Liberty Justice Center Urges Supreme Court to Find Tax on Unrealized Income Unconstitutional

September 6, 2023

The Liberty Justice Center Files Amicus Brief in Moore v. United States

September 6, 2023 | Chicago, IL—On September 6th, the Liberty Justice Center (LJC) filed an amicus brief with the United States Supreme Court in support of the petitioners in Moore v. United States, a case challenging a 2017 tax law that expands the definition of taxable income to include “unrealized gains”—that is, money that exists in theory, but not in reality.

The Mandatory Repatriation Tax, a provision of the 2017 Tax Cuts and Jobs Act, allows the IRS to tax Americans on money in the bank accounts of foreign companies that they have even a small ownership stake in—a provision which has caused one couple’s good-hearted investment in a start-up to come with a hefty tax bill.

In 2006, Charles and Kathleen Moore invested in KisanKraft, a company that provides affordable agricultural equipment to rural Indian farmers. Although the Moores own some 13 percent of the shares, they have never received any income from their investment, as the company invests all of its profits back into growing the business and empowering the farmers it serves.

However, after the Tax Cuts and Jobs Act was passed in 2017, the Moores received a tax bill for their imputed cut of KisanKraft’s earnings—meaning they were charged as though they had received 13 percent of KisanKraft’s profits for over a decade, even though the company’s money had always gone to the farmers, not to shareholders like the Moores.

The Moores sued, arguing that “unrealized gains” on investments do not fall within the definition of “income” that the Sixteenth Amendment permits the federal government to tax. The Ninth Circuit Court rejected their argument, becoming the first court in the country to hold that “income” includes money that citizens have never actually received. Recently, however, the Supreme Court decided to hear the Moores’ case and review the Ninth Circuit Court’s decision.

The Liberty Justice Center’s amicus brief urges the Supreme Court to reverse the lower courts’ decisions and rule in favor of the Moores. The brief argues that Congress does not have the authority to redefine “income” to include unrealized, hypothetical gains, because the Sixteenth Amendment provides Congress with the power to tax only realized income.

“Through this provision, people who invested in charitable startups—and never saw a dime from that charity—have been taxed on money they do not have, and have never had,” said Reilly Stephens, Counsel at the Liberty Justice Center. “Now, the Supreme Court has a chance to make things right.”

The Liberty Justice Center’s brief is available here.


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