A little-known dispute over an offshore tax could have huge implications for the future of taxation in America. That’s what experts are saying about Moore v. United States, a case headed to the Supreme Court this week.
Originally a challenge to a narrow Trump-era tax rule, the case has ballooned into a fight over fundamental Congressional powers that some warn could sink wealth tax proposals from Senator Elizabeth Warren and President Joe Biden.
The Dispute That Sparked A High-Stakes Battle
In 2018, Charles and Kathleen Moore were ordered to pay nearly $15,000 under a new tax on offshore profits. The rule, part of President Trump’s 2017 tax overhaul, hit the Moores with a levy on an investment they’d made over a decade earlier in an Indian agriculture business. Though they’d yet to see any profits from the farm, they suddenly owed taxes as if they had.
The Moores sued for a refund, arguing the tax wrongly targeted “unrealized” earnings. But lower courts upheld the IRS’ move. Now their appeal has reached the Supreme Court, with arguments slated for Tuesday.
Initially a narrow dispute over an obscure levy, the case has exploded into a fight over bedrock Congressional authority. The Moores say taxing paper profits violates Constitutional limits on federal power.
If they persuade the Court’s conservative majority, experts warn the reverberations could sink longstanding tax policies along with proposed new ones —like the wealth taxes Democrats hoped would fund their agenda.
A Century-Defining Case On Taxing Powers?
“This is the most important tax case before the Supreme Court in 100 years — maybe 200,” says Don Susswein, head of the Washington national tax office of accounting giant RSM.
A broadly-written decision for the Moores could amount to “an invitation” for challenges against taxes on unrealized income, conservative groups told the Court in legal briefs. Policies like Senator Warren’s proposed asset tax might be stopped before they ever pass Congress. Even substantial parts of today’s tax code could suddenly be open to new lawsuits.
“The possibilities stretch as wide as the Congressional imagination might take them,” the U.S. Chamber of Commerce wrote in its own brief supporting the Moores’ appeal.
The Biden administration counters that if the lower court decisions stand, the fallout would be more limited. But in its filings, the White House says invalidating the tax in question could still cost the U.S. “$340 billion over the next decade” along with “potentially far more” in other revenues.
Long-Established Taxes At Risk?
While the Moores’ case seems narrowly focused on a single levy targeting offshore accounts, experts say a broad ruling in their favor could reverberate widely.
“It will most certainly require looking at each” federal tax that hits unrealized income, says Gary Scanlon, head of tax policy services at KPMG. He points to potential challenges against levies on partnerships and foreign subsidiaries as examples.
“Whole parts of tax law” might be called into question, agrees Dave Kautter, a former Trump tax official who helped craft the policy the Moores are contesting. He singles out taxes on unrealized investment gains booked by Wall Street dealers as one area now vulnerable to lawsuits.
But in legal briefs filed with the Supreme Court, the Biden administration argues fears over the case are overblown. It claims the core Constitutional issues raised by the Moores are “inapposite” to many bedrock tax policies. And it says the case certainly wouldn’t impact “novel” proposals like a wealth tax that remain outside the scope of current law.
Political Fault Lines On Display
Yet while wealth taxes remain controversial across party lines, some Republican luminaries have broken ranks to back the IRS against the Moores’ appeal.
In September, Paul Ryan—a key architect of the very tax rule the Moores want overturned—called their lawsuit “misguided.” Though no fan of asset taxes himself, the former GOP House Speaker warned using this case to defeat future proposals risks unraveling essential revenues.
“Be careful what you ask for,” Ryan cautioned colleagues eager to leverage the dispute against Democrats.
But the case has already taken a partisan turn. After Supreme Court Justice Samuel Alito sat for interviews with a lawyer backing the Moores, Senate Democrats demanded he recuse himself from deciding the case. Alito refused, accusing the lawmakers of an “unsound attempt to prevent the Court from functioning as an independent judicial institution.”
The High-Stakes Ruling To Come
While clashes over recusals already show how politically explosive Moore v. U.S. has become, the case still poses thorny legal questions that defy easy predictions.
The Supreme Court’s right-leaning supermajority makes the Moores unlikely champions of Congressional power. But its recent Republican justices have also confounded Court-watchers before with crossover rulings joined by liberal peers.
When gavels bang Tuesday, both parties know the session opens arguments in a once-minor tax dispute that now carries billionaire-sized implications for America’s fiscal future.
Exactly where the Court will land is anyone’s guess. But few doubt Moore v. United States will long outlive its obscure beginnings as 2023’s most consequential case for the nation’s taxing authority.