Last Thursday, the U.S. Supreme Court upheld the constitutionality of a repatriation tax that had been enacted in 2017 but did not address the issue of whether federal income taxes can be imposed on unrealized capital gains. The plaintiffs in Moore v. United States had argued that a mandatory repatriation tax that had been imposed on overseas corporate income they had not received was unconstitutional because it was a tax on unrealized income. 

A ruling that determined the constitutionality of taxing unrealized capital gains income would have implications for Democratic initiatives to impose wealth taxes on high-income taxpayers. Senator Elizabeth Warren (D-MA) has proposed imposing taxes on the accumulated wealth of upper-income taxpayers, and Senate Finance Committee Chair Ron Wyden (D-OR) has put forth a mark-to-market proposal that would tax capital assets annually. Taxing capital assets at the federal level, absent a sale, would directly impact commercial real estate holdings.  

The Supreme Court held that the corporate income in the Moore case had indeed been realized by the plaintiffs, and therefore did not need to rule on the issue of the constitutionality of taxing unrealized capital gains.