Interesting tax case. After reading somewhat technical explanations (but not the briefs as of yet) I'm tending toward the taxpayers' position.
It does seem unreasonable for people to be n the hook for a not-even-income tax. It's also been somewhat entertaining to see supposed journalists at NPR and The Atlantic abandon any pretense of objectivity to breathlessly tell us with Great and Serious Concern how this is a terrible, horrible, no good, very bad court case, because if SCOTUS decides it other than to their liking, well, the tax code might have to be legislatively revised, and we obviously can't have that.
There's a legitimate doubt, I think, as to whether the one time repatriation tax is allowed under the 16th amendment. The amendment itself has an interesting history. The U.S. imposed an income tax during the Civil War. We still have Abraham Lincoln's returns. The amendment might not have been necessary. It's not easy to understand some of the claims being made, for instance, that the government might lose the ability to tax partners and S corporation shareholders in distributive profits that weren’t paid out but this is not an issue I don't think. No one questions that income to a "pass through" entity is income to the owners otherwise the partnership or corporation would have to pay tax on its earnings and that would eliminate any advantage to pass through treatment. The Moores are correct that in general we don't tax income until it is realized. There are practical reasons for that but I think the biggest concern I have is that Congress should not be able to define "income" any way it likes. It looks to me like that's what they did in this case.
One other point, though. If the Moores do have to pay tax on their unrealized gains, their tax basis in their shares will increase such that they will pay less in capital gains tax when they do sell.
But after that, in 1895, SCOTUS ruled in Pollack that an income tax was unconstitutional for being an unapportioned direct tax. So without an amendment, unless that decision were somehow overturned, that would have been that.
Yes, they did but some scholars since then think that decision was wrong. Tax protesters use Pollack a lot despite the fact that the constitution was amended since. I wonder how IRS intends to value that unrealized stream of income. I assume the corporation just didn't declare a dividend. So how much would it have been if they had? It will be interesting to see what happens next.
