The Supreme Court is set to make a decision this term in the "Moore v. United States" case, where an enormous sum of trillions of dollars is in question.
A $40,000 investment made by a retired couple in an Indian farm tool business could have a massive effect on U.S. taxes, legal experts have said.
Tax experts informed Newsweek that the investment by Charles and Kathleen Moore, aimed at assisting "India's most impoverished regions," has the potential to bring substantial benefits to American billionaires and security dealers on Wall Street.
A Harvard professor highlighted a pivotal "quadrillion-dollar question" at the heart of the case, emphasizing its potential profound impact on the American tax system. To clarify, a quadrillion is equivalent to a thousand trillion.
A loss for the Moores could pave the way for a wealth tax, where passive wealth, generating no income, might be subject to taxation. This aligns with a proposal by the Biden administration in 2022 targeting billionaires.
The significance of the case lies in its potential to determine the definition of income—whether it encompasses money deposited in a bank account or extends to funds tied up in appreciating assets not yet sold. This distinction could impact various aspects, ranging from investments in foreign companies to the trillions of dollars invested in Wall Street securities.
Even if the court confines its decision to the particular tax under consideration, referred to as the mandatory repatriation tax, a triumph for the Moores could result in a financial loss of $340 billion for the federal government over the next decade, as indicated in a court filing by the Justice Department.
In an August petition submitted to the Supreme Court, attorneys representing Charles and Kathleen Moore describe them as "a retired couple residing in Washington State, where Charles worked in software development."
"In the early 2000s, Charles's friend and former coworker, Ravindra 'Ravi' Kumar Agrawal, had the idea of starting a business to supply farmers in India's most impoverished regions with basic tools and equipment that were readily available in the United States, but not in India."
The petition says the Moores "were moved by Ravi's vision of empowering India's rural farmers to improve their livelihoods. They contributed $40,000 to help Ravi found KisanKraft Machine Tools Private Limited, an Indian corporation. In exchange, they received about 13 percent of KisanKraft's common shares. KisanKraft's rapid growth confirmed that Ravi had identified a genuine need. It was profitable almost from the start, and its revenues increased every year since its founding."
Charles Moore, speaking in a YouTube video to the Competitive Enterprise Institute, which is supporting their case, expressed the couple's desire for an "emotional return" on their investment by helping Indian farmers.
The Tax Cuts and Jobs Act (TCJA) of 2017 introduced a one-time "deemed repatriation" on foreign investment, requiring individuals to pay taxes on the investment, even if the funds remained invested and generated no profits. Consequently, the Moores faced a tax bill of $14,729, despite not receiving any income from their investment.
Anthony Venette, an accountant and financial advisor with DeJoy & Co. in New York, told Newsweek that if the Moores lose, it could lead the way to a wealth tax in America—a tax on wealthy people's money regardless of whether it is earning income or not.
The Supreme Court is scheduled to conduct oral arguments in the case on December 5. According to Anthony Venette, an accountant and financial advisor at DeJoy & Co. in New York, a loss for the Moores could pave the way for the implementation of a wealth tax in the United States. This tax would apply to the money of affluent individuals, irrespective of whether it is generating income.
"High Net Worth Americans should be watching closely because if the definition of income is expanded to include unrealized gains, then a wealth tax would fundamentally be constitutional. That would still require an ambitious Congress and President acting in tandem, but it would overcome the long-held theoretical hurdle to a wealth tax," he said.
Mitchell M. Gans, a law professor at Hofstra University in New York and an expert on estate-and-gift tax, informed Newsweek that the success of the Moores in their case could potentially make some other taxes "vulnerable."
Gans anticipated that the conservative majority in the Supreme Court "would likely lean towards invalidating the tax" central to the Moore case. Nevertheless, he believes that the judges may be cautious due to the significant implications of their decision.
"There are other tax regimes under current law that would be left vulnerable were the court to invalidate this tax. And I think that may result in some hesitation among those justices inclined to strike it. So, at the end of the day, I think it's a close call," he said.
He anticipates that a victory for the Moores will result in additional challenges to taxes being brought before the federal courts. "For example, dealers in securities are, as a general rule, required to use a mark-to-market method for reporting income. Under this method, they are deemed to have sold their securities at the end of the year and must therefore pay a tax on the unrealized gain, even though no sale is made and the dealer continues to hold the investment."
"It's the million-dollar question, just with a few more zeros: the quadrillion-dollar question," Harvard University tax law professor Thomas Brennan told politics website The Hill.
