Facts of the Case
In 2005, the Moores invested $40,000 in KisanKraft, an Indian company that supplies tools to small farmers, in exchange for 11% of the common shares. KisanKraft is a Controlled Foreign Corporation (CFC), meaning it is majority-owned by U.S. persons but operates abroad. Prior to 2017, U.S. shareholders of CFCs were typically taxed on foreign earnings only when those earnings were repatriated to the United States, according to a provision called Subpart F. However, the Tax Cuts and Jobs Act (TCJA) of 2017 significantly changed this, introducing a one-time Mandatory Repatriation Tax (MRT) that retroactively taxed CFC earnings after 1986, regardless of repatriation. This increased the Moores’ 2017 tax liability by approximately $15,000 based on their share of KisanKraft’s retained earnings. The Moores challenged the constitutionality of this tax, but the district court dismissed their suit, holding that the MRT taxed income and, although it was retroactive, did not violate the Fifth Amendment’s Due Process Clause. The U.S. Court of Appeals for the Ninth Circuit affirmed.
Questions
Does the 16th Amendment authorize Congress to tax unrealized sums without apportionment among the states?
Conclusions
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Yes. In a per curiam opinion without argument, the Supreme Court held that the United States Court of Appeals for the Eighth Circuit erred in presuming the district court knew it had, but chose not to exercise, discretion to consider the disparity between the United States Sentencing Guidelines' treatment of crack and powder cocaine offenses when sentencing Mr. Moore. It found the district court was not aware of this power. The Court reversed the court of appeals and remanded the case with instructions for the trial court to resentence Mr. Moore based on this opinion.
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