Supreme Court Upholds Section 965 Mandatory Repatriation Tax

On June 20, 2024, the U.S. Supreme Court issued its long-anticipated decision in Moore v. United States, in which a 7-2 majority upheld the constitutionality of the mandatory repatriation tax (“MRT”) under section 965 of the Internal Revenue Code, which came into effect as part of the Tax Cuts and Jobs Act of 2017.

As discussed previously here and he96re, the MRT is a one-time tax on U.S. shareholders of a controlled foreign corporation (“CFC”) based on the CFC’s post-1986 accumulated deferred foreign income.

The taxpayers in this case were a U.S. couple that invested in an Indian company that was a CFC. As a result, they were assessed the MRT. The taxpayers challenged the MRT on the grounds that it was a direct tax that was not apportioned as required under the Article I, Section 9, Clause 4 of the U.S. Constitution. Part of their argument was that the MRT did not meet the requirements of an income tax under the Sixteenth Amendment because there had been no realization event that would have caused the Indian CFC’s retained earnings to be taxed as income to the taxpayers. In this, the taxpayers relied on the Court’s 1920 decision in Eisner v. Macomber, which we’ve discussed here.

Delivering the Court’s majority opinion, Justice Kavanaugh found that the MRT was not a direct tax that needed to be apportioned under the Constitution. Kavanaugh argued that the appropriate question in this case was not whether realization is a constitutional requirement but whether the income in question could be attributed to the taxpayer (although he found that a realization event did occur when the Indian CFC earned that income). Kavanaugh looked to a long history of Congress permitting and the Court upholding the attribution of income earned by an entity to the entity’s owners. The taxpayers also conceded that such attribution in contexts other than the MRT was constitutional, including attribution required under Subpart F of the Internal Revenue Code, the subpart in which the MRT is found. Thus, a majority of the Court held the MRT to be constitutional.
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#FBAR Decision: Bittner Wins! Non-willful Civil Penalty Restricted Based On The One Form And Not On Each Account

On November 2, 2022 the Supreme Court of the United States heard arguments in the Bittner FBAR case. I have previously written about this case here and here. An audio of the oral argument at the Supreme Court (along with commentary) is here. On February 28, 2023 the Court issued it’s ruling.

The issue was whether:

In assessing non-willful civil FBAR penalties the government is restricted to imposing one penalty for failing to file an accurate FBAR form or may the government impose a separate penalty for each mistake related to each account. In other words, is the penalty based on the failure to file a correct form or is a separate penalty allowed for each mistake in relation to the form?

Interestingly and notably the Gorsuch majority decision specifically notes that the period in which the FBAR penalties were assessed were for years that Mr. Bittner was living in Romania. There is no acknowledgment of this in the Barrett dissent!! In addition, Ms. Boyd (of 9th Circuit fame) was also assessed penalties for the years she was living in the UK! To be clear: this decision is very relevant for Americans abroad!!

The court’s decision
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SUPREME COURT RULINGS

According to an article posted in Forbes yesterday:

“In a unanimous opinion written by Justice Kagan, CIC Services, LLC v. Internal Revenue Service et al, the Supreme Court held that taxpayers’ advisors have the right to sue the IRS to set aside or invalidate IRS Notices. The decision isn’t as revolutionary as the Boston Tea Party, but it gives tax advisors a legal right to contest – or “protest” – IRS enforcement of Notices that seek to impose penalties, and may open the door for taxpayers to directly contest such notices in the future.”

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Lisa Nason, Online Shopping

The Supreme Court changed the landscape of online shopping Thursday, freeing state governments to compel retailers beyond their borders to collect sales-tax revenue from consumers and giving a boost to brick-and-mortar stores. With the boom in Internet commerce increasing exponentially, the court’s 5-to-4 decision could have an impact on millions of Americans almost immediately. For years, avoiding sales tax was a prime perk of online shopping.

States were the big winners at the Supreme Court. They previously were able to require only companies with a physical presence in their states to collect taxes, costing them an estimated $8 billion to $33 billion in uncollected taxes per year.

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