Tag Archives: Charles Moore

Part 47 – Are Refunds For Payments Of The MRT Possible If The Moore Appeal Succeeds?

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To file a protective refund claim or to not seek a refund, that is question …

Individuals who were subject to the 2017 965 Transition Tax would have responded (whether using the 962 election or not) to the tax obligation in one of two ways:

1. They would have paid the tax in full.

2. They would have chosen to pay the tax over the eight year instalment period.

The Supreme Court will hear the appeal in Moore. It is possible that the Court will issue a decision that means the MRT was unconstitutional with respect to (some or all) individual taxpayers. Are those individuals who paid the tax in full entitled to a refund?

An interesting post from U.S. tax lawyer Virginia La Torre Jeker provides a possible answer:

Virginia’s post (focusing on whether to file a protective refund claim) includes an excellent analysis. I highly recommend taking the time to read it. In relevant part she writes:

Here’s the law in a nutshell:

Section 965(k) provides the IRS 6 years to assess any transition tax that is owed. However, this 6-year statute only favors the IRS. Taxpayers seeking a refund are bound to Section 6511 which deals with refund claims. Pursuant to Section 6511(a) a taxpayer must file a refund claim by the later of 3 years of filing the tax return, or 2 years of paying the tax.

Lost Opportunity

Under the general refund claim rule, taxpayers that paid the full transition tax on their 2017 income tax return filed in 2018 (or 2018 tax return, filed in 2019, if they report on a fiscal year that is not a calendar year) will not be able to claim a refund. The time for claiming the refund expired in 2021 (or 2022 for fiscal year filers). Normally refund claims must be filed within 3 years of filing the tax return or 2 years from the date the tax was paid so these taxpayers are out of luck.

Clearly “No Good Deed Goes Unpunished”!

Interested in Moore (pun intended) about the § 965 transition tax?

Read “The Little Red Transition Tax Book“.

John Richardson – Follow me on Twitter @Expatriationlaw

Part 46 – Why Other Countries Should File Amicus Briefs In The Moore MRT Appeal

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Why U.S. deemed income events cause problems for U.S. citizens living in other countries and erode the tax based of the countries where they live

All countries in the world have an interest in the Moore MRT appeal and should file Amicus briefs in support of the Moores.

The U.S. citizenship tax AKA extraterritorial tax regime applies to ALL U.S. citizens and residents wherever they live in the world. With its very expansive definition of “tax residency”, the United States claims the tax residents of other countries as U.S. tax residents. Those unlucky dual filers are subject to additional administrative fees, additional taxation and the opportunity cost of the inability to effectively engage in retirement and financial planning.

In the Moore MRT appeal the U.S. Supreme Court will consider whether “income” requires the actual receipt of income or whether “deemed income” meets the 16th Amendment test for income. Does the 16th Amendment require objective tests that must be satisfied before “income” can exist? The answer to this question will have profound implications for both the “U.S. citizen” residents of other countries and (2) the countries where they live. As previously discussed, if income does NOT have to be actually received, this opens the door for the U.S. tax the residents of other countries on income they have never received. Often the taxable event in the U.S. will take place before the taxable event in that other country.

The following post describes some examples where the United States is already deeming income to have been received for U.S. tax purposes before income has been received in the other country.

The following post describes how the U.S. deeming income to have been received for U.S. tax purposes prior to income having been received in the other country may result in (1) double taxation to the individual and (2) erosion of the tax base of the other country.

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Part 44 – The Moores, Unrealized Income And Exporting US Taxes, Forms And Penalties To Residents Of Other Countries

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Exporting U.S. taxes, forms and penalties to the residents of other countries

In the Moore appeal, the Supreme Court of the United States is charged with the task of determining whether “realization” is a necessary condition, for an “accession to wealth”, to qualify as “income” under the 16th Amendment. This broad question arises in the context of the Moores, who as “U.S. Shareholders” of a CFC, were subjected to the MRT which facilitated the double taxation of the Moores. The Moores, who reside in the United States, certainly have not and have no expectation of receiving a distribution from the India corporation. As problematic as the MRT was for the Moores, the MRT was far more devastating for Americans abroad, who were operating businesses that although “foreign to the United States”, were “local” to them. For the Moores their investment in the CFC represented an investment in a corporation that was “foreign” to both the Moores and the United States. Americans abroad were shareholders in CFCs (unlike the Moores and other resident Americans) that were “local” to them but foreign to the United States. In addition, for Americans abroad the CFC typically represents a pension/retirement planning vehicle. How can it be that the MRT could apply to individuals who live in other countries and are shareholders of corporations created in those countries? The answer is of course the extra-territorial application of the U.S. tax system to residents of other countries who happen to be U.S. citizens. In fact, the use of Canadian Controlled Private Corporations by dual US/Canada citizens living in Canada, demonstrates that it is possible for a U.S. citizen in Canada to be a shareholder in a Canadian corporation that would not qualify as CFCs if owned by U.S. residents.

The key takeaway is that the U.S. tax system, because of the extra-territorial tax regime (citizenship-based taxation) has a profoundly negative effect on individuals who are residents of other countries! U.S. tax law applies NOT only to U.S. residents but to residents of other countries who cannot demonstrate they are nonresident aliens. Therefore, a decision that the 16th Amendment does NOT require “realization” means that the U.S. will export the taxation of “unrealized income” to residents of other countries. The U.S. would tax the “unrealized income” of residents of other countries even when those other countries did not recognize the unrealized income as a taxable event!

In some circumstances the taxation of unrealized income would lead to double taxation. In other circumstances the taxation of unrealized income would frustrate the objectives of the tax policy of the other country. In many circumstances the taxation of “unrealized income” allows the United States to tax the wealth of other nations. It’s important to recognize that when the Supreme Court rules in the Moore appeal, it will also be deciding whether the U.S. can export the taxation of “unrealized income” to other countries! This has huge implications for both the residents and tax sovereignty of other countries.

Some EXISTING examples

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Part 37 – 2023: US Supreme Court To Hear Moore Appeal In Lawsuit Against @USTransitionTax – Great News!

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June 26, 2023 – Great News! – The US Supreme Court Agrees To Hear Moore 965 Transition Tax Case!

A direct link to the Supreme Court site which will track the progress and filings of all briefs (including what are expected to be a large number of amicus briefs) is here.

The brief from the CATO Institute frames the question addressed to the Supreme Court as follows:

QUESTION PRESENTED

Whether Congress may levy income tax on a tax-payer who has not realized income.

What follows is a twitter thread (which I will continually update) which includes commentary, resources and general information about the appeal.

Litigation against the 965 Mandatory AKA transition tax has come from two sources.

The first source was from U.S. tax lawyer Monte Silver. His challenge to the tax was based generally on procedural grounds and specifically on the failure of U.S. Treasury to comply with the provisions of the Regulatory Flexibility Act. Despite a heroic, valiant and determined effort the Supreme Court refused to hear his cert petition. As a result, in May 2023, his challenge came to an end. Monte Silver’s challenge focused on the legality of the Treasury Regulations insofar as they applied to US citizens living outside the United States.

The second source is the Charles Moore case. This case is arguing that the tax is unconstitutional. Although brought on behalf of an individual shareholder of a CFC, the case makes no mention of the application of the tax to Americans abroad. On June 26, 2023 (about a month after denying the cert petition in the Silver case) the U.S. Supreme Court agreed to hear the Moore case. To be clear, this case is attacking the constitutionality of the tax (not the procedural aspects) head on. Much will be written about this issue and the case.

On September of 2019 I wrote a post describing the Moore lawsuit arguing that the Section 965 Transition Tax AKA Mandatory Repatriation Tax is unconstitutional. Although the Moore’s were not successful in the District Court and Appeals court, the Supreme Court of the United States has agreed to hear the case!

The Cert Petition

The Cert petition was based on an appeal from the 9th Circuit and a dissenting judgment from the plaintiff’s application to rehear the case in the 9th Circuit.

The original 9th Circuit decision is here.

The decision of the 9th Circuit denying the request (with the dissent) to rehear the Moore case is here.

An excellent article discussing the history of the Moore “Transition Tax” ligation is here.

The cert petition in CHARLES G. MOORE and KATHLEEN F. MOORE, Petitioners, v. UNITED STATES OF AMERICA,Respondent, includes:
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