This summer, the Supreme Court agreed to hear Moore vs. United States. Although not unprecedented, this action is extremely rare.
Please understand that we have our own Tax Court System in the U.S. Normally cases are handled through that system. The Supreme Court, though constantly petitioned to hear these cases, rarely ever does.
That’s how important and earth shattering this case could become. The facts are as follows.
Back in 2006, Charles and Kathleen Moore invested in KisanKraft, a foreign entity headquartered in India making farm equipment. 90% of the company was owned by U.S. shareholders and it operated at a profit.
Prior to the 2017 Tax Cuts and Jobs Act (TCJA), the Moores and other investors like them, could legally defer paying taxes on their foreign owned income until that income entered the United States. This became a useful tool where large corporations like Apple, Microsoft, and Google deferred tax on at least $2T that was housed outside of the US.
TCJA ended the ability for these entities and the Moores to no longer pay taxes on their foreign owned income. The new law imposed a one time transition tax on the income whether it was received by its lawful owners or not.
The Moores contested their tax bill arguing that they shouldn’t have to pay tax on money they never received. There are solid arguments for and against this case on the grounds of the 16th Amendment.
Why is this important to small business owners like you and me? I’m glad you asked that important question, Grasshopper.
It’s relevant because if you own an S Corp, a Partnership, or a sole proprietorship, you also are taxed on money that you sometimes don’t receive. If your entity shows a profit, you’re required to pay the tax on that money whether you take it out of the entity or not.
The taxation of unrealized income and whether or not it’s constitutional is a hot button in many taxation circles. It affects not only pass-through entities like ours, but also issues like regular unrealized capital gains, the proposed Billionaires Minimum Tax on unrealized gains, and the proposed estate tax also on unrealized gains.
If the court holds in favor of Mr. and Mrs. Moore, it could save all of us a ton in taxes. I’ll continue to write about this developing story.
Let me leave you with this.
Metropolitan Brewing, one of Chicago’s oldest breweries, has filed for protection under the U.S. Bankruptcy Code. Lawyers speaking on behalf of the entity, have said that if it cannot restructure its debt, the business will probably close sometime this winter.
The brewery, which overlooks the Chicago River near the Belmont Bend, owes over $1M in back rent to its landlord, another $1M to a bank in North Carolina, and another $387K to the SBA in an EIDL Loan. The firm had $2.16M in revenue last year, and still can’t service its debt with ongoing operations.
I’m writing this as a cautionary tale.
As our economy worsens in the coming months, this isn’t the last story you’ll hear about a long-term Chicago business going through this nightmare. Make sure your name doesn’t end up on the list.
It will become harder and maybe ultimately impossible to restructure your debt, as the economy worsens. Banks will refuse to lend their dollars, needing to hold onto them in order to cover commercial real estate loans that will go bad. If they don’t, the FDIC will take over the bank and sell it to another one that can properly capitalize its balance sheet and protect its depositors.
If you have problems in this regard, the time to handle these issues was yesterday not today. Get on it.
Don’t be put off if the first couple of banks you talk to turn you away. Not every bank will like your particular loan for whatever reason, and others will be in a position where they can’t loan in the first place.
Talk to as many banks as you can. Deal with your issues. And then figure out how to get out of debt once and for all. I promise you that when that day comes, it will be one of the best days of your life.
If you need help, please call. We’re all going to get through this. Let’s get through it together.
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