Supreme Court Upholds Mandatory Repatriation Tax: Key Takeaways from Moore v. United States

On June 20, 2024, the Supreme Court issued its long-awaited decision in Moore v. United States, 607 U.S. ___ (2024), delivering a significant victory for the federal government regarding the constitutionality of the mandatory repatriation tax under Section 965 of the Internal Revenue Code. This provision, enacted as part of the 2017 Tax Cuts and Jobs Act, imposed a one-time transition tax on undistributed foreign earnings of certain U.S.-owned corporations.

Key Points from the Ruling Upholding the Mandatory Repatriation Tax

1. Constitutional Validity: In a 7-2 decision, the Court rejected the constitutional challenge to Section 965, upholding the tax as a valid exercise of Congress’s taxing power.
2. Income vs. Property Tax: The majority opinion, authored by Justice Brett Kavanaugh, categorized the repatriation tax as an income tax rather than a property tax. This classification is crucial, as it means the tax is not subject to the Constitution’s apportionment requirement for direct taxes.
3. Attribution vs. Realization: The Court framed the issue as one of income attribution rather than realization. This distinction was key in aligning the repatriation tax with existing subpart F rules, which the plaintiffs had conceded were constitutional.
4. Wealth Tax Question Unanswered: Notably, the Court explicitly avoided ruling on the broader question of whether there is a constitutional realization requirement for taxation. This leaves open the possibility of future challenges to proposed wealth taxes or mark-to-market regimes.
5. Split Opinions: While the majority declined to address the realization requirement, concurring opinions revealed differing views among the justices on this issue. This suggests that future cases may see further debate on the constitutional limits of federal taxation.

Implications for Taxpayers

1. The decision solidifies the government’s authority to tax unrepatriated foreign earnings, even retroactively.
2. It may embolden Congress to consider similar tax measures in the future, knowing that attribution-based income taxes have received judicial approval.
3. However, the Court’s silence on the realization requirement leaves room for potential challenges to more aggressive tax proposals, such as wealth taxes.

For businesses and individuals with international holdings, this ruling underscores the importance of staying informed about changes in tax law and planning accordingly. As the landscape of international taxation continues to evolve, professional guidance becomes increasingly valuable in navigating complex compliance requirements and optimizing tax strategies.

At JDKatz, we remain committed to helping our clients understand and adapt to these developments in tax law. If you have questions about how this ruling might affect your tax situation, please don’t hesitate to contact us for personalized advice.

[Note: This blog post is based on an initial analysis of the Moore v. United States decision. As with all complex legal matters, further developments and interpretations may emerge over time.]