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Keywords

precedentcorporation

precedentappealcorporation

Related Cases

Moore v. United States, 602 U.S. 572, 144 S.Ct. 1680, 219 L.Ed.2d 275, 133 A.F.T.R.2d 2024-1805, 2024 Daily Journal D.A.R. 5377, 30 Fla. L. Weekly Fed. S 310

Facts

Charles and Kathleen Moore invested in KisanKraft, an American-controlled foreign corporation, which generated significant income from 2006 to 2017 without distributing it to shareholders. In 2017, the Moores faced a tax bill of $14,729 due to the MRT, which imposed a one-time tax on accumulated undistributed income. They paid the tax and subsequently sued for a refund, arguing that the MRT violated the Direct Tax Clause of the Constitution.

In 2006, Charles and Kathleen Moore invested $40,000 in an American-controlled foreign corporation that one of their friends had started in India. In return, the Moores received a 13-percent ownership share. The company, KisanKraft, generated a great deal of income. But as of 2017, KisanKraft had not distributed that income to its American shareholders, including the Moores, meaning that neither KisanKraft nor the Moores had paid U. S. taxes on that income.

Issue

Whether the Mandatory Repatriation Tax (MRT) is a direct tax that must be apportioned among the states, or an indirect tax that does not require apportionment.

The Moores contend that the MRT is a tax on property and that the tax is therefore unconstitutional because it is not apportioned.

Rule

The Constitution allows Congress to impose indirect taxes without apportionment, and the Sixteenth Amendment confirms that income taxes are considered indirect taxes.

Direct taxes must be apportioned among the States according to each State's population, while indirect taxes are permitted without apportionment but must 'be uniform throughout the United States.'

Analysis

The Court determined that the MRT is a tax on income, as it attributes the realized income of KisanKraft to its shareholders, including the Moores. The Court referenced longstanding precedents that allow Congress to tax either the entity or its shareholders on undistributed income, affirming that the MRT does not exceed Congress's constitutional authority.

This Court's longstanding precedents, reflected in and reinforced by Congress's longstanding practice, establish that the answer is yes.

Conclusion

The Supreme Court affirmed the lower court's ruling, concluding that the MRT is constitutional as it is an indirect tax on income that does not require apportionment.

The MRT—which attributes the realized and undistributed income of an American-controlled foreign corporation to the entity's American shareholders, and then taxes the American shareholders on their portions of that income—does not exceed Congress's constitutional authority.

Who won?

The United States prevailed in the case, as the Supreme Court upheld the constitutionality of the MRT, affirming that it is an indirect tax on income.

The Court of Appeals held that the MRT constitutes a tax on income within the meaning of the Constitution because 'KisanKraft earned significant income, and the MRT assigns only a pro-rata share of that income to the Moores.'

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