Moore v. United States: SCOTUS Rules MRT Is Safe and Sound
Moore v. United States: SCOTUS Rules MRT Is Safe and Sound
On June 20, 2024, in Moore v. United States,1 the Supreme Court of the United States ruled that the Mandatory Repatriation Tax (“MRT”, also known as the transition tax) was constitutional. Taxpayers and tax practitioners may rest assured that the U.S. tax system has not been upended.
As we have described previously, Charles and Kathleen Moore, U.S. persons, were investors in KisanKraft, an Indian corporation and a controlled foreign corporation for U.S. tax purposes. They challenged the Mandatory Repatriation Tax (the “MRT”), a one-time tax on their share of the undistributed earnings and profits of KisanKraft in 2017, which resulted in a $15,000 tax liability.
Justice Kavanaugh, defined the question before the Court as “whether Congress may attribute an entity’s realized and undistributed income to the entity’s shareholders or partners, and then tax the shareholders or partners on their portions of that income.”2 The Court held that the answer was yes.
Its reasoning is primarily rooted in its precedents. U.S. courts, including the Supreme Court, have held that Congress could attribute an entity’s undistributed income to its interest holders, in the case of partnerships, S corporations, and subpart F.3 The Moores had argued that the MRT was different from these cases, but the Court held that they could not “meaningfully distinguish” it.4 The Court noted that the repeal of the MRT, taxes on partnerships and S corporations, and subpart F, would result in “trillions in lost tax revenue.”5
Finally, the Court emphasized that its holding in Moore is limited to: “(i) taxation of the shareholders of an entity, (ii) on the undistributed income realized by the entity, (iii) which has been attributed to the shareholders, when the entity itself has not been taxed on that income.”6 In particular, it stated that it did not make a decision on whether realization was a constitutional requirement.7
The scope of the ruling means that the MRT and similar structures involving realized and undistributed income are constitutional. However, the Court appears to have avoided addressing whether a wealth tax, such as the Ultra-Millionaire Tax Act proposed by Senator Elizabeth Warren, would pass constitutional muster.
1 602 U.S. _ (2024).
2 Id. at *8.
3 Id. at *9-*16.
4 Id. at *21.
5 Id.
6 Id. at *22-*23.
7 Id. at *23-*24.
