The Supreme Court on Thursday upheld a provision of the 2017 tax law that instituted a one-time tax on earnings held in foreign corporations, but the justices avoided broader questions about congressional tax power.

The 7-2 decision backed the mandatory “repatriation” tax provision in the law, which attributed long-accumulated and undistributed income of American-controlled foreign corporations to American shareholders and then taxed those shareholders.

The case hinged on congressional power to tax income under the 16th Amendment, which was adopted in response to an 1890s Supreme Court decision invalidating the first income taxes.

The challengers in the case, Charles and Kathleen Moore, had a roughly $15,000 tax bill tied to their shares in a company in India. The couple argued that their minority stake in a foreign corporation had never been “realized” to give them a tax bill, so the repatriation tax didn’t actually tax income.

Justice Brett M. Kavanaugh, in the opinion for the court that four other justices joined in full, wrote that the 2017 tax provision properly focused on income, just by attributing the income of a foreign corporation to its shareholders.

Kavanaugh compared the provision to the “longstanding practice” of Congress taxing income to shareholders of companies such as an S corporation, and he wrote that the Moores’ pass-through corporation was sufficiently similar.

Kavanaugh wrote that the Moores’ approach would potentially endanger taxes that provide the federal government with trillions of dollars in revenue and leave Congress with the choice of either massively cutting federal programs or increasing existing taxes on “ordinary Americans.”

“The Constitution does not require that fiscal calamity,” Kavanaugh wrote.

The Biden administration said in the case that adopting a narrow definition of income could also endanger “mark-to-market” taxes, life insurance taxes and others that were passed to capture tax avoidance schemes.

During oral arguments in December, several justices had expressed reticence to issue a broad ruling due to the possibility of encouraging tax avoidance schemes.

Unanswered issues

Several times in the opinion, and in reading from his opinion on the bench, Kavanaugh noted that the Supreme Court did not decide either the constitutionality of a “hypothetical” congressional effort to tax individual wealth or tax a corporation’s income through both the corporation and its shareholders.

Kavanaugh also noted that the Thursday decision left major issues for another case, such as whether income must be “realized” to be taxed under the 16th Amendment.

Earlier in the case, the U.S. Court of Appeals for the 9th Circuit had held that the 16th Amendment did not require that the income be “realized” to be taxed.

Justice Amy Coney Barrett, in a concurring opinion joined by Justice Samuel A. Alito Jr., wrote that she agreed with the ultimate outcome in the case, but for a different reason. She wrote that the Moores did not meet their burden to show that the law was unconstitutional.

Barrett’s concurring opinion also laid out an argument for why the court should have ruled that gains must be realized before they can be taxed.

Justices Clarence Thomas and Neil M. Gorsuch dissented from Thursday’s decision, criticizing the majority for upholding a tax on the Moores for an investment that “never yielded them a penny.”

“Because the Moores never actually received any of their investment gains, those unrealized gains could not be taxed as ‘income’ under the Sixteenth Amendment,” Thomas wrote.

Thomas called Kavanaugh’s attribution analogy an “unsupported invention” and wrote that the 16th Amendment was meant to preserve a balance of power between the federal government and the states.

Thomas accused the majority of upholding the law to avoid endangering thousands of other parts of the tax code that should properly be thrown into question.

“But, if Congress invites calamity by building the tax base on constitutional quicksand, ‘[t]he judicial Power’ afforded to this Court does not include the power to fashion an emergency escape,” Thomas wrote.