Supreme Court to consider ‘quadrillion-dollar question’ in major tax case
by Tobias Burns and Zach Schonfeld - 11/28/231/3
(Wow this case could take down the entire corrupt system of the government, the IRS and the Tax Lawyers that make billions over tax cased.)
The Supreme Court will hear oral arguments in early December on a case that has the potential to broadly reshape the U.S. tax code and cost the government hundreds of billions of dollars in revenue.At issue in Moore v. United States is the question of whether the federal government can tax certain types of “unrealized” gains, which are property like stocks or bonds that people own but from which they haven’t directly recouped the value, so they don’t have direct access to the money that the property is worth.
Large portions of the U.S. tax code require that income be “realized” before it can be taxed, but critics say it’s an inherently wishy-washy concept that courts have just been ignoring for years due to administrative impracticalities. Even if the court limits the scope of its decision to the specific tax referenced in the case, known as the mandatory repatriation tax, a ruling in favor of the plaintiffs couldcost $340 billion over the next decade, according to the Justice Department.
For comparison, that would cancel out all the extra revenue generated by the $80 billion IRS funding boost and then add $140 billion to the national deficit, which now stands between $26 and $33 trillion, according to various measurements.
But experts say the cost could be much higher than that if the court broadens out its definition of what counts as realization, pushing heaps of taxable income out of the government’s reach. The decision could have implications for everything from potential wealth taxes, like the one the Biden administration proposed for billionaires in 2022, to large swaths of the international tax regime.
TheU.S. solicitor general herself is scheduled to argue the casebefore the justices, underscoring how the Biden administration views its importance. “It’s the million-dollar question, just with a few more zeros: the quadrillion-dollar question,” Harvard University tax law professor Thomas Brennan told The Hill.
“On one extreme, if theSupreme Court decides that a realization requirement is present in the 16th Amendment… then there are a number of code sections that arguably would be invalid or have to be reworked,” he said. These sections could involve partnership tax rules, rules on the taxation of debt and commodities, taxes on futures contracts and the international tax rules that string these areas together between countries.
“On the other extreme, even if the Supreme Court finds in favor of the taxpayers, they could do so in a narrow way that’s limited to the particular situation at hand, or in a way that … forecloses the possibility of Congress enacting wealth taxes but that doesn’t disturb much of existing tax law,” Brennan said.
What is the Moore tax case?
The dispute arose from businesspeople Charles and Kathleen Moore’s investment in an Indian company that sells farm equipment. Republicans’ 2017 tax bill imposed a one-time tax on Americans who owned shares in foreign corporations, even if the corporation hadn’t distributed any earnings to the taxpayer.
The Moores filed their lawsuit after paying a roughly $15,000 tax bill, court filings show.
Practical financial workarounds to realization
Whatever the decision of the court, which is expected before June of next year, there are in practice numerous, well-established workarounds for people who own a lot of “unrealized” property to access it before technically receiving it and having to pay taxes on it.
One famous strategy, known as “Buy, Borrow, Die,” involves using large, diversified stock portfolios as collateral for relatively low-interest loans. Rather than selling the holdings and “realizing” the taxable income, wealthy taxpayers use them as collateral to take out low-interest loans. Since debt isn’t taxable, they can skip paying tax on the holdings.
As long as the portfolio appreciates faster than the rate of interest on the loan, payments can be made and the line of credit remains viable. A law allowing a “step up in basis,” which means that inheritors of assets get to claim their present-worth value as opposed to what they were worth when they were originally bought, permits this scheme to continue through generations.
That’s compared to taxes on workers’ wages and salaries, which are “realized” immediately upon being sent out and taxed before they even reach their recipients.
https://thehill.com/homenews/4323743-supreme-court-moore-tax-case/