Washington couple taxed on money they haven’t made yet. Supreme Court could stop it | Opinion

Is the U.S. Supreme Court posed to slam the door shut on efforts by some to impose wealth taxes across the country?

We may soon find out.

Multiple states, Idaho and Montana included, along with over 25 organizations have filed amicus briefs in favor of a Washington state couple, Charles and Kathleen Moore against the United States, for what is anticipated to be the biggest tax case to reach the Supreme Court of the United States in several decades.

This upcoming term, the highest court will hear Moore v. United States, which is on appeal from the 9th Circuit. This litigation poses the Court with the ultimate question: Is a realization event necessary for the federal government to impose a tax? (A realization event occurs when a taxpayer has money in their hands.)

Here is what we know about the case: The Moores hold an 11% ownership interest in KisanKraft, a farming manufacturing company operating out of India. Since the Moores bought in, the company has done exceptionally well, with profits increasing each passing year. The Moores are seeing gains on paper from their overseas investment, but they haven’t cashed in here in the United States. They were taxed on this increase in investment value, which only existed on paper.

The Moores’ position is that the tax imposed is unconstitutional under the Sixteenth Amendment and numerous prior court rulings. The Moores argue that the Ninth Circuit essentially took away the constitutional limit of the federal government to only tax what is deemed as income, and that, “This case is the cleanest vehicle the Court will ever see to address realization under the Sixteenth Amendment.”

The government’s position is that while it is true that the government has not historically implemented a tax without realization, “the Supreme Court has made clear that realization of income is not a constitutional requirement.” Essentially, the government seeks to overturn the definition put forth in the 1955 Glenshaw Glass case, that “undeniable accessions to wealth” are taxable.

The government seeks to broaden what constitutes a taxable event. If the Court decides in favor of the Moores, it is likely the Court will attempt to sever the statutory language that caused them to be taxed. This would be the easiest solution, as it would allow for the single clause of the repatriation tax to discontinue while maintaining the other portions of the Trump tax legislation, and there is a strong presumption of severability.

If the Court sides with the government, this decision would have great implications for Americans — both financially, and administratively. Not only would the government create greater amounts of paperwork for the taxpayer and the government, but it would also tax money that individuals don’t actually have in their hands.

The greater concern this case presents is the impact on the legality of wealth taxes.

The National Taxpayers Union Foundation amicus brief offers what several Mountain State policy analysts believe the Court will do; “This Court could uphold the MRT (Mandatory Repatriation Tax) for C corporations but excuse individuals such as the Moores. This Court could determine that the MRT does not violate the realization requirement because the business realized them even if the individuals did not receive a distribution.”

Under this likely approach, the purpose of the MRT is maintained while upholding the constitutionality of a realization requirement.

The Moore name might be on the documents, but there are many Americans whose interests could be significantly hindered if the government prevails. This is not a Court that has shown a desire to increase tax liability. It is unlikely the majority will be receptive to accepting the Solicitor General’s arguments on behalf of the government during oral arguments.

But, as lawyers say daily, it depends.

Olivia Johnston is a Contributor to Mountain States Policy Center , an independent research organization based in Idaho, Montana, Eastern Washington and Wyoming. She is currently a second-year law student at the University of Idaho College of Law.