Mr. Jim de Bree, in his July 20 Supreme Court column, discusses SCOTUS granting a hearing in the matter of Moore v. United States, although he never identifies that case, or the constitutional issue in the case.
The issue in Moore is whether the Mandatory Repatriation Tax (26 US Code Sec 965) violates the direct tax limitation of the Constitution (Art. I Sec. 2, Clause 3), which requires that direct taxes may only be levied if they are “apportioned” among the states based on population. This constitutional limitation is recognized by Mr. de Bree as prohibiting unapportioned wealth taxes, and is the reason the 16th Amendment was adopted in 1913, providing Congress with the authority to levy an unapportioned tax on “income.” Thus the issue before the court in Moore is what was the meaning of “income” as used in the 16th Amendment, a standard statutory interpretation issue involving the meaning of “income” as it was understood in ordinary usage at the time (1913). More specifically, whether Congress has the authority under the 16th Amendment to tax a minority shareholder for undistributed income earned by a foreign corporation.
Mr. de Bree asserts that under generally accepted accounting principles, as currently promulgated by the Financial Accounting Standards Board (essentially the American accounting governing board created in 1973), such undistributed income is treated as income to the shareholder/taxpayer. I do not believe that to be an accurate statement of GAAP. At most GAAP has required that securities be marked to market. Even this position has never been adopted by the Internal Revenue Code, which has required that any gain or loss be “recognized” by a sale of the security.
The initial mistake that Mr. de Bree makes is his assertion that the “court has an opportunity to significantly modify” the IRC. The court does not have the power to modify the IRC or any other statute enacted by Congress, nor is the IRC involved in the case. In this instance, the only issue before the court is whether the Mandatory Repatriation Tax of 2017 violates the Constitution and is therefore invalid when applied to minority shareholders. The next mistake is his assertion that the definition of income as that term is used in the 16th Amendment is governed by GAAP and not the commonly understood meaning of the term when the amendment was adopted. Finally, he essentially asserts that FASB, by changing GAAP, can change the meaning of the Constitution by changing the meaning of “income” after the fact.
The discussion contained in the last five paragraphs is nothing but rank speculation combined with demagoguery. The order granting the hearing just says granted. There is no indication of how any justice voted on the issue. While it is true that the Wall Street Journal published an editorial urging the court to grant a hearing, there is no basis for the assertion that any justice read the editorial, much less was swayed by it, and it ignores the fact that four 9th Circuit judges wrote a powerful dissent, which the justices almost certainly considered, as they did the briefs of the parties and amici. The decision and the dissent frame the issue quite clearly, and do not involve esoteric accounting principles adopted decades after the fact. (I would suggest that Mr. de Bree, or anyone interested, read the decision and the dissent to better understand the legal issue involved).
Finally, at this stage and given the somewhat arcane nature of the issue (as Mr. de Bree notes, taxation issues are not in the same category as, say, civil rights or affirmative action), no one knows how the justices will rule, much less individual justices. If I were to speculate, I would say that the case will be decided 9-0 to overrule the 9th Circuit, or perhaps 7-2.
Finally, his extraneous, ad hominem assertions concerning Justices Clarence Thomas and Samuel Alito are the worst kind of demagoguery. He should limit his comments to the facts and the law in the case, and not engage in smearing honorable men. We are, after all, engaged in an intellectual exercise concerning a legal, not a political, issue.
Stephen Maseda
Santa Clarita
