Kelsey Reichmann

WASHINGTON (CN) — Former President Donald Trump’s 2017 tax-cut law will undergo Supreme Court scrutiny next term, with the justices focused on a provision that places taxes on unrealized income.

The suit comes from a couple’s investment in an Indian-based hardware company. In 2006, Charles and Kathleen Moore gave their friend $40,000 to start KisanKraft Machine Tools Private Ltd., a company committed to providing impoverished regions with essential tools. The Moores received 13% of KisanKraft’s common shares for their investment.

KisanKraft grew rapidly, becoming profitable and employing more than 350 representatives. Although the Moores received annual financial statements that offered updates on the company, the couple never received dividends or any other payouts from their investment.

In 2017, after Trump signed the Tax Cuts and Jobs Act, the law made fundamental changes to taxing international income, along with reducing the corporate tax rate. The legislation also enacted a one-time mandatory repatriation tax to partially fund how it shifted the corporate taxation system. Notably the law relieved corporate taxpayers — but not individual taxpayers like the Moores — from paying taxes on distributions from foreign corporations.

Under the mandatory repatriation tax, the Moores owed income tax on KisanKraft’s reinvested earnings going back to 2006. This equated to an additional $132,512 in taxable income — $14,729 in taxes — even though the Moores never received a penny from their investment.

The Moores sued to get a refund for the additional taxes they paid to satisfy the mandatory repatriation tax. They argued the scheme was unconstitutional under the 16th Amendment, which authorizes Congress to tax income.

A federal judge dismissed the suit, however, and the Ninth Circuit affirmed, at which point the Moores turned to the Supreme Court.

“The decision below is not only wrong, but dangerous, opening the door ‘to new federal taxes on all sorts of wealth and property without the constitutional requirement of apportionment,’” Andrew Grossman, an attorney for the Moores with Baker & Hostetler, wrote in their petition.

Stressing the one-time nature of the tax, the government told the justices the case was not worthy of their review because it “lacks pressing prospective importance.”

“The Sixteenth Amendment provides that ‘Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration,’” U.S. Solicitor General Elizabeth Prelogar wrote in the government’s brief. “‘It is clear on the face of this text that it does not purport to  ***  limit and distinguish between one kind of income taxes and another,’ and ‘that the whole purpose of the Amendment was to relieve all income taxes when imposed from apportionment.’” (Emphasis added in brief.)

The justices took up the case Monday, along with an appeal from an Army veteran that asks the justices to interpret how many months of education the G.I. bills owe him. James Rudisill served three separate tours during his nearly eight years in the Army, including deployments to Iraq and Afghanistan.

In June 2002, he was honorably discharged from service and decided to pursue an undergraduate degree. While in college, he enlisted in the Army National Guard and was deployed to Iraq in 2004. He returned to college after being honorably discharged a second time, only to be commissioned as an officer in 2007. After he was honorably discharged a third time, he worked in the FBI’s domestic terrorism unit.

Rudisill pursued a fourth tour as an Army chaplain. The role would lead him to apply to the Yale Divinity School. He wanted to use his post-9/11 GI bill benefits to pay for the program, but the Department of Veteran’s Affairs said Rudisill had only 10 months of benefits left.

While Rudisill expected to have 22 months, the agency reasoned that Rudisill forfeited his remaining Montgomery benefits when he applied for post-9/11 benefits.

How the justices interpret the interaction between the Montgomery GI Bill and the post-9/11 GI Bill could alter the landscape on veterans’ education benefits.

“Under the Federal Circuit’s decision, roughly 1.7 million veterans face the same nonsensical penalty that Petitioner faced here, and that number continues to rise as veterans who enlist and re-enlist today continue to establish entitlement to education benefits, including under the Post-9/11 GI Bill program,” Rudisill's lawyer Misha Tseytlin with Hamilton Sanders wrote in a petition to the court.

Per their custom, the justices did not provide any explanation on their decisions to hear either case.