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IRS News

Supreme Court Hopes to Avoid Tax Code Upheaval in Moore Ruling.

Regardless of whether the Supreme Court rules in favor of petitioners or the government in a constitutional challenge to the Tax Cuts and Jobs Act’s one-time mandatory repatriation tax—or “transition tax”—the justices voiced a lack of appetite for its decision to have broad consequences over the concept of income in the United States. On December 5, the Court heard oral arguments in Moore v. U.S. (Docket 22-800), a closely watched case revolving around the TCJA provision that applies to U.S. taxpayers who own at least 10% interest in a controlled foreign corporation. The tax was applied to Charles and Kathleen Moore, Washington state-based whose 13% stake in an Indian company, KisanKraft, lead to an additional $15,000 on their 2017 taxes. The Moores’ suit at its core maintains that the tax violates the Sixteenth Amendment as an unconstitutional tax on unrealized income. They argued to the lower courts and in Supreme Court briefs that the company’s earnings were reinvested and not distributed to shareholders. Baker & Hostetler LLP partner Andrew Grossman represented the petitioners at oral arguments, where he reiterated the need for a realization requirement for a tax to be valid. “Without realization, there is no limiting principle,” Grossman said in his opening statement. “If the government’s position in this case is right, then current law already requires taxpayers to report and pay tax on appreciation in the value of all their assets on corporate earnings for any stocks that they own, and on any paper gains from their contracts in loans.” Justice Amy Coney Barrett asked Grossman if it would be fair to attribute the income generated by KisanKraft to the Moores, which is a distinct question of whether there was income within the meaning of the Sixteenth Amendment. “I think it ultimately comes down to a Sixteenth Amendment question for the same reason that the court thought so in [Eisner v. Macomber], which is that a shareholder’s interest in a corporation, including in its income, is a capital interest and therefore a property interest,” Grossman responded. “And so if there is some reason to look beyond that, and attribute income to the shareholder, that would necessarily raise a question of income, and why it is that this shareholder isn’t being taxed on what would otherwise be a property interest.” Throughout proceedings, the government’s position was that there is no realization requirement.


First Direct Accounting Standard for Reporting Crypto Assets Published.

On December 13, 2023, FASB issued its first direct accounting and disclosure standard on crypto assets to provide guidance that more accurately reflects the economics of Bitcoin and similar tokens in financial reports. The rules require crypto assets that meet six characteristics to be measured at fair value each reporting period with changes in fair value recognized in net income—enabling upswings of tokens to be captured. The assets must be presented separately from other intangible assets on the balance sheet, as well as shown separately in the income statement when remeasured. Furthermore, businesses need to provide substantial disclosures so that investors can understand their crypto asset holdings, significant holdings, contractual sale restrictions, and changes during the reporting period, according to the rules. The standard is a welcome first step, covering tokens that hold up to about 75% of market capitalization, those in the crypto sector said moments after issuance.