Introduction and purpose
"The Little Red Transition Tax Book" – Everything you need to know about the 965bmandatory repatriation tax but didn't know to ask. A horrific abuse of #Americansabroad in a @citizenshiptax and #FATCA world! https://t.co/j7v1Asreek
— U.S. Transition Tax – Subpart F and #GILTI (@USTransitionTax) June 26, 2023
The Supreme Court of the United States issued its ruling in the Moore case in June of 2024. The decision in Moore is here:
https://www.supremecourt.gov/opinions/23pdf/22-800_jg6o.pdf
I would characterize the decision as a loss for the Moores, but a possibly a huge win for those who backed (and presumably financed) the Moore litigation. Here is why:
A loss for the Moores – A cursory glance at the result (seven to two in favour of upholding the transition tax) means that (1) the Moore’s lost because the 965 transition tax was upheld. Generally the court ruled that income WAS REALIZED to the foreign corporation and that REALIZED income could be attributed to the individual shareholder. A majority of the court was therefore able to avoid considering whether income must be realized in order for it to be taxed. This was of course a huge loss for Americans abroad (the largest group of people impacted by the transition tax). Only Justice Jackson specifically ruled that realization of income is NOT a requirement for taxation.
A win for those backing the Moore’s lawsuit – Justices Gorsuch, Thomas, Barrett and Alito ruled that income must be realized in order for it to be taxable. In other words, those arguing for a constitutional requirement of realization are only one Justice away from a ruling supporting a requirement for realization of income in order for taxation of income. (Of course, this leaves open the question of what is meant by realization).
Therefore, my opinion is that the Moore litigation was a success. Immediately after the decision was released there was some discussion of what this decision might mean for the constitutionality of the 877A expatriation tax. 877A mandates a deemed sale of assets and deemed distribution of pensions and other tax deferred accounts. The point is that 877A creates a “deemed” as opposed to “actual” realization event. On balance, I believe those who backed the Moore litigation came away as winners.
After the release of the decision I discussed my conclusions on the following two podcasts:
https://prep.podbean.com/e/the-title-of-audio1731891712/
https://www.youtube.com/watch?v=BQeT03ziu8k
The slides I prepared (below) generally explain my reasoning and analysis of the Supreme Court decision.
Moving forward – The Difficult we do today, the impossible takes a bit longer
The Supreme Court decision in Moore has strengthened the argument that realization is a requirement for taxation. An obvious target is the constitutionality of the 877A expatriation tax as suggested here and here.
Unsurprisingly, on December 3, 2024 the lawyers for Roger Ver (The Bitcoin Jesus) relied on the decision in Moore to argue that the 877A Exit Tax is unconstitutional
Ver gov.uscourts.cacd.915322.21.0!
Freedom 55 – The end of the “Little Red Transition Tax Book”
“Freedom 55” is a retirement slogan in Canada. The idea is for people to retire at the age of 55.
This is the 55th post in the “Little Red Transition Tax Book”. It is also the “retirement post”.
The Moore saga is over!
John Richardson – Follow me on X.com @Expatriationlaw