Will There Be Taxes on Unrealized Income? What You Need to Know
Understanding the potential impact of a landmark Supreme Court case on how income—and taxes—might be defined in the future.
Tax law is complicated, but sometimes, a single legal case can shake the foundation of what we think we know about income and taxation.
The Supreme Court is set to hear a case that could redefine whether taxpayers must pay taxes on income they haven’t yet realized—or even received.
This case could have far-reaching implications for business owners, investors, and the future of tax policy.
The Case at a Glance
Charles and Kathleen Moore, a couple from Washington, own a controlling stake in a profitable foreign company based in India.
That company earned significant profits, but the Moores didn’t take any of that money out as dividends or other distributions. Instead, those profits were retained in the business—meaning the income was unrealized for the Moores personally.
However, under a provision from the 2017 Tax Cuts and Jobs Act (sometimes called the “transition tax” or “deemed repatriation” tax), individuals were required to pay a one-time tax on earnings accumulated by foreign entities, regardless of whether those earnings were distributed.
The Legal Question
The case asks:
Do taxpayers have to “realize” or actually receive profits before they can be taxed on them?
The answer could impact the interpretation of the 16th Amendment’s definition of income and potentially set a precedent for taxing unrealized income in other contexts—like wealth taxes.
Why This Matters
If the Supreme Court sides with the government:
It could affirm the right to tax unrealized income, meaning people might owe taxes on gains that exist only on paper (like stock value increases).
This could open the door for new forms of taxation targeting unrealized gains, which has been a hot topic in billionaire tax debates.
The Problem with Taxing Unrealized Income
Imagine you bought a stock for $100, and its value rose to $1,000.
If you’re taxed on the $900 gain before selling the stock, you owe taxes on income you haven’t actually received.
This means you’d have to find cash elsewhere to pay taxes, possibly forcing you to sell assets prematurely.
What’s Next?
The Supreme Court’s decision could reshape the landscape of tax policy and enforcement.
Business owners, investors, and taxpayers need to watch this case closely because its impact could reach far beyond the Moores.
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