The Supreme Court explores a narrow resolution for a major tax case as justices raise concerns about the sweeping consequences that could arise from adopting either side’s position. The case in question addresses the constitutionality of a provision enacted as part of former President Trump’s 2017 tax bill. The issue at the heart of the dispute involves whether the federal government can tax unrealized income without apportioning it among the states, a question that one tax expert refers to as a quadrillion-dollar issue. The outcome of the case could have widespread ramifications for the US tax code and potentially impact the constitutionality of a federal wealth tax.
During the two-hour oral arguments, justices expressed unease about issuing a broad ruling that defines realization in all scenarios. They emphasized the need for a working definition that applies universally to properties and various means of wealth accumulation. Justice Sonia Sotomayor entertained the suggestion by Justice Brett Kavanaugh to assume the existence of a realization requirement and then uphold the tax by finding it meets that requirement. Kavanaugh argued that the income was realized by the entity in question, and Congress has the power to attribute that income to the shareholders or partners.
Justice Ketanji Brown Jackson explored the possibility of ruling the tax as an indirect tax, which would exempt it from certain restrictions. This angle raised questions about whether it was necessary for the court to address the realization issue at all. The case centers around a lawsuit filed by Charles and Kathleen Moore, who argue that they never received any income from their investment in an Indian company, KisanKraft, and, therefore, the federal government should not be able to tax it.
The case attracted attention when Democrats demanded the recusal of Justice Samuel Alito due to his ties to David Rivkin Jr., who represents the Moores. Although Rivkin did not argue the case, Alito’s previous interviews with him were seen as potential grounds for recusal. However, Alito participated actively in the argument and expressed concern about the potential implications of the Moores’ argument. He noted that their position could also lead to significant impacts on the tax code.
The decision in the case, Moore v. United States, is expected before the end of June. The outcome will not only affect the Moores but could also have far-reaching implications for the US tax system and the constitutionality of federal wealth taxes. Experts, advocates, and anti-regulatory groups are closely monitoring the case for its potential impact on other tax provisions and the broader tax landscape in the country.
