this case could send a signal regarding the potential for such a tax.

Yes, this case could have implications for other provisions of the tax code, including those related to business formations like partnerships and limited liability companies. Changes in how the court interprets the law in this case could impact these areas of taxation.

This case has raised ethical questions due to interactions between Justice Samuel Alito and one of the lawyers representing the Moores, David Rivkin. Senate Democrats requested that Justice Alito recuse himself from the case because of these interactions, but he declined to do so, asserting that there was no valid reason for his recusal. This has added an ethical dimension to the case.

The next step in this case is the scheduled arguments before the Supreme Court, which are set for December 5. The court will hear both sides and ultimately render a decision that could have significant implications for taxation and tax policy in the United States.