Former TCJA Staffer Defends Validity of Transition Tax in Moore

A former Republican staffer who worked directly on the construction of the Tax Cuts and Jobs Act’s one-time transition tax was supported by fellow amicus brief filers in agreeing with the government’s assertion that the tax is fair game under the Sixteenth Amendment.

On October 23, George Callas, who served as senior tax counsel for former House Speaker Paul Ryan (R-WI), submitted to the Supreme Court an amicus brief in Moore v. United States (No. 22-800) co-authored with Mindy Herzfeld, professor of tax practice at the University of Florida Levin College of Law. Callas, according to their brief, was “intimately involved in the development, design, and drafting” of the Code Sec. 965 mandatory repatriation tax (MRT) at issue in the case, which has been closely monitored by the tax community given the implications on the Tax Code should the Court side with the petitioners and reverse the lower courts.

The Moores, a taxpayer couple who sued the government after an additional $15,000 was added to their tax liability due to the MRT, allege the tax is an unconstitutional overreach by Congress. They claim it violates the Sixteenth Amendment, as they interpret the law to have a realization requirement.

Callas and Herzfeld contend that the MRT is a permissible income tax and not a new tax on property. “The Moores’ tax bill does not reflect appreciation or depreciation in the value of an asset, such as shares,” read the brief. “Rather, Section 965 taxes realized income earned by a controlled foreign corporation. Congress has always been able to do this-and it has exercised such authority in a variety of ways. That longstanding historical practice warrants careful consideration. As former Speaker Paul Ryan has warned, if this Court were to accept Petitioners’ theory, many other provisions of the tax code could be unconstitutional.”

Similar sentiments were shared in a trio of amicus briefs filed by the American College of Tax Counsel, the Tax Law Center at New York University Law, and the American Tax Policy Institute. Callas and writers of these separate filings further discussed their arguments November 1 at a virtual panel hosted by the Tax Law Center, moderated by Executive Director Chye-Ching Huang.

There, Callas emphasized that his and Herzfeld’s brief sought to address confusion over the tax base of the MRT and convey to the Court that the tax is not “just some random thing that was air dropped in to grab some money,” but rather an “integral provision that fits into a larger set of international tax reforms.” He went on to explain that the transition tax served to facilitate a change “from an old system to a new system that’s trying to cure some very serious policy flaws in the old system,” such as “trapped cash overseas.”

Callas said the Moore’s attempt to frame the MRT as a “wholly new tax” is “incorrect” because, in his view, the MRT “is an income inclusion.”

“I worry that adopting the messaging of the petitioners is really unnecessarily ceding ground to them by playing on their playing field that this is some new tax, and then we have to fight on the ground of: is it on property or not.”