Supreme Court rejects challenge to tax on foreign corporate investments

WASHINGTON — The Supreme Court on Thursday upheld a tax on foreign corporate investments in a case some worried could imperil any future attempts to enact a wealth tax on the super-rich.

The case had previously attracted scrutiny after conservative Justice Samuel Alito refused to recuse himself over his ties with one of the lawyers challenging the one-off tax imposed in 2017.

Alito was part of the 7-2 majority that rejected the challenge to the measure.

In the majority opinion, Justice Brett Kavanaugh said the decision was a narrow one that he indicated has no bearing on a potential wealth tax, which would involve a tax on assets, not income.

He wrote that “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.”

“Those are potential issues for another day, and we do not address or resolve any of those issues here,” he added.

The provision was part of the major tax law enacted by the Republican-led Congress and signed into law by then-President Donald Trump.

The case, hinging on the Constitution’s 16th Amendment, concerned whether people can be forced to pay taxes on stakes in foreign-owned companies even if they have not derived any income from them. The 16th Amendment says Congress has the power to “collect taxes on incomes.”

David Rivkin, one of the lawyers involved in the case against the federal government, interviewed Alito in two articles published in The Wall Street Journal that addressed recent claims of ethics violations on the court and the power of Congress to legislate on the issue.

Rivkin represents Washington state-based Charles and Kathleen Moore, who invested in an India-based company, although he did not argue the case in front of the Supreme Court.

In 2005, the Moores invested $40,000 in a company called KisanKraft Machine Tools. Although the company was profitable, they said they did not receive dividends, with the money instead being reinvested in the business. Because of that, the Moores did not pay taxes on what the U.S. government defined as income from the company from 2006 to 2017.

After the new law was enacted, the Moores paid almost $15,000 in additional taxes, which they then sought a refund for. They argued that the tax was unlawful on the grounds that an increase in the value of a capital investment does not constitute income.

In a dissenting opinion, Justice Clarence Thomas, joined by fellow conservative Justice Neil Gorsuch, said that the money at issue should not be taxed because “the Moores never actually received any of their investment gains.”