In Moore v. United States, decided 7-2 on June 20, 2024, the Supreme Court upheld the Mandatory Repatriation Tax enacted as part of the 2017 Tax Cuts and Jobs Act, ruling that Congress may attribute the realized earnings of a foreign corporation to its American shareholders and tax them on that share, even when no money has actually been distributed.1Oyez. Moore v. United States Justice Kavanaugh wrote for the majority. The Court deliberately did not decide the bigger question hovering over the case: whether Congress can tax wealth, net worth, or unrealized appreciation in asset value.
The Tax Bill That Started the Case
Charles and Kathleen Moore invested $40,000 in 2005 in KisanKraft, an Indian company selling farm equipment to small-scale rural farmers. Their stake was roughly 11% of the common shares. KisanKraft was a controlled foreign corporation because more than half of it was owned by U.S. persons. From 2006 through 2017, the company was profitable but reinvested its earnings instead of paying dividends, and the Moores never received a distribution.2Ninth Circuit Court of Appeals. Moore v. United States
The 2017 law’s Section 965, known as the Mandatory Repatriation Tax or transition tax, treated the accumulated post-1986 earnings of certain foreign corporations as if they had been distributed to 10%-or-greater American shareholders during the 2017 tax year, whether or not any money changed hands.3Office of the Law Revision Counsel. 26 USC 9654Internal Revenue Service. Section 965 Transition Tax The Moores’ share of KisanKraft’s accumulated earnings came to about $508,000, generating a tax bill of $14,729. They paid it, then sued for a refund.5Supreme Court of the United States. Moore et ux. v. United States
The Constitutional Question
The dispute turned on the Sixteenth Amendment, which lets Congress tax “incomes, from whatever source derived, without apportionment among the several States.”6Congress.gov. Sixteenth Amendment – Income Tax The Moores argued that income requires a realization event. You have to actually receive the money. On their reading, taxing them on profits that stayed inside KisanKraft was really a tax on their property, and Article I requires direct taxes on property to be apportioned among the states by population. Because the transition tax was not apportioned, they said it was unconstitutional.
They leaned on Eisner v. Macomber, a 1920 decision holding that a stock dividend was not taxable income because nothing had been “severed” from the corporation for the shareholder’s use.7Justia. Eisner v. Macomber, 252 U.S. 189 (1920) KisanKraft’s profits, they argued, had likewise stayed inside the company.
The government’s answer was that the income here was realized, just by KisanKraft rather than by the Moores personally, and that Congress has long attributed a corporation’s realized earnings to its shareholders. Partnerships, S corporations, and certain foreign holding structures all work this way.
What the Majority Held
The majority’s holding was narrow. Congress may attribute the realized income of a corporation to its shareholders and tax those shareholders on their share. Because KisanKraft actually earned income through its business, the transition tax was an income tax within the Sixteenth Amendment.5Supreme Court of the United States. Moore et ux. v. United States
Kavanaugh grounded the decision in a long history of Congress doing the same thing. Since 1937, American shareholders of certain foreign holding companies have paid tax on their share of undistributed corporate income. Subpart F, enacted in 1962, extended that approach to controlled foreign corporations. Partners pay tax on partnership income whether or not it is distributed, and S corporation shareholders face the same treatment. The transition tax, the Court concluded, fit the established pattern.
What the Court Refused to Decide
The majority was unusually explicit about the limits of its ruling. It did not address the constitutionality of taxes on holdings, wealth, net worth, or asset appreciation. It did not decide whether the Sixteenth Amendment requires realization before something can be taxed as income. Those questions, Kavanaugh wrote, “are potential issues for another day.”5Supreme Court of the United States. Moore et ux. v. United States
The Split Beneath the 7-2 Vote
The vote count hides sharp disagreement about where federal taxing power ends. Three separate opinions accompanied the majority.
Justice Jackson’s Concurrence
Jackson joined the majority in full and wrote separately to say the Court was right to steer clear of the realization question. She noted that any realization requirement “appears nowhere in the text of the Sixteenth Amendment” and signaled she would take a great deal of convincing to strike down a tax on that basis.5Supreme Court of the United States. Moore et ux. v. United States
Justice Barrett’s Concurrence
Barrett, joined by Alito, agreed the transition tax was constitutional but rejected the majority’s broader reasoning. She read the word “derived” in the Sixteenth Amendment to require realization: income must be received or gained through a transaction, not merely accumulated on paper. She wrote that the majority made the issue “more simple than the Court lets on,” warned that a tax on shareholders of a widely held domestic corporation would present a different case, and observed that the government could not cite a single Supreme Court decision upholding an unapportioned tax on mere appreciation in asset value.5Supreme Court of the United States. Moore et ux. v. United States
Justice Thomas’s Dissent
Thomas, joined by Gorsuch, would have struck down the tax. He read the Sixteenth Amendment to allow Congress to tax only income the taxpayer has actually realized. Because the Moores never received a distribution, they had no income, and a levy imposed based on share ownership was a tax on property. He rejected what he called the majority’s newly invented “attribution” doctrine and warned that the approach could let Congress “tax both the entity and the shareholders” on the same income with no limiting principle.5Supreme Court of the United States. Moore et ux. v. United States
What Moore Signals for a Federal Wealth Tax
The practical stakes always ran well past a $14,729 refund. Various proposals in Congress have floated taxes on the unrealized appreciation of billionaires’ assets, essentially taxing rising portfolio values without waiting for a sale. Supporters hoped Moore would establish broad congressional power to tax economic gains without a realization event. Opponents hoped for a firm constitutional line requiring one.
The Court gave neither side its win. But the separate opinions offer a headcount that tilts against unrealized-gains taxes. Barrett and Alito read the Sixteenth Amendment to require realization. Thomas and Gorsuch took the same position more forcefully in dissent. That is four sitting justices on record saying realization is constitutionally required before income can be taxed without apportionment. A future wealth tax would face a Court where nearly half the bench has already signaled skepticism.
For now, the ruling preserves the status quo. The transition tax stands. The pass-through structures for partnerships, S corporations, and controlled foreign corporations are undisturbed. The larger question the Moores raised, whether Congress can reach wealth that exists only on paper, is still open and almost certain to return to the Court.