Riley v. Bondi

This case originated from a challenge by Michael Riley to the Mandatory Repatriation Tax (MRT) imposed by the Tax Cuts and Jobs Act of 2017. The MRT required U.S. shareholders to pay a one-time tax on their pro rata share of accumulated, undistributed foreign earnings of specified foreign corporations, even if those earnings were not actually distributed. Riley, a minority shareholder in a foreign corporation, was assessed a tax on earnings he never received. He argued this violated the Sixteenth Amendment because the tax fell on unrealized gains, not actual income. The government, represented by former Attorney General Pam Bondi, contended the tax was constitutional. The Supreme Court ruled in favor of Riley, holding that the MRT exceeded Congress's taxing power under the Sixteenth Amendment because it taxed wealth that had not been realized as income by the shareholder.

The United States Supreme Court ruled in favor of the plaintiff, Michael Riley, affirming the lower court's decision. The Court held that the Mandatory Repatriation Tax is unconstitutional because it taxes unrealized gains, which do not constitute "income" under the Sixteenth Amendment.

The primary dispute focused on whether the Mandatory Repatriation Tax imposed a direct tax without apportionment in violation of the Constitution, or whether it was a valid income tax under the Sixteenth Amendment. The core legal question was whether unrealized corporate earnings can be attributed to shareholders as "income" before any distribution occurs.

The ruling has profound implications for U.S. tax policy, casting constitutional doubt on various federal tax provisions that target unrealized wealth or corporate accumulations. It effectively limits Congressional power to impose wealth taxes or mark-to-market taxation regimes without a constitutional amendment. The decision was celebrated by taxpayer advocacy groups and business interests but raised concerns among progressives about future revenue-raising options and economic inequality.