Accounting
Tax Strategy: Moore results in less
On July 20, 2024, in a 7-2 decision, the Supreme Court held that the Code Sec. 965 mandatory repatriation tax was constitutional under the Sixteenth Amendment to the Constitution. The majority opinion crafted a very narrow ruling preserving the status quo, but avoiding the principal issue presented to the court.
The Moores had invested in a controlled foreign corporation. They never received distributions from the CFC or paid any tax with respect to the CFC. Under the Subchapter F rules prior to the Tax Cuts and Jobs Act of 2017, shareholders were not taxed on the operating income of a CFC until distribution; however, 10%-or-more shareholders were currently taxed on movable income of the CFC, such as dividends, interest, rents and royalties.
The TCJA created a one-time Mandatory Repatriation Tax under Code Sec. 965 on a 10%-or-more shareholder’s share of the CFC’s post-1986 accumulated earnings, which consisted of the untaxed, undistributed operating income of the CFC.
Financed by groups seeking a ruling that taxation of unrealized sums was unconstitutional under the Sixteenth Amendment without apportionment among the states, since it was a tax on property and not a tax on “income,” the Moores challenged the constitutionality of Code Sec. 965 in court. They also argued that the MRT constituted a retroactive tax in violation of the Due Process Clause of the Fifth Amendment.
Andrew Harrer/Bloomberg
The federal district court held that the MRT was taxation of income within the terms of the Sixteenth Amendment. The Court of Appeals for the Ninth Circuit agreed, citing similar taxes that had been held constitutional over the years. The Ninth Circuit also held that the retroactivity of the tax did not violate the Due Process Clause because it served a legitimate purpose in accelerating the repatriation.
The Supreme Court granted certiorari in June of 2023 on the Sixteenth Amendment issue. The issue as framed by Moore was, “Whether the Sixteenth Amendment authorizes Congress to tax unrealized sums without apportionment among the states.” The government framed the issue as, “Whether the Mandatory Repatriation Tax is a tax … on incomes, from whatever source derived.”
Supreme Court decision
The Supreme Court held that the MRT was a tax on income and not a tax on property. The court framed the issue as whether Congress can attribute an entity’s realized and undistributed income to the entity’s shareholders or partners and then tax the shareholders or partners on their portion of the income.
The majority opinion looked to a long line of precedents that Congress can choose to tax either a business entity or its partners or shareholders, such as the taxation of partnerships and S corporations, and the taxation of Subpart F income. The majority opinion limited its decision to situations involving the taxation of shareholders of an entity on the undistributed income realized by the entity that has been attributed to the shareholders when the entity itself has not been taxed on the income.
By limiting its decision to this narrow issue, the court avoided addressing whether the Sixteenth Amendment includes a realization requirement.
Scope of the Moore decision
The court’s decision supports many longstanding taxes in the Internal Revenue Code, including the taxation of partnerships, S corporations, Subpart F income, global intangible low-taxed income (GILTI), real estate mortgage investment conduits (REMICs), passive foreign investment companies income, original initial discount rules for below-market and short-term loans, and mark-to-market rules for securities dealers, regulated futures contracts, imputed rental income, insurance companies, and the Code Sec. 877A exit tax.
The majority opinion does not address issues such as the constitutionality of proposed wealth taxes and the taxation of the appreciated but unrealized value of the assets of individual taxpayers. The opinion also does not address whether a U.S. entity’s realized income that is already subject to U.S. corporate income tax could be attributed to shareholders.
Concurring and dissenting opinions
The majority Supreme Court opinion was authored by Justice Kavanaugh and joined by Chief Justice Roberts, and Justices Sotomayor, Kagan and Jackson. A concurring opinion by Justice Jackson argued that the realization requirement was not constitutionally required under the Sixteenth Amendment. A concurring opinion authored by Justice Barrett and joined by Justice Alito argued that realization is constitutionally required under the Sixteenth Amendment; however, realization by an entity is sufficient to meet the requirement.
A dissenting opinion authored by Justice Thomas and joined by Justice Gorsuch also argued that the Sixteenth Amendment requires the realization of income. It criticized the majority for focusing on attribution and distinguished the MRT from other forms of pass-through taxation in that the other forms of Subpart F taxation related to the earnings of a U.S. shareholder on the earnings of a foreign corporation during the same year as the shareholder’s control.
Combining the concurring opinion of Justices Barrett and Alito and the dissenting opinion of Justices Thomas and Gorsuch, there were a total of four justices arguing that the Sixteenth Amendment includes a realization requirement. Only Justice Jackson’s concurring opinion argues directly that the Sixteenth Amendment does not include a realization requirement.
Wealth tax
A wealth tax has been proposed in the U.S. by some members of Congress and has been implemented in some European countries. Part of the impetus for financing the Moore case was to try to forestall a wealth tax in the U.S. by getting a ruling that a wealth tax would be a violation of the Sixteenth Amendment as a tax on unrealized income. The Supreme Court did not go that far in Moore; however, it appears that at least four of the current justices are prepared to do so.
President Biden has proposed an end to stepped-up basis at death for gains over $5 million per person and $10 million per married couple, with protections for gifts to charity and family for farms and businesses where the heirs will continue to run the business. Biden has also proposed a 25% income tax on those with wealth of more than $100 million.
Senator Elizabeth Warren has proposed a true wealth tax of a 2% annual surtax on the net worth of households and trusts between $50 million and $1 billion and a 6% annual surtax on the net worth of households and trusts above $1 billion.
Having failed to get the current Supreme Court to rule on the realization requirement in Moore, it may be difficult to find an appropriate case to bring the issue again to the Supreme Court until something similar to a wealth tax is enacted.
Should the realization issue come before the current Supreme Court again in the context of a wealth tax, it may be that Chief Justice Roberts and/or Justice Kavanaugh would join the four justices already indicating support for a realization requirement in the Sixteenth Amendment.
Impact
The Supreme Court’s decision preserves the status quo in protecting various provisions of the Internal Revenue Code, including the MRT specifically at issue in the case. It avoided, however, and left for another day, the issue presented by the Moores — whether the Sixteenth Amendment includes a realization requirement.
With the November election mere weeks away, there is still time for tax pros to ponder the strategies available to meet the proposals of each candidate.
New York City-based Citrin Cooperman is acquiring Teplitzky & Co. PC, expanding its presence in Connecticut, and continuing its private equity-fueled spate of acquisitions.
Based in Woodbridge, Connecticut, Teplitzky is an accounting, consulting and tax firm that specializes in the health care industry. It was originally founded in 1928.
“We are thrilled to add the preeminent health care accounting firm in the state of Connecticut to the Citrin Cooperman family,” said Citrin Cooperman Advisors CEO Alan Badey, in a statement. “What struck us most about Teplitzky is the team’s long history of exceptional client service and deep-rooted relationships in the Connecticut market, which is a perfect fit for our firm and growth strategy in the state and the broader New England region.”
Financial terms of the deal, which is expected to close in November, were not disclosed. Teplitzky’s five partners and more than 20 staff will be joining Citrin Cooperman, which ranked No. 18 on Accounting Today’s 2024 Top 100 Firms list, with $700 million in revenue, 490 partners, and more than 2,700 personnel.
“Joining Citrin Cooperman broadens our ability to provide our clients with enhanced services and resources without sacrificing our personalized, hands-on approach,” said Teplitzky managing partner Jeffrey Teplitzky, in a statement.
Daniel Astrachan, president of Astrachan Legacy Consultants, advised on the transaction.
Since
With its PE funding, Citrin Cooperman has been active on the M&A front over the past few years. In June, it acquired Worcester, Massachusetts-based
In 2022, Citrin acquired
Accounting
Acumatica launches version supporting professional services like engineers and consultants
Cloud solutions provider
“These industry trends and direct feedback from the Acumatica Community were the main drivers for creating the Professional Services Edition, with customers, partners and developers voting it a must-have solution,” said Jeremy Larsen, vice president of product management at Acumatica. “The professional services industry is an underserved market for technology companies, providing a significant opportunity for innovation. As the fourth-largest vertical of customers we already serve, our partners have expressed strong enthusiasm about the potential impact of this release.”
The business management solution was built to address the unique challenges faced in the professional services industry, such as inefficiencies in quote-to-project setup, industry-specific billing rate structures, and customer support management. Features includes project accounting, compliance management, and AI-driven workflow automation.
Specifically, users have access to Acumatica Financial Management, which has standard financial processes (GL/AP/AR) and reports, with additional options for multi-company, multicurrency, intercompany accounting, fixed assets, and cash management. They can also access accounts payable cost transactions related to progress billing lines from the pro forma side panel for timely vendor payments and increased billing accuracy, and tie revenue recognition to project milestones or deliverables.
It can also progress billing by percentage of completion or by quantity. Users can also manage AP workflows, from entering an invoice through approval routing and checks. Meanwhile, customer billing capacities, driven by real-time project costing, provide up-to-date labor, material, equipment, and other costs, letting users identify problem areas in current jobs and improve future project estimates.
The Professional Services Edition also boasts the ability to capture time and expense from any device, entries for which then flow to project accounting for costs and expenses related to projects or specific project tasks. Billable activities can also be marked up depending on the project, task, employee, or activity performed. The solution also has integrated payment capacities that automates accounts receivable processing to reduce back-office workloads and get paid faster.
Other payment-related features include click-to-pay links, and a self-service portal which streamlines communication with push notifications, giving customers access to support cases and payment options. The software can also specify tax calculations directly in the project and automatically retrieve and calculate all invoices, purchase orders, subcontracts, and expenses.
Project management capacities include the ability to access a complete view of project details, letting users manage and track all activities, issues, and changes, including daily field reports, actual costs, and cost projections from one central area. They can also ensure resource availability to allocate staff, equipment, and technology by team, department, and timeframe, letting users assign tasks and workflows to manage project resources and tie the costs to the project budget. Field reporting and mobility features help ensure everyone has the same project data from the field or anywhere they work and remotely enter time and expense details. There are also project productivity and insights features which use side panels for a quick and comprehensive view of key project data without navigating out of the current window.
The new edition also features embedded customer relationship management solutions that help firms to keep detailed records of client interactions, proposals, manage contracts, payments, renewals, and compliance documents. They can also control cost overruns by automating project commitments and change order processes, meaning users can manage back charges or reduction in vendor commitments through the entry of a negative change order, as well as streamline change orders for multiple projects with unit rate changes, custom retainage, and cost-only change requests.
“Professional services firms face intense competition and require advanced business management technology to enhance operations and drive future growth,” said Jason Leveson, principal at
The Professional Services Edition joins Acumatica’s existing suite, which includes the Construction Edition, Manufacturing Edition, Distribution Edition, Retail Edition and General Business Edition.
Key business tax moves to consider, whoever wins on Nov. 5
Inherited IRA rules are changing in 2025 — here’s what to know
Travelers’ stock soars as earnings triple despite record catastrophe losses
Are American progressives making themselves sad?
U.S. Beneficial Ownership Information Registry Now Accepting Reports
CPA licensure program off to ‘promising’ start
-
Personal Finance6 days agoInvestors face delays moving certain assets from TreasuryDirect
-
Stock News7 days agoBeleaguered Stellantis ousts CFO, other top execs in bid to ‘redouble’ its focus
-
Economics7 days agoHurricane Milton inundates Florida
-
Economics1 week agoInflation rate at 2.4%, topping expectations
-
Economics1 week agoThe Democrats will struggle to retain the Senate
-
Economics6 days agoProducer price index September 2024:
-
Finance6 days agoWells Fargo WFC Q3 2024 earnings
-
Finance6 days agoSeniors to get moderate cost of living bump in Social Security payments next year