U.S. Supreme Court is pondering the meaning of ‘income’ in tax dispute

U.S. Supreme Court is pondering the meaning of ‘income’ in tax dispute, per CNBC.

U.S. Supreme Court justices displayed reluctance to overturn a tax affecting Americans who have invested in certain foreign corporations. The case revolves around the interpretation of "income" and could impact Democratic lawmakers' attempts to impose a wealth tax on the very wealthy.

The case involves an appeal by Charles and Kathleen Moore, a retired couple from Redmond, Washington, challenging the tax on foreign company earnings. The tax, known as the "mandatory repatriation tax" (MRT), was established under a Republican-backed tax law signed by former President Donald Trump in 2017. It applies to owners of at least 10% of a foreign company controlled by Americans. The central issue is whether taxing unrealized gains is permissible under the U.S. Constitution's 16th Amendment, which grants Congress the authority to "collect taxes on incomes."

The Moores, supported by the Competitive Enterprise Institute and other conservative groups, argue that "income" refers only to gains realized through payment to the taxpayer, not a mere increase in property value. Justice Samuel Alito, part of the court's conservative majority, questioned the limits of congressional taxation power over wealth, using the example of a startup founder becoming a billionaire over several decades.

The Moores seek a refund of nearly $14,729 in taxes paid as minority shareholders in a Bangalore-based company called KisanKraft. Some justices suggested the possibility of upholding the tax by attributing the foreign company's income to its shareholders.

A ruling favoring the Moores could have broader implications, potentially affecting various tax code provisions related to business entities, such as partnerships and limited liability companies. The Justice Department estimates that a Supreme Court decision invalidating the mandatory repatriation tax could cost the U.S. government $340 billion over the next decade and might impact other tax provisions.

The ruling, expected by the end of June, could also impact legislative proposals by some Democrats, including Senator Elizabeth Warren, advocating for a tax on the net worth of wealthy Americans.