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Supreme Court Upholds Tax on Overseas Investments

Audio version available here (2 min.)

We have important news about the taxation of unrealized income. In a 7-2 decision, the Supreme Court ruled in favor of the US in the Moore v. United States case. This decision upheld the Trump-era tax on oversea investments also known as the Sec. 965 transition tax. The Supreme Court has since upheld the constitutionality of narrowing this enforcement on pass-through entities.

The case: Charles and Katherine Moore sued the government after being taxed $15,000 over having shares in an Indian company due to Sec. 976 in the 2017 Tax Cuts and Jobs Act. They argued that the tax was unconstitutional as “income must be realized before it can be taxed”. However, with this decision, taxation of a pass-through entity’s unrealized income under the 2017 Tax Cuts and Jobs Act remains constitutional. The Supreme Court ruled that the “transition tax operates” just like the “taxation of partnerships, S corporations, and Subpart F income, under which an entity’s undistributed income is attributed and taxed to the shareholders or partners”. The Court upheld that it was in “Congress’s constitutional authority” to tax this way.

The decision on Moore v. United States has significance in several current debates and laws. Concerns for President Biden’s proposed federal tax on the wealthy were held off; however, Justice Kavanaugh signaled that the decision should not “implicate” on the debate over taxing the wealthy. Some tax provisions on wealthy Americans such as “international tax rules” that “prevent US residents and corporations from shifting assets and operations overseas to avoid federal taxes” remains safe with the decision.

With many implications and concerns resulting from this ruling, it is important to stay informed, especially with the IRS’s continued scrutiny of high-income individuals and businesses. For the latest tax and business news, check out XQ CPA’s blog and YouTube channel. If you feel that you need guidance for your business, get in touch with the XQ CPA tax team. We would love to work with you.

Phone: 832-295-3353

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Wide shot of the US Supreme Court during sunrise


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