Over the weekend, we alluded to Brent Saunders’ preposterous 2017-18 claim — that any repatriation tax would be “unconstitutional“. Pure poppycock.

But since then, a couple (last name: Moore) has claimed that paying $15,000 in taxes on their stockholdings in a very profitable Indian power-farming-tools company. . . is (somehow) unfair, and against limits of the federal 16^th Amendment. In 2021, the Moores were soundly dumped out of court by a Ninth Circuit panel, citing the highlighted analysis factors in blue below.

Then, just at lunch-time today, the Supremes agreed to take the Moores’ case — likely to make plain forever, that Brent Saunders is wrong on the law, as are the Moores.

Every day, people must pay taxes on amounts they’ve not received in cash — for example, when one buys stock or certain kinds of options in a private or public company, as part of a restricted stock/option grant — while serving as an executive or director. Despite Brent Saunders’ Ayn Randian bleatings, there is no constitutional impediment as to any “tax on income” in the US, Brent.

Okay — now you know — and here’s the Moores’ version of this dispute, more fully-explained:

…The court of appeals began by setting forth three longstanding principles. First, “[w]hether the taxpayer has realized income does not determine whether a tax is constitutional.” Pet. App. 12 (citing Helvering v. Horst, 311 U.S. 112, 116 (1940)). Second, “[w]hat constitutes a taxable gain is also broadly construed.” Ibid. (citing Helvering v. Bruun, 309 U.S. 461, 469 (1940)). And third, “there is no blanket constitutional ban on Congress disregarding the corporate form to facilitate taxation of shareholders’ income.” Id. at 13.

Applying those principles here, the court of appeals determined that the MRT is a permissible income tax under the Sixteenth Amendment. “[T]here is no dispute,” the court explained, “that KisanKraft actually earned significant income.” Pet. App. 13. And even “[b]efore the MRT, U.S. persons owning at least 10% of a CFC were already subject to certain taxes on the CFC’s income.” Id. at 14. “The MRT,” the court reasoned, simply “builds upon these U.S. persons’ preexisting tax liability attributing a CFC’s income to its shareholders” by “assign[ing] only a pro-rata share of that income to the [petitioners].” Ibid.

The court emphasized that neither decision on its own terms supports “a universal definition of income” that requires realization. Id. at 15. And the court cited later cases “ma[king] clear” that “the concept of realization is ‘founded on administrative convenience’ and does not mean that a taxpayer can ‘escape taxation because he did not actually receive the money.’” Ibid. (quoting Horst, 311 U.S. at 116). Finally, the court of appeals observed that “courts have held consistently that taxes similar to the MRT are constitutional….”

[T]ax scholars have long agreed that “the formalistic doctrine of realization proclaimed by [Macomber] is not a constitutional mandate.” Stanley S. Surrey, The Supreme Court and the Federal Income Tax: Some Implications of the Recent Decisions, 35 Ill. L. Rev. 779, 791 (1941)….

So smoke that Brent Saunders / Fred Hassan and Martin Shkreli. You may not like paying taxes on non-cash income — but the practice is plainly constitutional. Soon the Supremes will so rule, as well.

Of course, with careful advance planning, one may always structure one’s affairs to only owe a tax on cash income — but you’ll need… a smart lawyer for that, Brent. Smile.

नमस्ते