## Facts

- Charles and Kathleen Moore, U.S. taxpayers, invested about $40,000 in 2005–2006 for an approximately 13% stake in KisanKraft, a corporation organized in India and treated as a controlled foreign corporation (CFC) for U.S. tax purposes.
- From 2006 to 2017, KisanKraft earned substantial profits but made no dividend distributions to the Moores; the company retained and reinvested earnings abroad.
- Before 2017, U.S. law generally allowed deferral of U.S. tax on many CFC earnings until repatriation, while taxing certain specified CFC income categories currently under Subpart F.
- In 2017, Congress enacted the Mandatory Repatriation Tax (MRT), codified at 26 U.S.C. § 965, a one-time tax that attributes to certain U.S. shareholders their pro rata share of a CFC’s accumulated post-1986 deferred foreign income as of 2017 and taxes that attributed amount at reduced rates.
- Applying § 965, the government attributed to the Moores their share of KisanKraft’s accumulated earnings and assessed $14,729, which the Moores paid.
- The Moores sued for a refund, arguing the MRT is an unapportioned direct tax because it taxes them on income they did not personally realize.
- The district court dismissed the suit; the Ninth Circuit affirmed; the Supreme Court granted review.

## Issues

1. Whether Congress may attribute a CFC’s realized but undistributed income to U.S. shareholders and tax them on their pro rata shares without apportionment under the Direct Tax Clause.
2. Whether the Sixteenth Amendment requires realization by the taxpayer personally as a condition for an “income” tax, and whether § 965 violates any such requirement.

## Decision

- The Supreme Court affirmed the Ninth Circuit in a 7–2 decision.
- The Court held that Congress may attribute an entity’s realized, undistributed income to shareholders (or partners) and tax them on their shares without violating the Constitution.
- The Court treated the MRT as an income tax within the Sixteenth Amendment because the taxed earnings were realized at the entity level.
- The Court declined to resolve broader questions about whether the Sixteenth Amendment permits taxes on unrealized appreciation or wealth generally.

## Legal Principles

- Congress may constitutionally tax owners on an entity’s realized income by attributing that income to them, even if the entity does not distribute cash or property.
- A tax on realized income attributed to shareholders qualifies as a tax on “incomes” under the Sixteenth Amendment and therefore need not be apportioned among the states.
- The Constitution permits Congress, within the domain of realized income, to choose whether to impose tax at the entity level or on owners through pass-through attribution rules.
- The decision does not decide whether “income” under the Sixteenth Amendment requires personal realization by the taxpayer in all circumstances, nor whether taxes on unrealized appreciation are constitutional.

## Conclusion

The Court upheld § 965’s Mandatory Repatriation Tax as a permissible income tax because it taxes shareholders on their portions of income realized by a controlled foreign corporation, while leaving open broader constitutional disputes about realization and potential taxation of unrealized gains or wealth.


Moore v. United States, 144 S. Ct. 1680 (2024)