An Unconstitutional Income Tax Without Income

Thomas A. BerryCan the government impose an income tax when you never had income? That may seem like a trick question, but it ’s exactly what happened to Charles and Kathleen Moore. In 2006, the Moores invested in a start ‐​up Indian company called KisanKraft, whose goal was to provide low‐​cost, efficient tools to rural Indian farmers. The Moores believed in KisanKraft’s mission and retained their shares of KisanKraft for over a decade, never selling it for a profit. And KisanKraft reinvested all of its own profits in the company, never paying dividends. For that reason, the Moores never saw a dollar from their investment.Yet in 2017, the Moores suddenly received a hefty federal tax bill for their ownership stake in KisanKraft. How could that be, if they never earned any money from their holdings? The reason is a provision of the 2017 Tax Cuts and Jobs Act called the Mandatory Repatriation Tax. For U.S. taxpayers who met a certain minimum threshold of ownership in certain foreign corporations, the Mandatory Repatriation Tax imposed a tax billas ifthose taxpayers had earned a 2017 dividend from the corporation for profits going back years. Because the Moores owned roughly 13 percent of KisanKraft shares, they were taxedas ifKisanKraft had paid them a 2017 dividend worth 13 percent of KisanKraft ’s earnings since 2006. Even though that 2017 dividend was fictional, their tax bill was very real.The Moores chall...
Source: Cato-at-liberty - Category: American Health Authors: Source Type: blogs