Podcast Summary
The Moore vs. US case could impact income tax system significantly: This landmark case may clarify the difference between income and wealth, potentially changing how income tax is applied and impacting taxpayers, federal budget, and wealth inequality
The ongoing Supreme Court case, Moore vs. the United States, could significantly impact the difference between having income and having wealth, and subsequently, the income tax system in the US. Charles and Kathleen Moore, who invested in a business in India in the mid-2000s, were surprised when they received a $15,000 income tax bill from the IRS despite not receiving any income from the company. This case, which could be the biggest constitutional tax case in a century, could influence taxpayers, the federal budget, and even wealth inequality in the US. The outcome of this case may clarify the distinction between income and wealth, potentially affecting how the income tax is applied to various situations.
The Principle of Realizing Income Before Taxation: Income must be realized before it can be subject to taxation, meaning it must be made a reality through payment or sale of an asset.
The concept of "realizing income" before it can be taxed, a long-standing principle in tax law, was discussed in the context of a Supreme Court case from 1920, Eisner v. Macomber. This case, often referred to as the "Godfather 1" of tax law cases, established that income must be realized before it can be subject to taxation. Realizing income essentially means making it a reality, usually through receiving payment or selling an asset. This principle has been in place since the ratification of the 16th Amendment, which granted the government the power to collect income taxes. The ongoing lawsuit between Moore and the US government raises the question of whether income that has not yet been realized can be taxed, which underscores the importance of understanding this fundamental concept in tax law.
Distinction between realized and unrealized income in tax law: The 2017 Tax Cuts and Jobs Act led to unexpected tax liabilities for the Moores due to mandatory repatriation of overseas profits, potentially setting a precedent for tech giants and international business practices.
The distinction between realized and unrealized income has been a contentious issue in tax law for over a century. The Moores, who invested in a friend's Indian company decades ago, argue that they haven't received any income from the investment, and therefore should not owe taxes. However, the IRS disagreed and hit them with a $15,000 tax bill due to a 2017 law called the Tax Cuts and Jobs Act. This law, which aimed to make up for lost revenue by taxing overseas profits, is what led to the Moores' unexpected tax liability. The case could potentially set a precedent for tech giants like Jeff Bezos, Mark Zuckerberg, and Elon Musk, who have also kept profits in overseas subsidiaries to avoid US taxes. The Moores argue that this mandatory repatriation tax amounts to an unconstitutional wealth tax. The outcome of this case could have significant implications for US tax law and international business practices.
Unrealized Capital Gains and Taxation: A Supreme Court Dilemma: The Supreme Court is currently deciding if the wealthy should be taxed on their unrealized capital gains, which could lead to chaos and litigation if ruled in favor of the wealthy, but tax experts argue that realization is a constitutional requirement for income tax.
The ongoing Supreme Court case, Komitor v. Robinson, centers around the question of whether or not the wealthy should be taxed on their unrealized capital gains, or income that hasn't been realized through a sale. The Moores, who have amassed great wealth through property appreciation, argue that they should not be taxed on this unrealized income. However, tax experts like John Brooks argue that such a ruling could lead to chaos and a wave of litigation from various companies. On the other hand, tax professor Eric Jensen believes that the language of the 16th Amendment and previous tax law cases indicate that realization is a constitutional requirement for income tax. If the Supreme Court rules in favor of the Moores, it could lead to significant dislocations in the tax code, but Jensen argues that these issues should be addressed.
Saatva and Fundrise Sponsorship: A decision on a specific case is due in mid-2024. Listeners learned about affordable luxury mattresses from Saatva and investment opportunities with Fundrise.
A decision regarding a specific case is expected to be made in mid-2024. Additionally, during this episode, listeners were introduced to sponsors Saatva and Fundrise. Saatva offers luxury mattresses at affordable prices due to their online sales model. Interested individuals can visit saatva.com/npr and save an extra $200. Fundrise, the other sponsor, is expanding its real estate portfolio amidst high interest rates, offering potential investors discounted assets. For more information and to add the Fundrise flagship fund to your portfolio, visit fundrise.com/npr. Always remember to consider the investment objectives, risks, charges, and expenses before investing.
