The Mandatory Repatriation Tax was part of the 2017 Tax Cuts and Jobs Act signed into law by President Donald Trump.

The Supreme Court this morning upheld by 7–2 a 2017 tax on “unrealized” income from overseas investments.

The court affirmed the Mandatory Repatriation Tax (MRT), also known as the Section 965 transition tax, which was part of the Tax Cuts and Jobs Act approved by the Republican-controlled Congress in 2017 and signed into law by President Donald Trump.

The majority found the tax does not violate the 16th Amendment to the U.S. Constitution.

Charles and Kathleen Moore, a married couple from Washington state, had argued in a lawsuit that this tax violates the Constitution’s requirement that direct federal taxes must be apportioned among the states and the Constitution’s prohibition against retroactive taxation.

The Moores lost in U.S. district court, appealed, and lost again. They asked the U.S. Court of Appeals for the Ninth Circuit to rehear the case after a circuit panel affirmed the district court’s dismissal of the action seeking to invalidate the tax law provision, but on Nov. 22, 2022, a divided Ninth Circuit again denied the couple’s petition.

“There is no constitutional prohibition against Congress attributing a corporation’s income pro-rata to its shareholder,” the appeals court ruled at the time.

Conservative constitutionalists had said if the Supreme Court ruled that the MRT violates the 16th Amendment to the U.S. Constitution, which allowed an income tax without having to determine it based on population, such a legal precedent could prevent Congress from enacting legislation to tax wealth.

For example, in March, Sen. Elizabeth Warren (D-Mass.) and House Democrats reintroduced the proposed Ultra-Millionaire Tax Act that would require the top 0.05 percent of American households to pay 2 cents for every dollar of wealth over $50 million.

In November 2023, Sen. Ron Wyden (D-Ore.) introduced a plan to tax the unrealized capital gains of high earners.

The 2017 law changed the way foreign income of U.S. corporations was taxed. Lawmakers created the tax because, in their view, too much money was being invested abroad and not benefiting U.S. tax coffers.

Before the change, much of that income wasn’t taxed until it returned, or was repatriated, to the United States. To transition to the new system, Congress imposed a one-time tax on outstanding unrepatriated foreign earnings of U.S. corporations.

The law taxes U.S. corporate earnings abroad going back 30 years, even if the earnings haven’t been distributed. The statute also applies to U.S. taxpayers with 10 percent or more of shares in an overseas corporation as of the end of 2017. The Congressional Budget Office estimated in 2018 that the law would lead corporations to have a one-time tax liability of $347 billion.

The Moores made a modest investment in India-based KisanKraft, which supplies power tools to small-scale, individual Indian farmers with the aim of helping to make their operations more productive. The Moores had owned KisanKraft shares for more than a decade but never received any income from the shares because the company plowed all its profits back into the business.

But after the MRT was enacted, the Moores received a bill from the IRS for $14,729 for additional income tax they owed, despite having never received any payments from KisanKraft.

Although such profits aren’t ordinarily considered income unless shareholders either receive dividends or sell the shares for a capital gain, the MRT attempts to tax these funds as income by simply declaring them to be taxable income, which is a legal fiction, according to the Competitive Enterprise Institute, which is providing the couple with legal representation.