By Caroline Rule
ABA Tax Times
Volume 42, No. 4 – Summer 2023
In the next Supreme Court term, the Justices will hear argument on whether the Mandatory Repatriation Tax (MRT), violates the Sixteenth Amendment. Depending on how the Court decides this issue, the case could be the most important tax case in decades as it requires the Court to address Congress’s power to levy taxes.
The MRT, codified in section 965 of the Internal Revenue Code, deemed the post-1986 deferred foreign income of a controlled foreign corporation (CFC)—a foreign corporation owned more than 50% by U.S. persons—to be income subject to a one-time tax in 2017. This resulted in tax on 30 years of deemed income.
In the case before the Court, Charles G. Moore et al. v. United States, Case No. 22-800, individual taxpayers Charles and Kathleen Moore argue that Congress cannot tax undistributed and non-repatriated CFC earnings because those earnings are not “realized” income and realization, i.e. actual receipt, is a requirement for taxation under the Sixteenth Amendment. If the Court agrees, this could call into question numerous Internal Revenue Code provisions that tax unrealized income, for example deemed dividends or imputed interest.