Supreme Court rejects challenge to tax on foreign investments — but avoids wealth tax debate (2024)

In a closely watched case, the Supreme Court on Thursday denied a challenge to a federal tax on certain foreign investments — but left questions about whether a wealth tax is constitutional.

The case, Moore v. United States, focused on whether a Washington state couple received income from an investment in an India-based company that didn't distribute dividends.

The Moores incurred roughly $15,000 in taxes due to the "mandatory repatriation tax," a one-time levy on earnings and profits in foreign entities. The provision was enacted via the Republicans' 2017 tax overhaul to help pay for the legislation's other tax breaks.

More from Personal Finance:
As retirement looms, many Gen Xers are still playing catch-up
More states poised to roll out Inflation Reduction Act energy rebates this summer
Here's what advisors are telling clients before Trump tax cuts expire after 2025

Some experts believed the Moore case could have implications for future wealth tax proposals, which have called for taxes on "unrealized gains" or profitable assets that haven't been sold.

While the Supreme Court upheld the tax on the Moores, the justices steered clear of the broader debate on whether a wealth tax is constitutional.

"Nothing in this opinion should be read to authorize any hypothetical congressional effort to tax both an entity and its shareholders or partners on the same undistributed income realized by the entity," Justice Brett Kavanaugh wrote in his majority opinion.

He emphasized the limited scope of the opinion and how it only addressed the "precise and narrow question" of the Moore's case.

"The opinion itself is very narrow," said University of Chicago Law School professor Aziz Huq. However, "powerful constitutional arguments against a wealth tax" existed before the Supreme Court opinion and still exist now, he said.

"The wealth tax thing was a stalking horse," Huq said. "What was really at stake was this highly, highly regressive litigation strategy."

Some experts worried the case could have implications for domestic stockholders who could have imputed income from corporations that didn't issue dividends. However, the opinion said the Moore's realization of income was similar to other pass-through taxes on foreign companies.

But the majority didn't decide whether realization is required for income tax.

"They didn't really issue a red light on anything," said tax attorney Don Susswein, principal in the Washington national tax office at RSM US. "But there's a gigantic yellow light about a lot of things."