In 2017, Congress passed the Tax Cuts and Jobs Act. The new law was a reform of the federal tax code, but also included a provision called the Mandatory Repatriation Tax or the Section 965 Transition Tax. This provision taxes U.S. citizens on certain accumulated foreign earnings of foreign corporations going back 30 years, even if the earnings have not been distributed. This means taxing people on income they never received and never owned.

Enter Kathleen and Charles Moore, a married couple from Washington state, who made a relatively small investment in an India-based company founded by a friend. The company, called KisanKraft, supplies power tools to small-scale, individual Indian farmers with the aim of making their operations more productive. The Moores had owned their shares in KisanKraft for more than a decade, but never received any income from the shares, because the company reinvested all its profits back into the business.

As the Moores explained in a recent CEI video, following passage of the Tax Cuts and Jobs Act, the IRS presented the couple with a bill for almost $15,000 in additional income tax owed despite never having received a dime from KisanKraft. Normally, such profits are not considered income unless shareholders either receive dividends or sell the shares for a capital gain. The Mandatory Repatriation Tax attempts to tax these funds as income through a legal fiction, by simply declaring them to be taxable income.

The Moores, represented by CEI and Andrew Grossman of BakerHostetler, plan to petition the Supreme Court in February 2023 to see if the highest court in the land will hear their argument and reconsider the constitutionality of this tax. 

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