The Supreme Court on Thursday upheld a tax on foreign income that helped finance the tax cuts President Donald J. Trump imposed in 2017 in a case that many experts had cautioned could undercut the nation’s tax system.
The vote was 7 to 2, with Justice Brett M. Kavanaugh writing the majority opinion. He was joined by Chief Justice John G. Roberts Jr., and the court’s three liberals. Justice Amy Coney Barrett wrote a concurring opinion, joined by Justice Samuel A. Alito Jr., and Justice Clarence Thomas dissented, joined by Justice Neil M. Gorsuch.
The question before the justices appeared narrow at first glance: Is the tax in question allowed under the Constitution, which gives Congress limited powers of taxation?
In the majority opinion, Justice Kavanaugh wrote that the tax fell within the authority of Congress under the Constitution.
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Many tax experts had warned that striking down the tax could have wide repercussions. Such a move could have threatened to fundamentally change how income is defined, block efforts to tax billionaires’ wealth and undermine enforcement for all sorts of other taxes, which amount to billions in revenue for the government.
Among the defenders of the law was Paul Ryan, the Republican and former House speaker who helped write the legislation. Upending the tax, Mr. Ryan said, could endanger up to a third of the U.S. tax code. He joined the Biden administration and some other conservatives in seeking to keep the law intact.
The dispute involved a Washington State couple, Charles and Kathleen Moore, who challenged the law after they were required to pay nearly $15,000 in taxes stemming from their investment in a company in India supplying rural farmers.
The Moores’ investment fell under an otherwise obscure provision of the Tax Cuts and Jobs Act of 2017 that altered how the federal government taxes corporate profits that are earned abroad. Under the provision, U.S. shareholders who own 10 percent or more of foreign corporations primarily owned or controlled by Americans must pay a one-time tax. Previously, they owed taxes only on profits that were brought into the United States.
At issue is whether the Moores should be subject to the tax, even though they never received income from the investment in question.
In 2006, according to their petition to the court, the couple invested $40,000 in the company, KisanKraft Machine Tools Private Limited, which supplied farmers with basic tools. The Moores also received shares in the company, which was started by a friend of Mr. Moore’s, Ravindra Kumar Agrawal.
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Learn more about our process.
In 2018, the Moores learned that they owed income tax on the company’s reinvested earnings dating back to 2006, adding about $15,000 to their tax bill. Backed by conservative and business groups, the Moores sued, claiming that the tax violated the Constitution’s apportionment requirements because it taxed their shares in the company, which they characterized as personal property, rather than on income they had gained.
Lower courts, including a panel of judges on the U.S. Court of Appeals for the Ninth Circuit, sided with the federal government. In a dissent, Judge Patrick J. Bumatay, a Trump appointee, wrote that the decision by the appeals panel conflicted with “ordinary meaning, history and precedent,” all of which recognize that “an income tax must be a tax on realized income.”
The Moores appealed to the Supreme Court, which agreed to review the case.
In their petition, the couple argued that the Ninth Circuit’s decision “sweeps away the essential restraint on Congress’s taxing power, opening the door to unapportioned taxes on property (as in this case) and anything else Congress might deem to be ‘income.’”
Lawyers for the Biden administration argued that the Ninth Circuit had “correctly rejected” the Moores’ contention that the tax was unconstitutional, contending that the Moores’ claims were “unsupported by constitutional text, congressional practice, or this court’s precedent.” The case, they added, lacked “pressing prospective importance” because it was a one-time tax that only applied to pre-2018 income.
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The details of the Moores’ story played little role in the oral argument, held in early December, which centered on how to interpret income and the history of the country’s tax code. The court’s three liberals and more moderate conservatives appeared to be looking for a way to devise a limited ruling that would avoid the prospect of upending the nation’s tax system.
The case has elicited controversy since the justices agreed to take up the dispute.
Some tax experts had urged the court not to hear the case, claiming it is based on inaccuracies, reflecting growing scrutiny over how some matters come before the Supreme Court.
In a series of detailed articles, the trade publication Tax Notes reported that the tax experts say the couple may have been more deeply involved in the company than they suggested in court filings. Lawyers for the Moores have pushed back against concerns about the Moores’ story, saying the record in the case is accurate.
A lawyer for the Moores, David B. Rivkin, had twice interviewed Justice Samuel A. Alito Jr. for The Wall Street Journal editorial page in the months before the case, raising questions over whether that posed a conflict of interest for the justice to hear the dispute. The justice declined to recuse himself from the case and wrote in a statement that Mr. Rivkin had interviewed the justice “as a journalist, not an advocate.”
“The case in which he is involved was never mentioned; nor did we discuss any issue in that case either directly or indirectly,” Justice Alito added. “His involvement in the case was disclosed in the second article, and therefore readers could take that into account.”
Some ethics experts had also suggested that Chief Justice Roberts, Justice Thomas and Justice Ketanji Brown Jackson recuse. They have pointed to the stake each justice holds in a limited liability company or partnership that could benefit them should the justices declare the tax unconstitutional. All three participated in the case.
The vote was 7 to 2, with Justice Brett M. Kavanaugh writing the majority opinion. He was joined by Chief Justice John G. Roberts Jr., and the court’s three liberals. Justice Amy Coney Barrett wrote a concurring opinion, joined by Justice Samuel A. Alito Jr., and Justice Clarence Thomas dissented, joined by Justice Neil M. Gorsuch.
The question before the justices appeared narrow at first glance: Is the tax in question allowed under the Constitution, which gives Congress limited powers of taxation?
In the majority opinion, Justice Kavanaugh wrote that the tax fell within the authority of Congress under the Constitution.
Advertisement
SKIP ADVERTISEMENT
Many tax experts had warned that striking down the tax could have wide repercussions. Such a move could have threatened to fundamentally change how income is defined, block efforts to tax billionaires’ wealth and undermine enforcement for all sorts of other taxes, which amount to billions in revenue for the government.
Among the defenders of the law was Paul Ryan, the Republican and former House speaker who helped write the legislation. Upending the tax, Mr. Ryan said, could endanger up to a third of the U.S. tax code. He joined the Biden administration and some other conservatives in seeking to keep the law intact.
The dispute involved a Washington State couple, Charles and Kathleen Moore, who challenged the law after they were required to pay nearly $15,000 in taxes stemming from their investment in a company in India supplying rural farmers.
The Moores’ investment fell under an otherwise obscure provision of the Tax Cuts and Jobs Act of 2017 that altered how the federal government taxes corporate profits that are earned abroad. Under the provision, U.S. shareholders who own 10 percent or more of foreign corporations primarily owned or controlled by Americans must pay a one-time tax. Previously, they owed taxes only on profits that were brought into the United States.
At issue is whether the Moores should be subject to the tax, even though they never received income from the investment in question.
In 2006, according to their petition to the court, the couple invested $40,000 in the company, KisanKraft Machine Tools Private Limited, which supplied farmers with basic tools. The Moores also received shares in the company, which was started by a friend of Mr. Moore’s, Ravindra Kumar Agrawal.
Our politics reporters. Times journalists are not allowed to endorse or campaign for candidates or political causes. That includes participating in rallies and donating money to a candidate or cause.
Learn more about our process.
In 2018, the Moores learned that they owed income tax on the company’s reinvested earnings dating back to 2006, adding about $15,000 to their tax bill. Backed by conservative and business groups, the Moores sued, claiming that the tax violated the Constitution’s apportionment requirements because it taxed their shares in the company, which they characterized as personal property, rather than on income they had gained.
Lower courts, including a panel of judges on the U.S. Court of Appeals for the Ninth Circuit, sided with the federal government. In a dissent, Judge Patrick J. Bumatay, a Trump appointee, wrote that the decision by the appeals panel conflicted with “ordinary meaning, history and precedent,” all of which recognize that “an income tax must be a tax on realized income.”
The Moores appealed to the Supreme Court, which agreed to review the case.
In their petition, the couple argued that the Ninth Circuit’s decision “sweeps away the essential restraint on Congress’s taxing power, opening the door to unapportioned taxes on property (as in this case) and anything else Congress might deem to be ‘income.’”
Lawyers for the Biden administration argued that the Ninth Circuit had “correctly rejected” the Moores’ contention that the tax was unconstitutional, contending that the Moores’ claims were “unsupported by constitutional text, congressional practice, or this court’s precedent.” The case, they added, lacked “pressing prospective importance” because it was a one-time tax that only applied to pre-2018 income.
Advertisement
SKIP ADVERTISEMENT
The details of the Moores’ story played little role in the oral argument, held in early December, which centered on how to interpret income and the history of the country’s tax code. The court’s three liberals and more moderate conservatives appeared to be looking for a way to devise a limited ruling that would avoid the prospect of upending the nation’s tax system.
The case has elicited controversy since the justices agreed to take up the dispute.
Some tax experts had urged the court not to hear the case, claiming it is based on inaccuracies, reflecting growing scrutiny over how some matters come before the Supreme Court.
In a series of detailed articles, the trade publication Tax Notes reported that the tax experts say the couple may have been more deeply involved in the company than they suggested in court filings. Lawyers for the Moores have pushed back against concerns about the Moores’ story, saying the record in the case is accurate.
A lawyer for the Moores, David B. Rivkin, had twice interviewed Justice Samuel A. Alito Jr. for The Wall Street Journal editorial page in the months before the case, raising questions over whether that posed a conflict of interest for the justice to hear the dispute. The justice declined to recuse himself from the case and wrote in a statement that Mr. Rivkin had interviewed the justice “as a journalist, not an advocate.”
“The case in which he is involved was never mentioned; nor did we discuss any issue in that case either directly or indirectly,” Justice Alito added. “His involvement in the case was disclosed in the second article, and therefore readers could take that into account.”
Some ethics experts had also suggested that Chief Justice Roberts, Justice Thomas and Justice Ketanji Brown Jackson recuse. They have pointed to the stake each justice holds in a limited liability company or partnership that could benefit them should the justices declare the tax unconstitutional. All three participated in the case.
