High Court Backs Trump-Era Foreign Earnings Tax

 June 21, 2024

According to CBS News, the U.S. Supreme Court has ruled in favor of maintaining a tax that has crucial implications for American stakeholders in foreign companies.

The culmination of a legal battle saw the Supreme Court affirm the legality of a repatriation tax imposed on profits made by U.S. citizens from foreign business interests since 1986.

The case, prominently involving Charles and Kathleen Moore, came into the national spotlight after they were levied a $15,000 tax bill for their investment in an Indian company.

Their challenge to the tax's constitutionality brought forth a broader discussion on the legal foundations of taxation reforms introduced under the 2017 Tax Cuts and Jobs Act, a pivotal piece of legislation signed by then-President Donald Trump.

The Moore's Legal Challenge and the Supreme Court's Ruling

The Moores found themselves embroiled in this tax dilemma owing to their stake in KisanKraft Tools, an Indian manufacturer. They initially invested $40,000 in 2006, acquiring a 13% share without receiving dividends or any form of profit distribution. The U.S. tax regime deemed them liable for the company's reinvested earnings.

After a federal district court sided with the government, the Moores appealed, which led the case to the U.S. Court of Appeals for the 9th Circuit. The appeals court upheld the earlier decision. This series of legal setbacks culminated in their plea to the Supreme Court, which would eventually uphold the existing tax law under constitutional scrutiny.

Justice Brett Kavanaugh, when delivering the majority opinion, articulated the Court's perspective, which supported the long-standing practices and precedents set by Congress. He highlighted the precise nature of the challenge and the broader implications of attributing undistributed earnings to shareholders.

Judicial Opinions on the Tax Law

Concerns regarding the potential bias and conflicts of interest were raised against Justice Samuel Alito as Democrats called for his recusal. Justice Alito, however, did not step aside, citing “no valid reason” for such an action. His participation was crucial in the final decision allowing the continuation of the tax.

Justice Brett Kavanaugh stated:

[T]he precise and narrow question that the Court addresses today is whether Congress may attribute an entity's realized and undistributed income to the entity's shareholders or partners, and then tax the shareholders or partners on their portions of that income. This Court's longstanding precedents, reflected in and reinforced by Congress's longstanding it, establish that the answer is yes.

The Court’s 7-2 vote indicates robust support for maintaining the law, emphasizing the importance of consistency and stability in the U.S. tax system. It warned of the potential negative repercussions of overturning such a tax on other structured tax laws.

Tax Implications for U.S. Citizens with Foreign Interests

The implications of this ruling are extensive, particularly for U.S. citizens who own significant shares in foreign companies. The mandatory repatriation tax, by taxing earnings dating back to 1986, aims to treat international earnings more like domestic ones, thereby closing a loophole in the tax system that previously benefited those with foreign business interests disproportionately.

This legal affirmation serves as a stark reminder and perhaps a call to reconsider the structural engagements and tax responsibilities for U.S. investors abroad. With the Supreme Court's decision, the law now clearly dictates the treatment of undistributed foreign earnings as taxable income.


The Supreme Diesel's legal dispute over a recently upheld tax reflects the ongoing tension between global economic engagement and domestic tax policies. The Supreme Court’s decision underscores a crucial endorsement of legislative authority and tax policy continuity, affecting scores of U.S. taxpayers with foreign investments. Justice Brett Kavanaugh’s majority opinion, supported by a strong 7-2 vote, cements the practice of taxing American stakeholders on their shares of foreign earnings, signaling a significant moment in U.S. tax law jurisprudence.

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