In a highly anticipated ruling, the U.S. Supreme Court has ruled in Moore v. United States that the Section 965 Mandatory Repatriation Tax (“MRT”) imposed under the 2017 Tax Cuts and Jobs Act (“TCJA”) on certain U.S. shareholders of controlled foreign corporations on the accumulated, undistributed earnings and profits of such corporations is permissible under the 16th amendment of the Constitution, which grants Congress the authority to tax “incomes, from whatever source derived”.
The case was being watched closely by taxpayers and tax practitioners, because if the U.S. Supreme Court had ruled that such a tax on “unrealized income” is unconstitutional, it could have called into question the constitutionality of a number of other tax provisions, such as the anti-deferral rules under Subpart F and GILTI, taxation of certain pass-through entities such as S-corporations and partnerships, and other provisions where income earned indirectly through an entity is included in taxable income of its owners whether actually distributed or not. The ruling also appears to shut the door on taxpayers who were hopeful that potential refund claims of Section 965 MRT may be possible if the Section 965 MRT was found to be unconstitutional.
For additional information, see our previous article on the case.
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