The Supreme Court will decide a challenge to a Trump-era tax law provision aimed at wealth held in foreign corporations, a case that could reshape the taxing powers of Congress.
The case announced by the court on Monday centers on a one-time tax for people who own at least 10 percent of certain foreign corporations, even if the companies’ earnings have not been given to the U.S. shareholders.
The litigation was brought by a couple who said they were subjected to $14,729 in additional taxes under a provision in the 2017 Republican tax law because of their ownership in a company from which they had never received earnings and likely wouldn’t for some time.
The couple sued to seek a refund of the taxes they paid, and the case taken up by the Supreme Court poses a question on the scope of the 16th Amendment, which gives Congress the power to tax incomes. The case will likely be heard in the court’s next term starting in October.
The couple appealed a ruling from the U.S. Court of Appeals for the 9th Circuit, which said courts have consistently upheld taxes similar to the one-time tax outlined in the 2017 law.
But in a court filing that urges the Supreme Court to take up the case, lawyers for the couple described the tax as a “marked departure from Congress’s historic exercise of its taxing power,” arguing the one-time tax “calls into question long-accepted limitations on that power.”
“The importance of the question presented cannot be overstated. This case presents a fundamental constitutional question concerning Congress’s core power of taxation,” the attorneys wrote. “That question is not only politically important, but practically important, as American families and businesses plan their financial futures.”
The attorneys for the couple also argued the case is relevant given tax proposals from Democrats, pointing to tax legislation from Sens. Elizabeth Warren of Massachusetts and Ron Wyden of Oregon.
The attorneys also highlighted a push from the Biden administration in 2022 to get wealthy Americans to pay a tax rate of at least 20 percent on their full income, including unrealized appreciation.
“There is every reason for the Court to resolve the pivotal constitutional question of realization now, when its judgment can inform lawmakers and stands to head off a major constitutional clash down the line,” lawyers for the couple wrote.
The Justice Department, in a filing that urged the justices not to decide the case, said the 9th Circuit ruling does not conflict with any other courts of appeals and the case “lacks pressing prospective importance.”
The tax affected only a small number of U.S. taxpayers, the Justice Department wrote. The agency also argued that the challengers did not cite a single appellate decision that addressed a constitutional challenge of one-time tax, other than the 9th Circuit decision.
The Justice Department also wrote that the couple and their supporters raised the “specter” of Congress enacting a wealth tax but the court should not weigh in on taxes until after they’ve been approved by Congress.
“Unable to demonstrate the significance of the issue in this case, petitioners (and their amici) principally base their assertions of importance on hypothetical cases involving taxes that Congress has not enacted,” the Justice Department wrote.
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