8 ms·
Moore vs. United States: Tax Unrealized Income Case
- rkagerer 3y agoCould this have any effect on how crypto to crypto transactions are taxed?
- fxd123 3y agoNo
- ngngngng 3y agoIt's ok, since we're definitely getting all this money back we're spending to fund foreign wars. Right? Right?
- whatever1 3y agoIf you can take loans using unrealized gains as collateral, then you should also pay taxes for them.
- haneefmubarak 3y agoAt some point such loans will have to be paid back and tax will be paid. Alternatively, we could require that the capital gains on an asset used to collateralize a loan be taxed at that point.
- monocasa 3y agoUnless you just don't, carry them across death when the basis is reset and pay them then.
- alach11 3y agoIs there any good reason to not eliminate step-up basis on death?
- morsch 3y agoFwiw, I don't think this basis step-up thing is a thing in German tax/inheritance law.
- megaman821 3y agoApparently no one can afford the tax bill on an inherited farm, and it looks terrible forcing family farms to sell their land to a large conglomerate.
- notyofriend 3y agoHow many of those are really left anyway but yeah the pr is bad
- alach11 3y agoIt still doesn't make sense to me. If I inherit a farm or other asset, I don't owe capital gains until I sell it right? If the basis remained the same, it's not like I suffer in any way upon inheritance.
- megaman821 3y agoI am not a tax expert, but I am pretty sure a change of ownership (minus the exempt amount) is a taxable event.
- monocasa 3y agoI personally think the best option is that rather than taxing all unrealized gains, treat using them as collateral as as much a realization event as cashing them out. Would cut this loophole out of the equation. Normal unrealized gains are hard to put a real value on. Unrealized gains used as collateral just had you and a bank agreeing that there's something real and dependable there.
- Terr_ 3y ago> treat using them as collateral as as much a realization event as cashing them out I anticipate this scenario: "Hey, tax-dude, you know that $50,000 of Amazon stock I bought back in 2009? Well, I just used it as collateral to borrow some cash from my buddy, which I'm told I need to inform you about. He stared real hard at the stockamajigs said it was worth $50,000, and lent me that same amount. So anyway--major bummer here--it turns out I made zero profit on that pointless investment, which by-the-way means don't owe any kind of capital-gains tax at all."
- monocasa 3y ago> Well, I just used it as collateral to borrow some cash from my buddy, which I'm told I need to inform you about. I'm suggesting that's the realization event. That $50,000 is taxed as capital gains at that point. The subsequent loan value is immaterial to income calculations just like all other loans.
- Terr_ 3y agoThen it's not really about investments, but about loans becoming income, which would be a huge change.
- monocasa 3y agoThe loan itself is orthogonal. Using them as collateral would just reset basis to the value appraised with taxes due on the difference between that and the original basis, just like any other realization event. From a tax perspective it'd be like if you sold and immediately rebought the stock or whatever.
- charlieyu1 3y agoWhat if the counterparty fails to pay for your unrealized gains?
- whatever1 3y agoTax credit
- mise_en_place 3y agoThen they’ll make sure their unrealized gains are <= 0. Not terribly hard, Wealthfront does tax loss harvesting, as do many broker-dealers and asset managers.
- novok 3y agoThey would need to allow a lot of other refunds if that really does start becoming the case. Ex: All capital loss should also be deductible against regular income, carryover capital loss over the years should get interest from the government much like tax you don't pay gets interest on you, etc. If that sounds crazy, it is, but it also makes something as crazy as tax on unrealized unliquid gains you cannot sell too somewhat possible. Many, many new businesses that are growing would essentially have to be liquidated to the government in a few years.
- WkndTriathlete 3y agoWell, capital loss carryover needs an inflation index in a bad way anyway. It was introduced into the tax code 45 years ago and it hasn't changed since. There was a proposal a year ago to bump it to $13,000 and index it to inflation but apparently did not get the necessary votes.
- notyofriend 3y agoLoss carry over system is messed up right not definitely needed
- sytelus 3y agoNo, you should not. Taking loan is very different than paying taxes. If you house goes up in value by 10% every year, you shouldn't have to pony up that much tax each year. But you should be able t take loan against your house because it's a commitment for returning that money. Imagine, I have $1000 unrealized gain in year1. Next year market tanks and I now have -$2000 in year2. Year after that market goes backup and now I have $0 gain in year3. If I hadn't sold my investment for 3 years, I have net gain $0 and I should pay $0 tax. However, taxing unrealized gains means I will have to pay tax on additional $1000 that I never had.
- lotsofpulp 3y ago> If you house goes up in value by 10% every year, you shouldn't have to pony up that much tax each year. Why not? Obviously not 100% of the unrealized gain, but in most jurisdictions property tax (a subset of wealth tax) is a percentage of the market value (or some proxy) of the house. And while people might think that they are not receiving government services just for owning land, they would be wrong. Owning land means nothing if you cannot defend it, or you cannot pay someone else to defend it for you. All those courts/lawyers/police/military cost money, as well as other government services necessary to maintain social order. If anything, the current situation of income taxes making up most of government revenue means that people who work are disproportionately paying for expenses that disproportionately benefit people who own. > However, taxing unrealized gains means I will have to pay tax on additional $1000 that I never had. But would you say you derived a benefit from a society that allowed you to maintain title to something peacefully? Because that mechanism is not free.
- novok 3y agoAt current income tax levels, if we go to an indirect 'wealth' tax route via unrealized gains, would need to decrease significantly to be viable without being forced to effectively liquidate your business within a couple of years to the government. Imagine if property tax was %10-50 of your property value vs. the %0.5-%2 it is today. Nobody would own their properties anymore in a span or a year or two. Unrealized gain tax would create a huge industry trying to put valuations on random restaurants and car dealerships, and the market for small businesses like that are very illiquid, so they will get detached from reality fairly fast.
- ffgjgf1 3y agoSo same should apply to mortgages and real estate?
- roenxi 3y agoTax isn't some game where the goal is to maximise the take. Those unrealised gains are literally money that went into some of the most productive capital formation projects that people know about. The US is currently suffering from an investment crisis where a generation of capital was built in Asia instead of on US shores. It'd be wildly foolish to start penalising the enterprises that are left. Look at US spending and note that the money goes towards (1) the wealth bonfire of permanent war and (2) a large and complex welfare state split between health care, pensions and other services. Neither of those are capital formation (the wars are in fact capital destruction). Everyone will get better outcomes if the money that goes to capital formation is protected from tax because the benefits of capital are substantially higher than the benefits of consumption spending. Literally the only thing keeping our standards above a typical baboon's is that capital being built. The real problem here is pretending things that are capital destructive are valuable - the 2007 crisis response bailing out bankrupt banks springs to mind and the ongoing cover to various unprofitable businesses with the low interest rate regime so people can get wealthy while not building anything useful. But randomly taking money from people making unrealised capital gains doesn't fix that, and it just puts more money into the pot that funds the war machine.
- Ferret7446 3y agoWhy? Loans are not (only) given by the government. I should be free to loan money based on whatever collateral I want. If I want to loan money with my friend's prized guitar as collateral, how does that mean that the government should tax my friend's guitar?
- tim333 3y agoThis article I think is not about that. It's about when say Apple Ireland has made billions but not sent them to Apple USA which owns the subsidiary. There are a lot of problems with taxing unrealised gains. Say you paint a picture for fun, I say that's brilliant it's probably worth $1m, do you then have to try to borrow $200k to send to the tax man? And many similar more mudande situations along those lines.
- tomp 3y agoDo you get taxes back if you lose money?
- henriquez 3y agoHahahaha, good one! You can lose an unlimited amount of money and then deduct up to a maximum $3,000 a year, if you use itemized deductions. Thanks for playing.
- quickthrowman 3y agoYou can claim the $3,000 in capital losses while taking the standard deduction. Don’t ask me how I know ;)
- georgehm 3y agoWhy? Here the asset used as collateral is a commitment to return the money if the loan isn’t repaid. Imagine I bought gold back when gold was 100$ , it’s current price is 1000$ and now I use it as collateral to get a loan . How is it fair that I have to pay taxes on 900$ of unrealized gains ?
- notyofriend 3y agoBy using as collateral you realized the gains because they became tangible and usable.
- georgehm 3y agoNo they didn’t because until the loan is repaid you can’t use whatever gold you put up for other purposes can you. What became tangible is what you used the loan for , that is what can be taxed.
- fxd123 3y agoCollateral is explicitly not tangible and usable. The whole point of collateral is that the unrealized gains are held in a illiquid limbo
- voldacar 3y agoWhy? Because you say so?
- dataflow 3y agoIs the foreignness aspect relevant as far as the constitutionality goes? My cursory layman prior reading of this case was that they decided to reinvest revenue into the business instead of taking distributions. Is that correct? Because of it is, on the face of it I would expect that to still be taxable income, because they could've chosen to do anything with it... they just happened to reinvest it in the business. But even if for some reason that's unconstitutional and/or not income (though I don't see how), I don't really understand where the foreignness comes into play. Is the situation different domestically?
- AmericanChopper 3y agoThe foreignness is an issue because if it was a US corp they would get the opportunity to tax the business income, but if it’s an offshore company then it can just sit on its cash for however long the owners want it to, without incurring any tax liability (depending on the specific foreign jurisdiction). It would only become the income of the owners (and thus taxable by the federal government) once they’ve paid a dividend (or taken drawings, or whatever…). It’s a 16th amendment issue because the law was seeking to tax this revenue before it became any persons income.
- dataflow 3y agoInteresting! Thanks. Is there a reason why they couldn't have called this a business tax in that case? The 16th amendment doesn't say anything about whom the subjects are, so it would seem like renaming it would've allowed them to tax foreign corporate income, even if they're not American entities?(!)
- AmericanChopper 3y agoWho are you going to tax though? Is the federal government going to start sending tax bills to companies in Panama (or BVI, or The Caymans, or Ireland, or wherever...)?
- dataflow 3y ago
- crystaln 3y agoHow is unrealized vs realized of foreign vs domestic constitutional issue?
- renewiltord 3y agoTraditional interpretation of 16A.
- CalRobert 3y agoI don't understand a lot of this article but it has been deeply frustrating dealing with taxes as a US citizen who lives abroad and made the radical decision to be self-employed. Form 5471 is a huge pain.
- jbverschoor 3y agoSo get a different citizenship
- throwawa14223 3y agoCitizenship isn't or shouldn't be a cell phone plan.
- jbverschoor 3y agoWhy not actually?
- throwawa14223 3y agoOn a metaphysical level it conflicts with the idea of a nation and the virtues of loyalty and honor. Citizenship is a relationship with a people and a sovereign. On a far more practical level if citizenship is a cell phone plan it destroys the concept of any safety net. The people who are the largest net contributions should choose low cost plans that don't offer services they have no intent on using and the population that uses those services can't prop up their plan on their own. I know I would choose a plan without social security because mathematically it isn't benefitting me.
- zht 3y agohe'd also have to renounce his US citizenship
- peddling-brink 3y agoOnly if the other country demands it. The US allows dual citizenship.
- walterbell 3y agohttps://www.motherjones.com/politics/2023/12/supreme-court-moore-us-unrealized-capital-gains-billionaire-wealth-tax/ https://www.motherjones.com/politics/2023/12/supreme-court-m... > I don’t see how the Supreme Court blocks billionaire taxes and unrealized-gain taxes without damaging existing rules that are much more modest. Again, this is a big deal. The Supreme Court hasn’t stuck down an income tax for a century, and in my view, a lot of sensible tax rules are at stake. The case was heard last Tuesday and a ruling is expected in summer 2024, https://www.cbsnews.com/news/supreme-court-to-hear-major-case-that-could-upend-tax-code-and-doom-wealth-tax-proposals/ https://www.cbsnews.com/news/supreme-court-to-hear-major-cas... > During more than two hours of arguments, the justices peppered lawyers for both sides with questions about the implications of their positions and appeared aware of how a sweeping ruling would reverberate across the U.S. tax system.
- jldugger 3y agoThis case is batshit insane, as covered by slate[1]. 1. There are material misrepresentations by the plantiff and by their counsel. The entire premise is that Moore shouldn't have to pay taxes without realized income, and he has no control over when his Indian holdings would realize profits -- except he owns 11 percent of the company and served on the board of directors for five years[2]. 2. One of the attorneys on the case is also a WSJ editorialist who frequently interviews and coauthors articles with Justice Alito. 3. Alito has refused to recuse himself from the case (IMO on dubious grounds), and now has to really bend over backwards to ignore the perjury in #1. 4. There was no reason to grant this case cert, as it had no circuit split. 5. If overruled, it would immediately unleash a trillion dollar amount of chaos on the US tax code at a point in which Congress frankly is not equipped to govern. 6. The amount in dispute is around 15,000USD. I promise you the lawyers cost more than that. What the Tax Foundation isn't saying: plaintiffs want the supreme court to preemptively strike down the possiblity of a federal wealth tax. [1]: https://slate.com/news-and-politics/2023/12/sam-alito-moore-arguments-tax-scheme.html https://slate.com/news-and-politics/2023/12/sam-alito-moore-... [2]: https://www.taxnotes.com/featured-analysis/moore-part-4-moores-mistakes-misstatements-and-possible-misfiling/2023/09/29/7hd9t https://www.taxnotes.com/featured-analysis/moore-part-4-moor...
- chmod600 3y agoIs a federal wealth tax constitutional? Income tax is specifically allowed.
- gituliar 3y agoHere in Denmark, both realized and unrealized gains are taxed at the year end. The losses are transferred to next years and deducted from the gains. This might be an advantage if paying 27% lower-tier tax over the years, rather than being taxed once on cash out and hitting a higher-tier of 42%. However, given the compounding effect, it seems more preferable to accumulate gains and pay higher tax at the very end.
- sytelus 3y agoThis sounds terrible. The whole idea is that you don't realize gains unless you have to. That is, don't sell your long investments! If gains are unrealized, how do you even pay? You must sell your assets to feed hugry monster called government.
- kipari 3y agoGP is not fully correct. Under Danish tax rules unrealized gains are not taxed for standard stock investments. Taxation only happens when realizing gains or losses, except for special investment accounts like retirement savings or other account types that have well-defined special rules and clear limits on the amounts that you can put in them. For these special accounts, unrealized gains are taxed at their value at the end of every year.
- verall 3y ago> You must sell [some of] your assets to feed hugry monster called government [which runs the courts, police, and military which all exist to protect the rest of your assets].
- throwawa14223 3y agoSome assets are only sellable atomically such as art or a house. A government demanding more money because the thing I purchased with taxed money has become more valuable (or not become worthless) is a form of financial gluttony bordering on demonic.
- fxd123 3y ago