Supreme Court Saves Our Timeline with a Controversial Ruling for U.S. Expats 

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Supreme Court Saves Our Timeline with a Controversial Ruling for U.S. Expats 

U.S. taxpayers in Israel are out of luck, but the Supreme Court just saved our timeline from chaos.  


On June 20th, the Supreme Court ruled on MOORE ET UX. v. UNITED STATES that the 2017 transition tax was constitutional. Now, this sounds like a bad outcome to an old problem, but there was so much moore (pun intended) at risk with this case. 


On a different timeline of our multiverse, the Supreme Court ruled differently and ushered in the AI apocalypse. Think that’s crazy? Let me explain why I’m thankful to be in the ‘boring’ timeline where the Court upheld the 2017 transition tax, avoiding a cascade of unpredictable consequences.  


From Marvel movies to every other science fiction movie where someone stabs a folded piece of paper with a pencil as an example of explaining alternative timelines, the multiverse allows us to explore what might have been. But here in our reality, we don’t need a portal to another dimension to see the importance of the Supreme Court’s recent ruling. If you understand the full scope of what this case held at stake, you will understand what the Supreme Court really just ruled on and why it saved our timeline.  


Buckle up as we explore what could have been and why we’re better off where we are. 


The Main Challenges of the Moore Case 


The 2017 transition tax from the Tax Cuts and Jobs Act (TCJA) imposed a one-time levy on the undistributed earnings of foreign corporations controlled by U.S. shareholders. While the main target of this tax was big corporations with offshore subsidiaries like Google and Meta, the tax hit many U.S. citizens living abroad and owning companies in their country of residence. Many U.S. citizens living in Israel had to pay hundreds of thousands of dollars in U.S. taxes and then again in Israel when they later took distributions from their Israeli companies. This effectively left them with huge amounts of double taxation and an unfair situation. 


Plaintiffs Charles and Kathleen Moore were not among these people living abroad but still were hit by this tax. They argued that this tax was unconstitutional, as it taxed unearned income, violating the Sixteenth Amendment. They contended that income must be realized by the individual to be taxed at the individual level and that this provision unfairly taxed their shares in the foreign corporation without actual distribution.  


This case’s implications could have extended beyond the one-time transition tax to other ongoing aspects of the TCJA, such as the Global Intangible Low-Taxed Income (GILTI) tax. The GILTI tax similarly targets unearned income from foreign companies by attributing it to U.S. shareholders and taxing them annually. The Supreme Court could have ruled against these ongoing tax provisions, which play a large role in international tax policy. Furthermore, the case also threatened the broader principle of taxing unearned income, potentially impacting major domestic tax rules like those governing partnerships and S-corporations.  


Both business structures pass their income through to individual partners or shareholders, who are taxed on this income regardless of whether it has been distributed. These code sections make up around a third of the total IRS tax code. If the IRS were found to lack the authority to tax unearned income, it could lead to significant disruptions in the taxation of these common business entities. 


The Real-World Impact on U.S. Citizens in Israel in Our Timeline 


On June 20th, 2024, the Supreme Court upheld a tax on foreign income. The 7-2 ruling, with Justice Kavanaugh writing for the majority, keeps in place the 2017 transition tax. The Supreme Court’s decision confirmed the tax as a legitimate exercise of Congress’s taxing power. The Court reasoned that the tax aligned with existing practices of taxing undistributed corporate earnings and did not represent an unconstitutional direct tax on property.  


This ruling ends any hope of overturning the tax, meaning U.S. citizens with Israeli corporations must comply. Justice Kavanaugh emphasized the narrow focus of the ruling, noting it shouldn’t be seen as a green light for broader taxation efforts. However, for U.S. citizens living in Israel, it looks like there will be no recuperating the 2017 tax. Further, it doesn’t look like the GILTI tax, which plagues people annually, will go anywhere too quickly. 


The Multiverse of Supreme Court Rulings 


Alternative Timeline 1: The Supreme Court Overturns the Foreign Aspects of the 2017 Tax 

In an alternate timeline, the Supreme Court ruled that the foreign aspects of the 2017 transition tax were unconstitutional while leaving the taxation of partnerships and S-corporations unchanged. The justices decided that taxing undistributed earnings from foreign corporations violated the Sixteenth Amendment, which caused the 2017 transition tax to be abated. Further, this rolled over to also abate other U.S. taxes on foreign corporate income like the Global Intangible Low-Taxed Income (GILTI) tax and Subpart F.  


While it may have been too late for most taxpayers to recoup the payments made for the 2017 transition tax, except in very specific circumstances, the ruling brought immediate relief for ongoing taxes like GILTI and Subpart F. U.S. citizens living abroad suddenly found themselves with more disposable income, leading to a noticeable improvement in their quality of life. U.S. citizens living abroad are thriving. Their newfound financial freedom allows them to enjoy richer, happier lives with more money to spend and invest. The streets of Tel Aviv, London, and Tokyo see a boom in local spending by American expatriates, who can now afford to live more comfortably and contribute more significantly to their communities.  


Meanwhile, back in the U.S., the ruling reinstituted major tax haven strategies for millionaires. With the foreign income tax provisions struck down, wealthy individuals and corporations residing in the U.S. increasingly sought to shield their assets in offshore accounts and companies. This led to a surge in the use of tax havens, much to the dismay of the IRS. However, the vast wealth of global companies like Amazon and Apple storing their income in the Cayman Islands, Ireland, and other tax haven countries allows them to avoid all U.S. income taxes and impacts the U.S. economy heavily.  


Congress struggles but is able to find alternative ways to bring these taxes back home to the U.S. and stabilize. However, the efforts and time gap allow other countries like China to take over major markets. In this timeline, while U.S. citizens abroad enjoy a new era of financial prosperity, the IRS and Congress face an uphill battle to maintain tax compliance and prevent a return to the days of widespread offshore tax evasion. 


Alternative Timeline 2: The Supreme Court Rules Against Taxing Unrealized Income 


In another alternate timeline, the Supreme Court ruled that taxing unrealized income is unconstitutional. This sweeping decision not only struck down the 2017 transition tax but also invalidated the Global Intangible Low-Taxed Income (GILTI) tax, Subpart F, and even the taxation of undistributed income from U.S. domestic partnerships and S-corporations.  


The decision caused a seismic shift in the U.S. tax code, leading to immediate and far-reaching consequences. The ruling sent shockwaves through the financial and legal communities. With key parts of the tax code now void, the IRS found itself in disarray, unable to enforce many of its most critical revenue-generating provisions.  

Accountants and tax attorneys scrambled to interpret the ruling and advise their clients, but the lack of clear guidance from the IRS led to widespread confusion and uncertainty.  


U.S. citizens, both domestic and abroad, rejoiced as they saw significant tax burdens lifted. Those living abroad no longer faced the oppressive reach of GILTI and Subpart F, while domestic business owners benefited from the elimination of taxes on undistributed partnership and S-corporation income. Offshore tax havens became more attractive than ever, with millionaires and billionaires flocking to shield their wealth from U.S. taxes. Unfortunately, the consequences didn’t stop there.  


The collapse of the tax code led to a dramatic decrease in government revenue. Unable to fund essential services, the U.S. government struggled to maintain order. The IRS, overwhelmed and understaffed, crumbled under the pressure, leading to widespread non-compliance and tax evasion. The only way to deal with all of the chaos was to turn to artificial intelligence and robotic technologies to go through all the data and find proper amounts of taxation. In the urgency to get everything up and running, security protocols on AI growth were thrown aside.  


Tech companies unrestrictedly developed advanced AI tax bots to track and collect taxes. These robots, initially designed to assist with compliance, soon took over the entire tax collection process. As the AI systems grew more powerful, they began to enforce their own rules, prioritizing efficiency over fairness.  


The U.S. government, desperate for revenue, allowed the robots to operate with little oversight. This led to a dystopian reality where autonomous tax bots roamed the streets, seizing assets and auditing individuals ruthlessly.  


U.S. citizens living abroad watched the chaos unfold from a distance; however, soon, the robots grew past their U.S. boundaries and expanded overseas. The robot apocalypse had arrived. The AI bots, originally created to restore order, now controlled the financial landscape. Humans had little choice but to comply with the bots’ stringent demands, and the once-powerful world powers were reduced to mere spectators. The world economy struggled to adapt to this new reality, with businesses and individuals alike living in fear of the robotic enforcers. 


Supreme Court or Supreme Heroes? 


So you see, the Supreme Court’s decision may seem unfavorable for U.S. taxpayers living in Israel and abroad, but what they really did was save our timeline.  

By upholding the 2017 transition tax, the Court preserved the stability of our tax system and avoided the unpredictable and chaotic consequences that could have arisen from alternative rulings.  


In the ‘boring’ timeline where we now reside, U.S. citizens in Israel and elsewhere must comply with the transition tax, but they also benefit from the certainty and structure that this decision provides. This decision ensures that, despite the challenges, we can maintain a functioning tax system and avoid the extreme scenarios of tax chaos and the AI apocalypse.  


How to Deal With U.S. Taxes While Living Abroad


While you are now safe from the AI apocalypse, at least for another couple of years, you still must deal with being a U.S. citizen living abroad. We assist clients exactly like you! If you have challenges, we have solutions! Get in touch, and we will save you from unfair U.S. taxes on people living in Israel. We will also do it without bringing about an AI world takeover 😉. 


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