What did the Supreme Court decide in Moore v. United States about the repatriation tax?

The Supreme Court upheld the constitutionality of the mandatory repatriation tax under Section 965 of the Tax Cuts and Jobs Act on narrow grounds. The Court avoided deciding whether the Sixteenth Amendment requires a realization event, leaving that broader constitutional question for a future case.

Does the Moore decision affect future wealth tax proposals?

The Moore decision deliberately avoided ruling on whether Congress can tax unrealized gains, so it neither authorizes nor prohibits a federal wealth tax. The narrow holding means the constitutional question about taxing unrealized appreciation remains open for future litigation.

Supreme Court Decides Moore v. United States: Mandatory Repatriation Tax Is Constitutional | Lynch Law

In Moore v. United States, the Supreme Court upheld the constitutionality of the mandatory repatriation tax enacted in the Tax Cuts and Jobs Act — but the Court did so on the narrowest possible grounds, leaving the most consequential constitutional questions for another day. The decision is important for what it decided and for what it deliberately did not decide, and its implications extend well beyond the specific provision at issue.^[1]

Background

Charles and Kathleen Moore invested $40,000 in KisanKraft Machine Tools Private Limited, an Indian corporation that manufactured farming equipment for small-scale farmers. The Moores held an 11% interest in KisanKraft and did not receive any distributions from the company. KisanKraft reinvested its earnings in the business rather than distributing them to shareholders.

In 2017, Congress enacted the mandatory repatriation tax as part of the TCJA's transition from a worldwide tax system to a quasi-territorial system. Section 965 required U.S. shareholders of certain foreign corporations to include in income their pro rata share of the corporation's accumulated post-1986 earnings and profits — even if those earnings had never been distributed. The Moores owed approximately $14,729 under § 965 on their share of KisanKraft's accumulated and undistributed earnings.

The Moores challenged the tax on the ground that the Sixteenth Amendment authorizes Congress to tax "incomes," and that undistributed corporate earnings are not "income" to the shareholders because the shareholders have not "realized" the income. The Moores argued that the realization requirement is a constitutional prerequisite — not merely a statutory concept — and that taxing undistributed earnings of a foreign corporation violates the Sixteenth Amendment.^[2]

The Court's Narrow Holding

The Supreme Court rejected the Moores' challenge in a 7-2 decision, but the majority opinion — written by Justice Kavanaugh — was carefully limited. The Court held that the mandatory repatriation tax was constitutional because it operated in the same manner as Subpart F, which has taxed U.S. shareholders on undistributed earnings of controlled foreign corporations since 1962. Because Subpart F has been in effect for over sixty years and has never been successfully challenged, the Court concluded that § 965 fits within the same established framework and is constitutional on that basis.

Critically, the Court declined to address the broader question of whether the Sixteenth Amendment requires "realization" as a constitutional matter. The majority stated that it was unnecessary to resolve that question because § 965 could be sustained under existing precedent without reaching it. This deliberate narrowness disappointed observers on both sides of the debate: tax reformers who hoped the Court would clear the way for wealth taxes or mark-to-market taxation, and tax minimizers who hoped the Court would impose a constitutional realization requirement that would limit Congress's taxing power.^[3]

What the Decision Means

For the specific question presented — the constitutionality of the § 965 mandatory repatriation tax — the decision provides a definitive answer: the tax is constitutional. U.S. shareholders who paid the mandatory repatriation tax cannot challenge it on Sixteenth Amendment grounds. The approximately $339 billion in revenue generated by § 965 is secure.

For the broader questions of tax policy and constitutional law, the decision is less illuminating. The Court's refusal to address the realization question means that the constitutional limits of Congress's taxing power remain uncertain. Could Congress enact a mark-to-market regime that taxes unrealized gains annually? Could Congress impose a wealth tax on net worth? The Moore decision does not answer these questions. It sustains § 965 on the narrow ground that it is consistent with Subpart F, without articulating a general principle about the scope of the taxing power.

The concurrences and dissents in Moore reveal the depth of disagreement on the Court. Justice Jackson's concurrence would have gone further, holding that the Constitution does not require realization. Justice Thomas's dissent, joined by Justice Gorsuch, argued that realization is a constitutional requirement and that § 965 is unconstitutional. Justice Barrett's concurrence agreed with the majority's narrow approach but noted that the attribution of corporate earnings to shareholders raises distinct constitutional questions that the Court should address in a future case.^[4]

Implications for Tax Planning

For taxpayers with investments in foreign corporations, Moore confirms that the existing international tax framework — including Subpart F, GILTI (the global intangible low-taxed income regime enacted alongside § 965), and the mandatory repatriation tax — is constitutional and will remain in effect. Taxpayers cannot avoid these provisions by arguing that undistributed foreign earnings are not taxable income.

For domestic closely held business owners, the decision has less direct impact but carries an important signal. The Court's willingness to sustain a tax on undistributed earnings — even on narrow grounds — suggests that future Congresses may have broad latitude to impose taxes on economic gains that have not been realized in the traditional sense. Whether this takes the form of a mark-to-market regime for high-net-worth individuals (as has been proposed) or some other mechanism remains to be seen, but Moore does not foreclose these possibilities.

For tax planning purposes, the lesson of Moore is that taxpayers should not rely on constitutional arguments to avoid taxes that Congress has enacted. The Court has shown a consistent willingness to sustain Congress's taxing power, and the constitutional limits — whatever they may be — are unlikely to provide a defense against provisions that fit within established frameworks. The better approach is proactive planning within the existing statutory framework: structuring investments to minimize tax exposure, timing income recognition to manage rates, and taking advantage of available deductions, credits, and elections.^[5]

References

^[1] Moore v. United States, 602 U.S. ___ (2024) (7-2; Kavanaugh, J., writing for the majority). The case addressed the constitutionality of IRC § 965 (mandatory repatriation tax enacted by the TCJA).
^[2] U.S. Const. amend. XVI ("The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States"). The Moores argued that "incomes" requires realization — a constitutional prerequisite that § 965 does not satisfy.
^[3] Id. at slip op. 18-20 (declining to resolve whether the Sixteenth Amendment requires realization as a constitutional matter; sustaining § 965 under existing precedent, particularly the Subpart F framework established by IRC §§ 951-965).
^[4] Id. (Jackson, J., concurring; Thomas, J., dissenting; Barrett, J., concurring in the judgment). The range of views expressed in the opinions suggests that the realization question will return to the Court in a future case.
^[5] See our earlier discussion of the Moore case at the certiorari stage: Supreme Court to Decide Moore: The Mandatory Repatriation Tax.