The National Federation of Independent Business (NFIB), a group advancing the interests of small businesses, filed an amicus brief in the U.S. Supreme Court case of Moore v. United States. NFIB is urging the Court to clarify the constitutionality of taxing unrealized gains.
Moore v. United States, a case pending before the Supreme Court, calls into question the constitutionality of a provision of the 2017 Tax Cuts and Jobs Act (TCJA) pertaining to profits for U.S. shareholders from foreign investments, according to the Tax Foundation. Before the TCJA, those profits were subject to a 35% corporate tax rate, resulting in many U.S. corporations keeping their earnings offshore.
The TCJA reduced the corporate tax rate and enacted a deemed repatriation, which was "a one-time inclusion of accumulated foreign earnings from the past 30 years," the Tax Foundation reported.
The plaintiffs in Moore v. United States, who are individual shareholders in a foreign company, argue the repatriation tax is unconstitutional due to its application to "unrealized" income, as well as its application to previous earnings, the Tax Foundation said. The plaintiffs argue the 16th Amendment and subsequent case law state income must be "clearly realized" before being taxed.
Beth Milito, executive director of NFIB’s Small Business Legal Center, said the case could have negative implications for small business owners, according to a news release issued Sept. 6.
“The Ninth Circuit’s current ruling will negatively impact small businesses,” Milito said. "If reinvestment into a small business is considered ‘income,’ then small business owners will face an increased tax on unrealized gains. The current ruling would also greatly expand Congress’ power by allowing Congress to directly tax property interests without apportionment. We ask the Supreme Court to reverse the lower court’s decision and clarify the proper limits on taxing power.”
The amicus brief argues "the Court of Appeals’ decision is erroneous and displaces settled constitutional limits on federal taxation" and "the Mandatory Repatriation Tax is severable from the remainder of the Tax Cuts and Jobs Act," the release reported.
