About | HeinOnline Law Journal Library | HeinOnline Law Journal Library | HeinOnline
LOG IN
LOG IN

1 1 (November 20, 2023)

handle is hein.crs/govenmm0001 and id is 1 raw text is: Congressional Research Service informing the legislative debate since 1914 November 20, 2023 The Economic Implications of Moore v. United States Moore v. United States (henceforth referred to as Moore) is a legal case that challenges the constitutionality of the transition tax imposed with the change in the international tax system that was included in P.L. 115-97 (commonly called the Tax Cuts and Jobs Act or TCJA). The case is currently before the U.S. Supreme Court. The transition tax is levied on the undistributed profits accrued by U.S. controlled foreign corporations (CFCs) between 1986 and the end of 2017. The plaintiffs in the case argue that the taxation of unrealized income violates the Sixteenth Amendment's Apportionment Clause. This In Focus does not discuss the constitutional issues presented in Moore, but instead focuses on the economic implications presented by the case. What Types of Incorme Could be Affectedb y Moore? While the plaintiffs in Moore are asking for a narrow ruling about a specific tax provision, several long-standing tax provisions also tax unrealized income and could potentially be affected depending on the wording of a decision in favor of the plaintiffs. According to a letter from the Joint Committee on Taxation (JCT), the potentially affected provisions could be grouped into two broad categories: look-through realization and deemed realization. Look-through realization provisions are those where the taxpayer is taxed on income received by an entity that is owned in full or in part by that taxpayer. The most common example is that partners are taxed on their share of partnership earnings even if earnings are not distributed to partners. If the court rules that taxpayers must either personally participate in a transaction or receive something of value in the tax year for the income to be taxable, look- through realizations provisions that could be impacted, according to the JCT, include Subpart F, Global Intangible Low Taxed Income (GILTI), Subchapter K (Partnerships), Subchapter S, and Real Estate Mortgage Investment Conduits (REMICs). Deemed realization provisions are those where income is recognized for tax purposes but has not been received. They could be affected if the court rules that a transaction must actually occur or the taxpayer must receive something of value in the tax year for the income to be taxable. According to JCT, relevant deemed realization provisions could include the original issue discount rule and below- market and short-term loans, mark-to-market for securities dealers, mark-to-market for regulated futures contracts, imputed rental income, and Subchapter L mark-to-market for life insurance companies. In addition, JCT also identified the mark-to-market exit tax for expatriates as a deemed realization provision for income accrued in prior taxable years. Economic Impications If current tax rules are overturned by the decision, federal revenues would decline significantly. A recent study by Eric Toder of the Tax Policy Center (TPC) reported estimated revenues raised by some of these provisions for 2024 and 2028, some of which are cited below. International Tax Provisions Three provisions that fall in the look-through category affect the international tax system and involve the tax treatment of CFCs, which are foreign corporations that are owned at least 50% by U.S. persons that each own 10%. Prior to the TCJA, owners of CFCs were taxed on income when repatriated (paid as a dividend less a credit for income taxes imposed by foreign countries). The TCJA eliminated the tax on dividends and imposed a minimum tax aimed at income from intangibles, known as GILTI. The tax on GILTI is estimated by the TPC to raise $15 billion in 2024 and $27 billion in 2028 (as the tax rate increases). Even before the TCJA changes, the United States, as with most other countries, had anti-abuse provisions (Subpart F) that taxed certain types of income that is easily shifted into low-tax countries. This provision has been in the tax law since 1962, and is estimated by the TPC to raise $8 billion in 2024 and $9 billion in 2028. The provisions before and after TCJA are explained in more detail in CRS Report R45186, Issues in International Corporate Taxation: The 2017 Revision (P.L. 115-97), by Jane G. Gravelle and Donald J. Marples. As part of the transition to the new system, there was a one- time tax at a lower rate on the accumulated unrepatriated income, which is the tax at issue in Moore. This tax was originally estimated to raise $346 billion, and could be paid in installments over eight years. Passthrough Provisions: Partnership, Subchapter S, and RE IC Passthrough businesses, unlike corporations, are not subject to tax at the entity level. Rather, all income is passed through and taxed to the owners. Passthrough businesses include sole proprietors, partnerships, and Subchapter S corporations (corporations with a limited number of shareholders that elect to be taxed as a passthrough). The owners of partnerships and S corporations are taxed on earnings even if all of the earnings are not distributed. The TPC study estimated revenue from undistributed partnership and S corporation income at $37 billion in 2024 and $57 billion in 2028. Some of this revenue would be recouped as capital gain on the sale of interests in the business, which would offset these loses and lead to a net loss of $23 billion in 2024 and $39 billion in 2028. The study states that this is a conservative estimate because it

What Is HeinOnline?

HeinOnline is a subscription-based resource containing thousands of academic and legal journals from inception; complete coverage of government documents such as U.S. Statutes at Large, U.S. Code, Federal Register, Code of Federal Regulations, U.S. Reports, and much more. Documents are image-based, fully searchable PDFs with the authority of print combined with the accessibility of a user-friendly and powerful database. For more information, request a quote or trial for your organization below.



Short-term subscription options include 24 hours, 48 hours, or 1 week to HeinOnline.

Purchase Access

Contact us for annual subscription options:

Contact Us

Already a HeinOnline Subscriber?

Log In

profiles profiles most