Supreme Court case may have big tax impact

Fight over $14,729 could cost government trillions

John Fritze

WASHINGTON – It started as a fight over $14,729 in taxes that the government said Charles and Kathleen Moore owed on an investment they made in a company in India.

But their lawsuit, which the Supreme Court heard Tuesday, could wind up costing the government billions, prompting follow-on lawsuits challenging a wide swath of federal taxes and upending proposals some Democrats have floated for years to tax the ultra-rich. During two hours of argument, a majority of the justices signaled they are hesitant to weigh into that broader debate.

The legal question in the case involves how to define income for tax purposes. But the Supreme Court’s decision − whether it sides with the Moores or against them − could have sweeping implications for how much the government can dip into the earnings of wealthy Americans who can shield those holdings from taxes.

The Moores, a retired couple who live in Washington state, frame their case in simple terms: they never received a profit from their investment. Those profits were instead reinvested into the company, KisanKraft, which sells farm equipment in India. Because they never “realized” that income, the Moores claim, they can’t be taxed on it.

“If you haven’t received any income, how can you be required to pay income taxes?” Charles Moore asks in a video posted by the Competitive Enterprise Institute, a libertarian group that is representing the Moores. “It seemed, to both of us, unconstitutional.”

Alito

The Moores’ suit has drawn considerable attention, in part because of the potential to destabilize the tax system and partly because it has been viewed in some quarters as a proxy battle over a proposed wealth tax.

A narrow ruling for the Moores could cost the government billions of dollars and provide a path for challenging other provisions of the tax code, said Josh Odintz, a lawyer at Holland & Knight who helped craft a brief supporting the government’s position. A wide-ranging ruling, he said, could “invalidate large parts of the Internal Revenue Code” and cost the govern

See SUPREME COURT CASE, Page 11A