What is Income: US Taxation of Unrealized Income in Moore v. United States
Charles and Kathleen Moore, a retired married couple living in Washington state, encountered a 2017 tax bill for $14,729. Years ago in 2006, the Moores had invested in a farm equipment company in India, but they had never received a return on their investment. Unlike ordinary income, which is taxable as received each year, investments typically are not taxable until investors cash out their investment. The Moores never received the gains. How could they be taxed on them? A major 2017 US Federal law had changed US international tax policy and retroactively subjected the Moores to tax on the unrealized gains. This seemingly minor tax issue had major policy implications for the Federal government’s ability to tax investments. This critical incident examines the Moores’ position and the US Supreme Court’s opportunity to clarify whether realization was necessary for income recognition, including possible ramifications for wealth taxes on unrealized income.
1. Explain the realization concept as it relates to taxation of investments.
2. Contrast a world-wide tax system to a territorial tax system.
3. Evaluate how Subpart F anti-deferral rules affect US shareholders with foreign investments. [Recommended for graduate students only.]
4. Compare US taxation of foreign investments to taxation of investment in domestic partnerships and C Corporations.
5. Analyze how the Moore v. United States Supreme Court case might have paved the way for a wealth tax.
6. Evaluate to what extent the Supreme Court’s ruling in Moore v. United States affected how income is defined for tax purposes.