Court upholds a tax on foreign income over
a challenge backed by business interests
By Mark Sherman
Associated Press
WASHINGTON (AP) — The Supreme 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.
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.
But Kavanaugh said the tax the Moores disputed was akin to other taxes, including those on foreign-earned income and partnerships. A ruling for the Moores could have called into question those 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.
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."
Lawyers for the Moores said they were disappointed by the ruling, but took some hope from its narrowness. "What this means is that the constitutionality of other species of future taxes — such as a national wealth tax — remains entirely unaddressed by the court's opinion," said Dan Greenberg, general counsel of the Competitive Enterprise Institute.
Greenberg pointed to a separate opinion from Justice Amy Coney Barrett, joined by Justice Samuel Alito, that agreed the Moores should lose this case. But Barrett also sided with the dissenters in arguing that income has to be realized — in essence, received — to be taxed in accord with the Constitution.
Kavanaugh's opinion left the issue of realization open and there are now four justices, one shy of a majority, who have declared their opposition to taxes, like a wealth tax, that don't require realization.
Leslie Samuels, a tax expert who served in the Treasury Department during the Clinton administration, said the court's decision was unsettling because it seemed to encourage more legal challenges to taxes and warn Congress that its ability to impose new taxes may be restricted.
"While the government won, the Moores' backers effectively achieved some important and disquieting successes for the future," Samuels said.
The case also had kicked up ethical concerns and raised questions about the story the Moores' lawyers told in court filings. 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.
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.
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Associated Press writer Fatima Hussein contributed to this report.
Justices uphold conviction of woman who
challenged expert testimony in a drug case
By Lindsay Whitehurst
Associated Press
WASHINGTON (AP) — The Supreme Court on Thursday upheld the conviction of a California woman who said she did not know about a stash of methamphetamine hidden inside her car.
In a ruling that crossed the court's ideological lines, the 6-3 majority opinion dismissed arguments that an expert witness for the prosecution had gone too far in describing
the woman's mindset when he said that most larger scale drug couriers are aware of what they are transporting.
"An opinion about most couriers is not an opinion about all couriers," said Justice Clarence Thomas, who wrote the decision. He was joined by fellow conservatives Chief Justice John Roberts, Justices Samuel Alito, Brett Kavanaugh and Amy Coney Barrett as well as liberal Justice Ketanji Brown Jackson.
In a sharp dissent, conservative Justice Neil Gorsuch wrote that the ruling gives the government a "powerful new tool in its pocket."
"Prosecutors can now put an expert on the stand — someone who apparently has the convenient ability to read minds — and let him hold forth on what 'most' people like the defendant think when they commit a legally proscribed act. Then, the government need do no more than urge the jury to find that the defendant is like 'most' people and convict," he wrote. Joining him were the court's other liberal justices, Sonia Sotomayor and Elena Kagan.
The opinion came in the case of Delilah Guadalupe Diaz. She was sentenced to seven years in prison after on drug charges after Border Patrol agents discovered methamphetamine worth nearly $370,000 stashed inside the car door panel as she crossed the U.S.-Mexico border.
Diaz contended the car belonged to a boyfriend and that she did not know the drugs were inside. Defense lawyers argued that she was a "blind mule," a term for people used by cartels to smuggle drugs without their knowledge.
Prosecutors disagreed. The Justice Department called as an expert witness a Homeland Security agent who testified that drug cartels do not usually send large quantities of drugs with people who are unaware of the contraband, though the agent acknowledged that has happened.
Diaz appealed her conviction, arguing the agent's testimony broke a rule of evidence that expert witnesses cannot give opinions on a defendant's mental state. Lower courts had split on that distinction. Judges in some parts of the country let prosecutors present more general expert testimony about mental state while other judges kept it out.
The rule dates to the trial of John Hinckley Jr., who was found not guilty by reason of insanity in a shooting that wounded President Ronald Reagan in 1981. After that trial featured dueling expert testimony, Congress said experts must not state an opinion about whether a defendant had a mental state of condition that is an element of the crime.
The case is Diaz v. United States, 23-14
Associated Press
WASHINGTON (AP) — The Supreme Court on Thursday upheld the conviction of a California woman who said she did not know about a stash of methamphetamine hidden inside her car.
In a ruling that crossed the court's ideological lines, the 6-3 majority opinion dismissed arguments that an expert witness for the prosecution had gone too far in describing
the woman's mindset when he said that most larger scale drug couriers are aware of what they are transporting.
"An opinion about most couriers is not an opinion about all couriers," said Justice Clarence Thomas, who wrote the decision. He was joined by fellow conservatives Chief Justice John Roberts, Justices Samuel Alito, Brett Kavanaugh and Amy Coney Barrett as well as liberal Justice Ketanji Brown Jackson.
In a sharp dissent, conservative Justice Neil Gorsuch wrote that the ruling gives the government a "powerful new tool in its pocket."
"Prosecutors can now put an expert on the stand — someone who apparently has the convenient ability to read minds — and let him hold forth on what 'most' people like the defendant think when they commit a legally proscribed act. Then, the government need do no more than urge the jury to find that the defendant is like 'most' people and convict," he wrote. Joining him were the court's other liberal justices, Sonia Sotomayor and Elena Kagan.
The opinion came in the case of Delilah Guadalupe Diaz. She was sentenced to seven years in prison after on drug charges after Border Patrol agents discovered methamphetamine worth nearly $370,000 stashed inside the car door panel as she crossed the U.S.-Mexico border.
Diaz contended the car belonged to a boyfriend and that she did not know the drugs were inside. Defense lawyers argued that she was a "blind mule," a term for people used by cartels to smuggle drugs without their knowledge.
Prosecutors disagreed. The Justice Department called as an expert witness a Homeland Security agent who testified that drug cartels do not usually send large quantities of drugs with people who are unaware of the contraband, though the agent acknowledged that has happened.
Diaz appealed her conviction, arguing the agent's testimony broke a rule of evidence that expert witnesses cannot give opinions on a defendant's mental state. Lower courts had split on that distinction. Judges in some parts of the country let prosecutors present more general expert testimony about mental state while other judges kept it out.
The rule dates to the trial of John Hinckley Jr., who was found not guilty by reason of insanity in a shooting that wounded President Ronald Reagan in 1981. After that trial featured dueling expert testimony, Congress said experts must not state an opinion about whether a defendant had a mental state of condition that is an element of the crime.
The case is Diaz v. United States, 23-14
