[author: Kalei Akiona]

The Wall Street Journal, following the Supreme Court's decision in Moore v. United States, claims that the five-justice majority opinion “open[s] the door to taxing unrealized gains.” Query whether the Moore decision simply left that “door” in the same position as the Court found it?

The Moore opinion states: “For their part, the dissent and the opinion concurring in the judgment focus primarily on the realization issue—namely, whether realization is required for an income tax. We do not decide that question today.” (emphasis added). Rather, the majority opinion presents a “precise and narrow question [. . .] whether Congress may attribute an entity’s realized and undistributed income to the entity’s shareholders or partners, and then tax the shareholders or partners on their portions of that income[?]”

Spoiler alert: Congress can, and has done so for quite some time. The Moore decision doesn't rock the boat or dramatically expand what can be taxed. The taxation of “income” that has been realized (by a foreign corporation in the case of the taxpayers in Moore) but not distributed to partners or shareholders is a hallmark characteristic of how flow-through entities are treated under current federal tax law. Concerns over Moore purportedly opening the door to the taxation of unrealized asset gains (for example, as a tax on the increase in the value of the stock held for investment by a taxpayer before it is sold) are best saved for another day. Moore answers a much narrower question through longstanding precedents. Bonus points if you can remember the days when Congress drafted the partnership tax regime as a hybrid between entity and aggregate concepts in 1954 (if you do remember the Eisenhower presidency—congratulations—now could be a good time to speak with an estate planning attorney, as well).

TL;DR the Moore decision seems to avoid entirely that “door” of taxing unrealized gains in whatever state of constitutional “openness” it currently resides.

And now cue the music: the Supreme Court came in through the window to decide Moore, more than they broke on through the door. The five justices left that door open (on the taxation of unrealized gains), seemingly untouched, for now.

Read what the WSJ had to say about Moore here.

Five Justices open the door to taxing unrealized gains in assets. Democrats will walk through it.

www.wsj.com/...