This past Thursday June 20, 2024, the Supreme Court of the United States issued a 7-2 opinion in Moore v. United States, 602 U.S. __ (2024), ruling in favor of the Internal Revenue Service (IRS) in an 83-page document with an interesting set of opinions. This ruling upholds the right of Congress to tax U.S. shareholders on the undistributed operating income of their foreign corporations.

If you own a Controlled Foreign Corporation (CFC), you may already be familiar with this court case and how it all came about, but here is a quick background: In 2017, the United States passed a tax reform known as the Tax Cuts and Jobs Act (TCJA). One of the key provisions under TCJA was the introduction of a mandatory repatriation tax (also known as the transition tax), which required U.S. shareholders of CFCs to pay a one-time tax on all their accumulated earnings and profits of their CFCs that were previously untaxed, regardless of whether those earnings were distributed out to the U.S. shareholders or not.

Several taxpayers were not happy with this new law, including Charles and Kathleen Moore who contested the constitutionality of this mandatory repatriation tax. They argued that this tax violated various constitutional provisions and they took it to court, all the way to the U.S. Supreme Court in May 2023. And for the past few months since their petition with the U.S. Supreme Court, we were faced with the potential invalidation of the transition tax, and some tax professionals advised their clients to consider filing protective refund claims contingent on the possibility that Moore case would be decided in favor of the taxpayers.

The court ruled in favor of sustaining the mandatory repatriation tax, meaning that the mandatory repatriation tax remains in effect as part of U.S. tax law. If you know someone who has filed a protective claim, you can let them know that their protective claim does not need any further action as a result of the court case final ruling.

-by Laura Tshilumba, International Tax Practice Leader