Extract from Perspectives on American Taxation by John Choate

 Mandatory Repatriation Tax,

piercing the corporate veil,

no cash to pay levy, taxation of wealth.

            If you are picking up this chapter as a stand alone query into what can possibly be ’worse than poor’ in taxation, well now you will know, as the Judge in this case stated, ‘no good deed goes unpunished.’ This is when the taxpayer is charged with gain, no deduction nor exemption, taxes are assessed, but no cash was, is or will become available to pay the tax. 

A couple owned stock in a foreign corporation, operating in India.  There is an element of splitting income, covered in Chapter 8, wherein the corporation makes money and the corporation is taxed on the money, but the  shareholders are not so taxed, the ‘piercing corporate veil doctrine.’ There is an element of  deferral of income under the requirement of  realization of gain, discussed in Chapter 4  and the Macomber case [252 U.S. 189,  1920], wherein a stock dividend is unrealized gain,  is not taxed, and  is not reportable for taxation as the ‘fruit of the tree doctrine’. There is an element of capital or ordinary gain treatment, discussed in Chapter 6, as the ‘capital investment doctrine.’ There is an element of payment of cash out for the MRT, Mandatory Repatriation Tax, like an ‘excise tax’ in Chapter 31, or  a ‘confiscation penalty ‘as in Chapter 32.  There is an element of whether this MRT was authorized by the XVIth (16^th) Amendment, which is discussed in  Chapters 3, 6, 8, 9, 12,  21, 31. 

            The couple invested $40,000 in the corporation, and had received neither cash nor stock dividends. The money earned by the company had been reinvested in the company, similar to Henry Ford plowing his corporation’s earnings back into his company, and discussed in Chapters 4, and 8.

In 2017, the ‘Mandatory Repatriation Tax, a one-time “transition tax” was to repatriate foreign earnings. See 26 US Code 965. No reduction for return of capital. By taxing targeted U.S. shareholders, without accounting for realization, recognition, grace, offsets, the MRT generated litigation.  See Chapter 21.H. Foreign Tax Credit.

            In 1789, Congress could levy “direct taxes” “apportioned among the several States” U.S. Const. art. I, § 2, cl. 3, “in proportion to the census or enumeration” of the States’ populations. U.S. Const. art. I, § 9, cl. 4. Meaning if one State had twice the population of another, it also had to contribute twice as much.  Apportionment of incomes was abandoned by the 16^th Amendment.  

       On appeal ‘taxing the [shareholders] based on their pro-rata share of [foreign corporation] retained profits was ruled constitutional.’ Amicus curiae briefs are being filed as of summer 2023. Moore v. United States, CASE NO. C19-1539-JCC (W.D. Wash. Nov. 19, 2020). Moore v. United States, 53 F.4th 507 (9th Cir. 2022)  dissent ‘no good deed goes unpunished.’ Moore v U.S. Petition for Certiorari 2023.

            Perspective’s analysis. The Court has these choices, among others, to resolve the competing positions, raising revenue and keeping assets. First, the Mandatory Repatriation Tax is an excise and is not within any restrictions or liberation of the 16^th Amendment, but otherwise Constitutional. Government wins.

Second, the MRT can penetrate the veil between corporation and shareholder to reach the shareholder’s pro rata portion of earnings,  Government wins.

Third, the realization of gain per the Macomber [252 U.S. 189 ,  1920] decision is limited to stock dividends, and foreign earnings are otherwise realized. Government  wins.

Fourth, the precedent of realization,  to define taxable gain, elucidated by Macomber, [252 U.S. 189 , 1920] and the corporate veil, which separates corporations from shareholders, will not be disturbed or limited, i.e. overturned. Taxpayer wins.

Fifth, the legislative history espoused before adoption of the XVIth (16^th) amendment is binding on the definition of income or economic benefit, and does not, in the absence of apportionment and uniformity, extend to wealth taxation. Moore v. United States, 53 F.4th 507 (9th Cir. 2022)  dissent Taxpayer wins.

Sixth, the taxation of wealth, independent of income and excise tax authority is subject to the 5th Amendment of the Bill of rights, ‘nor shall private property be taken for public use, without just compensation.’ Taxpayer wins.

Seventh, the corporate wealth was not earnings, but instead capital, which is not subject to the tax. Taxpayer wins.

Eighth, since this case was listed for consideration without a conflict between multiple Circuit Court of appeals,  nor dispute between states, the Supreme Court may want to take the opportunity to express itself in other areas of finance. Such as Constitutionality of National Debt ceilings, or Government expansion, the history of taxation, as exhaustively reviewed in the nearly 200 page decision of Sebelius, and shorter in the Moore v. United States, 53 F.4th 507 (9th Cir. 2022)  dissent , or the use of inflation to fund the Government beyond Constitutional delegations of authority to legislative, executive and judicial branches.

Read more at.

Commissioner v. Banks, 543 U.S. 426 (2005)

Comm’r v. Glenshaw Glass Co. , 348 U.S. 426, 429”, 1955.

Eisner v. Macomber  252 U.S. 189, 1920.

Flint v. Stone Tracy Co.  220 U.S. 107 (1911).

Helvering v. Bruun, 309 U.S. 461, 469, 1940.

Helvering v. Horst , 311 U.S. 112, 116, 1943.

Hylton v. United States , 3 U.S. (3 Dall.) 171,1796.

McCulloch v. Maryland , 17 U.S. (4 Wheat.) 316, 323–25,1819.

Moore v. United States, 36 F.4th 930, 934 (9th Cir. 2022)

National Federation of Independent Business v Sebelius   567 U.S. 519, 11-393, 2012.

Pollock v. Farmers’ Loan & Tr. Co. 158 U.S. 601, 618,1895.

Springer v. United States , 102 U.S. 586, 602, 1881.

United States v. James,  333 F.2d 748, 753 (9th Cir. 1964)

James v. United States, 366 U.S. 213 (1961).

Pacific Ins. Co. v. Soule, 74 U.S. (7 Wall.) 433 (1868)

26 U.S. Code § 245A – Deduction for foreign source-portion of dividends received by domestic corporations from specified 10-percent owned foreign corporations.

26 U.S. Code § 475 – Mark to market accounting method for dealers in securities.

26 U.S. Code § 702 – Income and credits of partner.

26 U.S. Code § 817A – Special rules for modified guaranteed contracts.

26 U.S. Code § 877A – Tax responsibilities of expatriation.

26 U.S. Code § 951 – Amounts included in gross income of United States shareholders.

26 U.S. Code § 961 – Adjustments to basis of stock in controlled foreign corporations and of other property.

26 U.S. Code § 962 – Election by individuals to be subject to tax at corporate rates.

26 U.S. Code § 965 – Treatment of deferred foreign income upon transition to participation exemption system of taxation.

26 U.S. Code § 1001 – Determination of amount of and recognition of gain or loss.

26 U.S. Code § 1256 – Section 1256 contracts marked to market.

26 U.S. Code § 1366 – Pass-thru of items to shareholders.

Fifth Amendment, Bill of Rights (1791).

16th Amendment to the U.S. Constitution: Federal Income Tax (1913).

Moore v. United States, CASE NO. C19-1539-JCC 

(W.D. Wash. Nov. 19, 2020).

 Moore v. United States, 53 F.4th 507 (9th Cir. 2022)

Moore, Charles v U.S. (US Supreme Court  22-800)

Amicus curiae Briefs in support of Petitioners.