After several months of waiting with bated breath, the Supreme Court has finally handed down a decision on the highly publicized Moore vs. United States. In a 7-2 decision, the Court upheld the 2017 Tax Cuts and Jobs Act Mandatory Repatriation Tax provision.In other words, the Court agreed that Congress had the authority to tax shareholders on the undistributed earnings of a corporation.
The Mandatory Repatriation Tax was imposed as part of the 2017 Tax Cuts and Jobs Act (“TCJA”), which required certain owners of foreign corporations to pay a one-time tax on all accumulated untaxed earnings and profits of the foreign corporation without the requirement that those earnings and profits are actually distributed to the U.S. shareholder.
The Supreme Court’s ruling was very narrow, in that it didn’t address the broader question of what constitutes “income” under the 16th Amendment. It strictly addressed the point of whether or not Congress can attribute the undistributed income of a corporation to the shareholders.
Justice Thomas stated in his dissent that the Court upheld the Mandatory Repatriation Tax by ignoring the question presented since the decision does not address the Government’s argument that gain is not required to be realized to constitute income under the Constitution.
With this ruling, the hopes that GILTI and Subpart F would become relics of the past are gone. These rules are here to stay and will continue to impact U.S. taxpayers with ownership interests in foreign entities.
Authors: Chaya Siegfried, CPA, Partner and Lead, International Business Tax | [email protected] and Calvin Yung | [email protected]
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If you are a U.S. taxpayer invested in a foreign entity or doing business cross-border reach out to Withum’s International Services Team to see how this impacts you.
