The Supreme Court tax case could have far-reaching implications for federal policy

As the Supreme Court’s new term begins, experts are closely watching a case that could have far-reaching implications for the U.S. tax code, including corporate revenues and future wealth tax proposals.

This summer, the Supreme Court agreed to hold a hearing Moore v. United Statesa case involving a Washington couple with a majority stake – a stake of more than 10% – in KisanKraft, a profitable Indian agricultural conglomerate.

The plaintiffs are fighting the taxation of income not distributed to them by arguing over the definition of income, which policy experts say could have broader implications.

“This could have the largest fiscal policy impact of any court decision in modern times,” Matt Gardner, senior fellow at the Institute on Taxation and Economic Policy, said recently Co-author of a report on the case.

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The case involves a tax known as “deemed repatriation,” which was introduced as part of Republican tax reform in 2017. The legislation, conceived as a transitional tax, provided for a one-time tax on income and profits accumulated in foreign companies after 1986.

While the 16th Amendment outlines the legal definition of income, the Moore case raises the question of whether individuals must “realize” or receive gains before taxes are incurred. It’s an issue that has been raised in previous federal debates on the billionaire tax and could influence future proposals.

Depending on how the court rules in this case, there could be either a small impact or a large impact on the tax code, Daniel Bunn, president and CEO of the Tax Foundation, said recently has written about the topic.

If the court rules that the Moores were subject to a tax on unrealized income and finds the levy unconstitutional, it could affect future taxation of so-called pass-through entities such as partnerships, limited liability companies and S corporations, he said.

“You have to pay attention to how the rules impact your business, especially when you’re doing things in a cross-border context,” Bunn said.

There’s also the potential for a “significant impact” on federal revenues that could affect future tax policy, Bunn said. If the repatriation were eliminated entirely for corporate and non-corporate taxpayers, the Tax Foundation estimates that federal revenues would fall by $346 billion over the next decade.

However, with a decision not expected until 2024, it is difficult to predict how the Supreme Court will rule in this case. “There is a lot of uncertainty about the scope of this,” Gardner added.