Moore v. United States – The Beginning of Offshoring Profits Again?

Under the Tax Cuts and Jobs Act of 2017, a one-time Mandatory Repatriation Tax (sometimes called the “Transition Tax”) was enacted, requiring U.S. shareholders owning 10% or more of a foreign corporation to pay tax on their share of the foreign company’s accumulated and undistributed earnings, even without an actual dividend being declared or paid. The Moores, after discovering their liability to pay the Transition Tax, challenged its constitutionality, arguing that it violates the Apportionment Clause and the Fifth Amendment’s Due Process Clause because it taxes earnings retroactively and without realization. Their case was dismissed by the district court and the Ninth Circuit affirmed the dismissal. The Moores then appealed to the United States Supreme Court, which granted certiorari.

The Supreme Court has not yet issued a decision in this case. The case was aged on December 5, 2023, and a ruling is expected in spring or summer of 2024. The outcome of the case will have significant implications for the federal government’s power to tax income and could potentially affect the viability of future tax legislation, including taxes on unrealized capital gains and wealth taxes. The Court’s decision will also determine the constitutionality of the Transition Tax and could impact other provisions of the tax code that rely on non-realization principles.

Oral arguments suggested that the justices were concerned about the potential for a ruling in favor of the Moores to invalidate major portions of the tax law. However, they also seemed uncomfortable with completely abandoning the realization requirement, indicating a search for a middle ground that would not lead to significant changes to the current tax system. If the Supreme Court strikes down the entirety of the deemed repatriation for corporate and noncorporate taxpayers, it could lead to the reinstatement of deferral on profits domiciled abroad. It would also call into question various taxes that apply to foreign earnings, including the Global Intangible Low-Taxed Income (GILTI) and Subpart F income. This would have particular implications for the taxation of multinational corporations and the structure of the U.S. tax code regarding international taxation.

Given the potential implications of the Supreme Court’s decision in Moore v. United States, taxpayers with foreign holdings should consider consulting a tax law firm like Hone Maxwell LLP now rather than waiting for a ruling. The ruling may prompt legislative and regulatory changes that will increase the complexity of compliance and engaging with a tax professional early will better position taxpayers to respond to whatever changes such a decision will bring.



Disclaimer: Hone Maxwell LLP articles and blogs are not intended as legal advice. Additional facts, facts specific to your situation or future developments may affect subjects contained herein. Seek the advice of an attorney before acting or relying upon any information herein.

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