Supreme Court Upholds Tax On Unrealized Gains: Key Implications For Investors

On June 20th of this year, the Supreme Court made the decision to uphold the mandatory repatriation tax which allows taxes on unrealized gains, specifically in certain contexts. The issue was brought to court in the case of Moore v. United States. This case was highlighted because of the implications it could have on taxing the wealthy.

The decision to uphold the mandatory repatriation tax and therefore taxes on unrealized gains has significant implications for investors who have overseas assets. If you’re an investor who is concerned about how unrealized gains tax affects you, the tax attorneys in Scottsdale from Silver Law are able to help!

Moore v. United States: Case Overview & Investor Impact

There are many US taxpayers who own shares in foreign businesses. Charles and Kathleen Moore were two individuals who owned shares in an agricultural equipment company in India. They were required to pay around $15,000 in taxes on income that the business made. However, the income was never something that the Moores saw themselves.

In the Moore v. United States case, the Moores argued that in order to be taxed, the income must be realized. They deemed the tax of their unrealized gains unconstitutional. This lawsuit led to questions about whether or not the one-time tax on unrealized gains on taxpayers that owned significant shares in foreign companies was appropriate. Interestingly, there were many others who agreed, including 17 states.

The Supreme Court Ruling On Taxing Unrealized Gains

Your tax attorneys in Scottsdale will tell you that this ruling’s impacts are narrow, but the investors they do impact should be aware of the implications. The tax impacts shareholders of an entity where the income was put back into the company and not realized by the shareholders.

The constitution allows taxes on income and there was dispute as to what “realized income” meant. The Supreme Court’s reasoning was that the income was realized by the company and attributed to the shareholder. So while the shareholder did not see any of the income, they are still allowed to be taxed on it.

The Supreme Court’s ruling to uphold the mandatory repatriation tax was made to ensure there are no loopholes where taxpayers could evade taxes by building their assets overseas without seeing any of the income themselves and therefore being taxed.

What Is The Mandatory Repatriation Tax?

The Mandatory Repatriation Tax was put into place as a part of the Tax Cuts and Jobs Act in 2017. It impacts shareholders in the US who own shares in a controlled foreign corporation and allows taxes to be taken from income earned overseas that is put back into the company, or rather, income that is not realized by the shareholders.

The MRT was meant to encourage US companies to bring their overseas profits back to the United States economy. The tax attorneys in Scottsdale from Silver Law can help you determine whether or not you own enough of your shares to be impacted by the MRT. Shareholders who own less than 10% of a company may not have to worry about the tax.

Identifying Who Is Affected By The Mandatory Repatriation Tax?

It is important to understand who the MRT applies to since there are hefty implications. In general, the MRT is dealing with US individuals and corporations who own foreign corporations. Specifically, it targets:

• US Corporations: Multinational corporations with controlled foreign corporations that have accumulated untaxed foreign earnings.
• Individual US Shareholders: US citizens and residents who own at least 10% of the voting power or value in a foreign corporation.
• Pass-Through Entities: US Partnerships, S corporations, and other pass-through entities with significant ownership in foreign corporations, where the tax liability flows through to the individual partners or shareholders.
• Investment Funds: US-based investment funds that hold significant stakes in foreign corporations, affecting the individual investors in the fund.

Calculating & Paying The Mandatory Repatriation Tax (MRT)

The good news is, the tax is only a one-time tax. The federal government will add up how much income was earned by a shareholder’s foreign entities up to December 31, 2017. That amount will be taxed to the shareholder. For some, that could mean a large amount in taxes so taxpayers are able to pay the sum over an eight-year period. Tax attorneys in Scottsdale will come alongside you to protect your rights and make sure you have a full understanding of the mandatory repatriation tax.

When it comes to the tax rates, there are different rates depending on what type of income is received:

• 15.5% on cash and cash equivalents
• 8% on liquid assets, such as property, plant, and equipment

Ensure you have a good tax attorney by your side so that you are not blindsided by taxes owed that you were unaware of. They will help make sure you adhere to the law and give you peace of mind when it comes to the complications of tax law.

Start Your Journey Towards Peace Of Mind With Your Taxes By Contacting Silver Law!

The tax attorneys in Scottsdale from Silver Law are dedicated to giving you peace of mind when it comes to figuring out your taxes and how the mandatory repatriation tax affects you. With over 100 years of combined experience, our tax attorneys have the knowledge and expertise necessary to handle all kinds of tax law. From litigation to innocent spouse relief, we have you covered.

Contact us today for a consultation and get started on your journey towards peace of mind when it comes to your taxes.

Email: lchapman@silverlawplc.com
Website: taxcontroversy.com

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