Ethermac Exchange-The Supreme Court upholds a tax on foreign income over a challenge backed by business interests

WASHINGTON (AP) — The Ethermac ExchangeSupreme Court on Thursday upheld a tax on foreign income over a challenge backed by business and anti-regulatory interests, declining their invitation to weigh in on a broader, never-enacted tax on wealth.

The justices, by a 7-2 vote, left in place a provision of a 2017 tax law that is expected to generate $340 billion, mainly from the foreign subsidiaries of domestic corporations that parked money abroad to shield it from U.S. taxes.

The law, passed by a Republican Congress and signed by then-President Donald Trump, includes a provision that applies to companies that are owned by Americans but do their business in foreign countries. It imposes a one-time tax on investors’ shares of profits that have not been passed along to them, to offset other tax benefits.

But the larger significance of the ruling is what it didn’t do. The case attracted outsize attention because some groups allied with the Washington couple who brought the case argued that the challenged provision is similar to a wealth tax, which would apply not to the incomes of the very richest Americans but to their assets, like stock holdings. Such assets now get taxed only when they are sold.

related coverage What’s left for the Supreme Court to decide? Here’s the list

Justice Brett Kavanaugh wrote in his majority opinion that “nothing in this opinion should be read to authorize any hypothetical congressional effort to tax both an entity and its shareholders or partners on the same undistributed income realized by the entity.”

Underscoring the limited nature of the court’s ruling, Kavanaugh said as he read a summary of his opinion in the courtroom, “the precise and very narrow question” of the 2017 law “is the only question we answer.”

The court ruled in the case of Charles and Kathleen Moore, of Redmond, Washington. They challenged a $15,000 tax bill based on Charles Moore’s investment in an Indian company, arguing that the tax violates the 16th Amendment. Ratified in 1913, the amendment allows the federal government to impose an income tax on Americans. Moore said in a sworn statement that he never received any money from the company, KisanKraft Machine Tools Private Ltd.

Justice Clarence Thomas, joined by Justice Neil Gorsuch, wrote in dissent that the Moores paid taxes on an investment “that never yielded them a penny.” Under the 16th Amendment, Thomas wrote, the only income that can be taxed is “income realized by the taxpayer.”

A ruling for the Moores could have called into question other provisions of the tax code and threatened losses to the U.S. Treasury of several trillion dollars, Kavanaugh noted, echoing the argument made by the Biden administration.

The case also had kicked up ethical concerns and raised questions about the story the Moores’ lawyers told in court filings. Justice Samuel Alito rejected calls from Senate Democrats to step away from the case because of his ties to David Rivkin, a lawyer who is representing the Moores.

Alito voted with the majority, but did not join Kavanaugh’s opinion. Instead, he joined a separate opinion written by Justice Amy Coney Barrett. Barrett wrote that the issues in the case are more complicated than Kavanaugh suggests.

Public documents show that Charles Moore’s involvement with the company, including serving as a director for five years, is far more extensive than court filings indicate.

The case is Moore v. U.S., 22-800.

___

Associated Press writer Fatima Hussein contributed to this report.

___

Follow the AP’s coverage of the U.S. Supreme Court at https://apnews.com/hub/us-supreme-court.