IRS Faces Millions in Losses Over Couple’s ‘Unconstitutional’ $15,000 Tax Dispute

This all started when the U.S. government told Charles and Kathleen Moore they owed $14,729 in taxes for a company they made in India.

This makes logical sense because if you don’t make money, then you don’t pay tax.

Because they never received the income, the Moores believe they should not be taxed on the money.

The Moores have a 13% stake in KisanKraft after investing $40,000 in 2005. However, the Tax Cuts and Jobs Act placed a levy on U.S. taxpayers who own more than 10% of a foreign company, and the Moores’ company is in India.

This case not only questions the effectiveness of these reforms but also highlights the ongoing controversy surrounding their impact on individual taxpayers and the broader economy.

The Moore case’s outcome could significantly influence the U.S. government’s ability to tax investment profits, potentially reshaping how key provisions of the 2017 tax reform are implemented and enforced in the future, as reported by The New York Times.

This decision could have broad implications for various types of taxes, including wealth taxes, potentially altering the landscape of the federal tax system.

The case illustrates the dynamic nature of tax law and the ongoing debate about the scope and limits of taxation in the United States. The outcome could have far-reaching consequences for both individual taxpayers and the overall structure of the U.S. tax system.

Lawyer Andrew Grossman told the Supreme Court a “gain is not income unless it has been realized by the taxpayer.”

This means if you bought a share for $10 and it’s now worth $12, you have an unrealized gain of $2. You won’t pay any taxes until you sell the share.

“If you haven’t received any income, how can you be required to pay income taxes?” Charles Moore asks in a video posted by the Competitive Enterprise Institute, who is representing the couple. “It seemed, to both of us, unconstitutional.”

If the Supreme Court rules in favor of their argument, it could completely reshape the United States Tax Code.

This would cost the government more than 5 trillion dollars.

If they rule in favor of the refund, it will lead to wealth disparity as this will mean the very wealthy can hold on to assets strategically that allow them to avoid paying taxes altogether.

The bill would tax individuals with more than $1 billion in assets or who make $100 million in income for three years at a 20% rate, on realized and unrealized income.

However, it would seem that the Supreme Court is leaning towards a narrow ruling to avoid impacts on the tax code.

According to Forbes in 2023, there are only 735 billionaires based in the United States. When taking aim at the ultra-rich, focusing on billionaires might not be a large enough target. While there are only 735 billionaires in America, the number of millionaires in the country numbers over 22 million.

Bernie Sanders made a central part of his presidential run in 2020 an attack on billionaires. He made no secret of his desire to get rid of every billionaire which CNN reported in 2019, an idea that saw populist support.

This might seem especially surprising considering that many billionaires are also some of the biggest political spenders. OpenSecrets, an organization that sheds light on political spending, reported in 2017 that billionaires are some of the top political spenders.

The richest person in the United States as of June 2023 was Elon Musk, who had an estimated net worth of $180 billion. Four other names on the top 20 list exceed $100 billion in total net worth, including Jeff Bezos, Larry Ellison, Warren Buffer, and Bill Gates.

There will be a few big changes in 2024 including an annual inflation adjustment and the income thresholds that determine tax brackets. The latter could have implications for many tax payers.

The majority of Americans feel like taxes are unfair and they don’t feel the return on their investment.

“One of the things you’ll hear said is, ‘There’s no Democratic or Republican way to collect the trash or pave the streets,’” he said. “We tend to think of local government as less partisan.”

These younger generation Americans think the government isn’t spending money on things worth investing in. They would rather the government spend more money on national healthcare, education, or things to help the average American.

The study found that only 2 out of 10 American adults reported understanding how their local property taxes are calculated. Only about 1 in 4 Americans report understanding how federal income tax is calculated very well.

A Just Facts survey that tested voter knowledge on important voting issues found that voters across the board answered questions correctly at a rate less than 50%. Republican voters answered correctly 47% of the time on the high end and Democrat voters answered the same questions correctly 34% of the time on the low end.

Participation in US elections ranked 31st out of 50 from countries that Pew Research looked at with recent elections. The United States is sometimes seen as an important founding country for democratic values, but in recent years it hasn’t been living up to its reputation.

Even high-population states with significant tax bases like California and New York are having trouble balancing the books. Now, nearly half of Americans live in a state that either has a short-term budget gap or a long-term running deficit for its government.

Marketplace reports that The IRS has made these changes in response to inflation, although tax rates have remained unchanged. This development is vital for taxpayers to comprehend as it directly affects their financial planning for the year.

Ebeling states, “And since we’ve seen inflation, they’re wider this year.” These adjustments provide some relief to taxpayers, allowing them to retain more of their income at a lower tax rate.

Macrotrends calculated that inflation reached a fever pitch at 8% in 2022, which is the highest rate it has been in decades. While the rate of inflation has slowed down recently, the damage was already done and will have far-reaching consequences for the American tax base.

For instance, in 2023, income up to $11,000 was taxed at 10%, but in 2024, this threshold increases to $11,600, as reported by Marketplace.

This change is significant because it means that the tax brackets are not rising as rapidly as they could, potentially leading to higher tax liabilities over time. The Joint Committee on Taxation projected that this change would cost Americans $133 billion over a decade.

Ebeling clarified to Marketplace:  “The rates only change if Congress changes them.” 

Speaking to Marketplace, Ebeling notes, “You always have to remember that’s not just the due date to file, but it’s the due date to pay.” This distinction is critical for taxpayers to avoid penalties. For states like Maine and Massachusetts, the due date extends to April 17th due to state holidays.

Success was almost immediate, the revenue of the company has increased annually since the initial investment by the Moores.

Apparently many current laws could become vulnerable to change depending entirely on how SCOTUS rules.