Moore v. United States: Our amicus brief and guide to the landmark tax case before the Supreme Court
This week, an “unusual alliance” filed briefs in support of the government in Moore v. United States. On December 5, the Supreme Court will hear oral argument in this case, which challenges the constitutionality of the mandatory repatriation tax (known as the MRT or section 965 of the Internal Revenue Code) enacted as part of the 2017 “Tax Cuts and Jobs Act” signed into law by President Trump. A ruling for the Moores could result in a windfall for large multinational corporations, and dismantle or unsettle wide swaths of the tax code, including fundamentals of the tax system that have been on the books for decades and were built on a bipartisan basis.
Those weighing in with amicus briefs supporting the government include organizations of tax professionals, a bipartisan selection of former government officials and congressional staffers, legal academics, historians, and business groups. And it includes the Tax Law Center at NYU Law, which filed a brief with Professors Ari Glogower, David Kamin, Rebecca Kysar, and Darien Shanske.
To help interested readers to navigate the case, the Tax Law Center has committed to compile and summarize all amicus briefs filed in Moore (regardless of which party they support), accessible here.
We have also gathered selected analysis and commentary that illustrates the unusual range of tax experts and stakeholders who have analyzed or raised concerns about the impact that a ruling for the Moores could have on the tax system and economy.
- Former House Speaker Paul Ryan warns that the case is a “misguided challenge” that creates risks that “you’re going to basically get rid of, I don’t know, a third of the tax code.”
- Congress’s official non-partisan tax scorekeeper, the Joint Committee on Taxation, methodically lists specific provisions of the code that could be at risk.
- A wide range of researchers including at the Tax Policy Center, Tax Foundation, Institution for Taxation and Economic Policy, the Roosevelt Institute, and American Enterprise Institute, have analyzed the potential revenue and economic impacts of the case. Striking down the MRT alone would deliver tax cuts of more than $270 billion over ten years, with some 99 percent of that revenue going to corporations, and ITEP and the Roosevelt Institute have analyzed companies’ securities filings to find that the multinationals that stand to gain include Apple ($37 billion), Microsoft ($18 billion), Pfizer ($15 billion), Johnson & Johnson ($10 billion), and Google ($10 billion). As Speaker Ryan, JCT, and these analyses pointed out, the stakes are not limited to the MRT, however, but extend to many other parts of the tax system.
These risks arise from the legal argument that petitioners are making to argue that the MRT should be struck down. They have asked the Court to find that Congress’s power to tax income under the Sixteenth Amendment extends only to “realized” income. The Tax Cuts and Jobs Act made major changes to the way that the US taxes foreign profits made by US companies. To transition to the new system, the MRT required the US shareholders who owned at least ten percent of US-controlled foreign corporations to pay a one-time tax on past foreign profits that the companies had held offshore, which had not yet faced any US tax under the old system. (George Callas, who was senior tax counsel for the House Ways & Means Committee in 2017, has said that calling this provision the “MRT” is somewhat misleading because it portrays it as a new tax, when in fact it simply triggers taxes that would have been paid in prior years had there not been a a taxpayer-favorable ability to delay that tax under the old regime.)
The petitioners invested in a foreign corporation, and their share of the company’s profits was more than $500,000 by 2017. The petitioners paid about $15,000 in tax under the MRT based on their share. They argue that the MRT is unconstitutional as an unapportioned tax on unrealized gain. Read our take from the Tax Law Center’s brief below.
Summary of Argument from Amicus Brief by Tax Law Center and Professors Ari Glogower, David Kamin, Rebecca Kysar, and Darien Shanske. Full brief can be found here.
“Petitioners frame the question presented in this case (at i) as whether the Sixteenth Amendment authorizes Congress to tax “unrealized sums” as income. But the statute at issue here, the mandatory repatriation tax (or MRT), does not tax unrealized sums. It taxes income that has unquestionably been realized at the corporate level. So the real question presented is not whether Congress may tax income that has not been realized. It is instead whether Congress may attribute the income realized by a corporation to its shareholders, rather than to the corporation itself, and tax them based on their attributable shares of that realized income.
In arguing that the answer is no, petitioners rely primarily on a 5–4 decision from the early 20th century, Eisner v. Macomber, 252 U.S. 189 (1920). Petitioners read Macomber as standing for the broad proposition that Congress may tax shareholders on a company’s profits only if the profits are actually distributed to them. But Macomber addressed the issuance of stock dividends by a corporation that had already been taxed on its income. It did not involve a scenario where, as here, the corporation’s income had not yet been taxed when it was attributed to the shareholders. In the 103 years since the case was decided, this Court has never used Macomber to invalidate a tax outside of stock dividends. Quite the opposite: The Court has repeatedly refused to extend Macomber’s reasoning beyond the specific context of that case. And for many decades since it was decided, Congress has legislated based on the understanding that Macomber is limited to that context. Petitioners’ theory of realization cannot be reconciled with this understanding and would imperil numerous tax provisions that have long been on the books.
Even petitioners cannot bring themselves to embrace the implications of their reading of Macomber. At the very back of their brief (at 44–53), they attempt to distinguish the MRT from various longstanding federal income-tax provisions, including other provisions that (like the MRT) govern controlled foreign corporations (or CFCs); the taxation of partnerships, S corporations, and other pass-through entities; and certain accrual-based taxes. In doing so, petitioners try to reassure this Court that the MRT is the one and only tax provision that is invalid under their view of the Sixteenth Amendment. Pet’rs Br. 2.
But petitioners offer no principled way to harmonize their theory of realization and their reading of Macomber with these longstanding tax provisions. Nor do they offer any principled way to distinguish these provisions from the MRT for purposes of the Sixteenth Amendment. To the contrary, in attempting to square their theory with these provisions, petitioners end up acknowledging a key point (at 51): that realization is ultimately a “legislative determination” for Congress to make based on policy judgments, not a constitutional limitation on legislative power whose meaning is fixed by federal judges.
Unable to distinguish the MRT from well-established features of the tax system, petitioners end up retreating to an argument that the MRT reaches too far back in time. But Congress’s decision to end the deferral of taxation on income realized over multiple years does not somehow transform the taxation of that income into something other than an income tax. The underlying tax base is still income because it reaches net gain. That it was realized over multiple years is irrelevant. Indeed, petitioners’ fallback argument has little to do with the Sixteenth Amendment and nothing to do with realization. Rather, it is a repurposed Fifth Amendment argument about retroactivity — and one that petitioners made below, rightly lost under well-established doctrine, and then abandoned. Thus, this alternative claim is not before the Court in this case. The Court should decide only the narrow issue before it: whether Congress may attribute income realized at the corporate level to the corporation’s shareholders and impose a tax on that income. Relying on decades of judicial precedent and congressional action permitting the attribution of income among related parties, this Court should answer yes.”
Please subscribe to our mailing list to receive our posts and general updates via email.
