Yesterday,
the
Supreme
Court
justices
heard
oral
arguments
on
Moore
v.
United
States.
In
this
case,
the
Court
must
decide
whether
the
Mandatory
Repatriation
Tax
(MRT)
is
unconstitutional.
Many
(including
me)
have
stated
that
the
decision
could
significantly
impact
tax
law
as
we
know
it.
In
Moore,
the
taxpayers
were
shareholders
in
a
foreign
corporation
since
2005.
While
this
corporation
made
a
profit
every
year,
the
profits
were
reinvested
in
the
business
and
so
the
Moores
did
not
get
any
dividends.
The
MRT,
passed
in
2017
as
part
of
the
Tax
Cuts
and
Jobs
Act,
is
a
one-time
tax
on
prior
year
profits
going
back
to
1986.
As
a
result
of
the
MRT,
the
Moores
were
forced
to
pay
$14,729
and
then
sued
the
government
for
a
refund.
Some
have
questioned
why
the
Supreme
Court
even
granted
review
in
the
first
place.
There
is
no
circuit
court
conflict
as
no
other
appeals
court
has
decided
on
this
issue.
The
MRT
affects
a
small
group
of
people.
And
while
$14,729
is
a
lot
of
money
to
the
Moores,
it
is
a
relatively
small
amount
for
the
federal
government
which
deals
with
trillions
of
dollars.
Finally,
some
justices
cringe
at
tax
law
cases.
Many
have
speculated
that
the
court’s
decision
will
either
preemptively
decide
or
hint
at
the
constitutionality
of
a
future
tax
on
the
value
of
an
individual’s
wealth.
The
issue
in
Moore
is
the
constitutionality
of
the
MRT
when
the
Moores
did
not
get
any
money
from
the
foreign
corporation
they
partially
owned.
In
other
words,
their
income
was
unrealized.
The
Court’s
decision
in
Moore
could
provide
either
a
concrete
definition
of
a
realization
event
or
could
scrap
the
realization
requirement
altogether.
In
addition
to
the
legal
arguments
from
both
parties,
the
Court
will
have
to
consider
today’s
economic
and
technological
advances
when
making
its
decision.
Most
of
the
major
realization
cases
were
decided
in
the
1920s.
Are
the
rationales
made
then
still
applicable
in
the
2020s?
For
example,
most
people
today
can
buy
and
sell
stock
and
get
reliable
stock
information
instantaneously
through
the
internet.
Would
these
advances
warrant
a
change
in
the
realization
rule
when
it
comes
to
stock
transactions?
A
broad
realization
requirement
would
ensure
that
taxpayers
have
the
money
to
pay
any
taxes
due.
This
can
avoid
the
situation
where
the
winner
of
the
extremely
valuable
Honus
Wagner
baseball
card
was
forced
to
immediately
sell
it
in
order
to
pay
the
resulting
income
tax.
On
the
other
hand,
some
people
might
exploit
the
realization
rule
to
defer
or
avoid
paying
income
taxes
by
not
selling
items
that
have
appreciated
in
value.
Wealthier
people
generally
have
enough
financial
security
to
time
their
asset
sales
to
be
tax
efficient,
but
they
will
generally
sell
the
asset
at
its
highest
value
even
if
it
means
paying
more
taxes
to
do
so.
If
the
Court
eliminates
the
realization
requirement
from
the
legal
definition
of
income,
it
put
into
question
most
of
its
earlier
precedent
decisions.
Congress
and
the
Treasury
Department
could
issue
new
regulations
that
could
expand
their
definition
of
income
or
gains
to
include
when
an
asset
appreciates
in
value.
Also,
the
IRS
and
state
tax
agencies
could
update
their
audit
procedures
which
could
mean
that
tax
auditors
could
take
more
aggressive
positions
on
determining
taxable
income.
Whether
the
government
will
be
just
as
spirited
about
recognizing
losses
(and
issuing
tax
refunds)
when
an
asset
depreciates
in
value
is
another
question.
The
Court’s
decision
will
need
to
address
how
assets
will
be
valued
for
tax
purposes
if
there
is
no
realization
rule.
This
was
a
concern
addressed
by
Justice
Thurgood
Marshall
when
he
decided
Cottage
Savings
Association
v.
Commissioner:
In
order
to
avoid
the
cumbersome,
abrasive,
and
unpredictable
administrative
task
of
valuing
assets
annually
to
determine
whether
their
value
has
appreciated
or
depreciated,
§
1001(a)
of
the
Code
defers
the
tax
consequences
of
a
gain
or
loss
in
property
until
it
is
realized
through
the
“sale
or
disposition
of
[the]
property.”
This
rule
serves
administrative
convenience
because
a
change
in
the
investment’s
form
or
extent
can
be
easily
detected
by
a
taxpayer
or
an
administrative
officer.
A
third
option
is
to
uphold
the
MRT
but
narrow
the
scope
of
the
ruling.
An
analysis
of
today’s
oral
arguments
suggests
that
the
justices
are
inclined
to
do
just
that.
How
the
Court
will
do
so
is
unknown,
but
this
could
also
encourage
litigation
from
taxpayers
and
the
government
in
an
attempt
to
test
the
boundaries
of
the
new
realization
rule.
To
satisfy
the
curiosity
of
those
wondering
about
how
the
Court
will
view
the
wealth
tax,
the
court
should
note
that
it
is
constitutionally
required
to
decide
cases
and
controversies.
In
other
words,
it
does
not
issue
advisory
opinions.
So
it
will
deal
with
the
wealth
tax
when
it
comes.
Most
commentators
seem
to
suggest
that
ruling
in
favor
of
the
taxpayers
would
be
the
tax
equivalent
of
overruling
Roe
v.
Wade
as
it
would
create
additional
complexities
and
confusion
in
the
already
confusing
tax
laws.
But
changing
or
eliminating
the
realization
rule
will
create
further
controversy
regardless
of
how
broadly
or
narrowly
the
court
rules.
But
yesterday’s
oral
arguments
suggest
that
the
Court
will
only
decide
the
case
before
them
and
not
give
any
clues
on
future
tax
rulings.
Steven
Chung
is
a
tax
attorney
in
Los
Angeles,
California.
He
helps
people
with
basic
tax
planning
and
resolve
tax
disputes.
He
is
also
sympathetic
to
people
with
large
student
loans.
He
can
be
reached
via
email
at
stevenchungatl@gmail.com.
Or
you
can
connect
with
him
on
Twitter
(@stevenchung)
and
connect
with
him
on LinkedIn.