Is a Court Case Redefining Income
Moore v. United States is challenging certain tax provisions that were originally put into place by Congress in 2017. The 2017 tax law changes sought to prevent tax avoidance from foreign earnings by changing the permanent deferral of tax on foreign income. When the changes were made, Congress provided deemed repatriation to avoid a windfall for foreign corporations who had accumulated significant deferred income under the old policy that would have resulted in a higher tax liability.
The Moore case is challenging the Constitutionality of the repatriation. The majority of the claim by the Moore shareholders is that the 2017 change establishes a tax on unrealized earnings as well as taxing accumulated earnings. The Moore v. US case is citing the 16th amendment to challenge the constitutionality of the tax.
If resolved in favor of the plaintiffs, the case could have far reaching consequences in terms of redefining income. If the court strikes down the repatriation tax provisions, the United States could lose up to 350 billion in tax dollars over the next decade, not including the refunds that would likely have to be paid on 2018-2023 returns that were originally subject to the tax. In either case, the court ruling will undoubtedly impact the broader definition of income when it comes to foreign earnings and unrealized gains.
If the repatriation provision is struck down, it re-incentivizes corporations, passthrough entities and individuals not bring foreign accumulated earnings back to the U.S. as taxes would be higher without the repatriation provision. As it stands, corporate alternative minimum tax (CAMT) could also get intertwined into the court hearing as well. Questions could potentially arise as to the inclusion of foreign earned income the CAMT tax base calculation depending on the outcome of the plaintiff's original claims.
Post COVID, businesses have been able to expand more virtually than ever before. Online and virtual business options affords more and more business opportunities for companies to expand globally. The continued global expansion has made foreign earned income more common amongst smaller organizations and individuals, not just large international corporations, thus creating a larger scope of impact for the outcome of the case.
Major U.S. tax policy reform could follow the ruling in this case depending on the outcome. The case has potential to substantially impact current tax law as well as future case law which could impact Congress’ future approach to additional tax law changes.
Christine Gervais
Christine Gervais is a licensed CPA, using her skills to help businesses grow and achieve their fullest potential. Christine has a Master’s degree in accounting from Southern New Hampshire University in addition to holding her CPA license for over a decade. Notably, Christine is a nationally recognized speaker providing education to other CPAs on how to best serve clients as well as instruction on a wide variety of topics for business owners on how to maximize success. Christine prides herself on the value she can bring to clients with her extensive tax knowledge and providing strategic, forward-thinking financial strategies to help clients grow. When not behind her desk, you can find Christine spending quality time with her daughter and stepson or tending to the family’s excessively loved farm animals.