Without limits, it applies to all foreign accumulated earnings and profits in a manner that produces a patently unfair and unintended consequence of punishing Main Street for the sins of Wall Street while those that Section 965 intended to apply against were able to implement defensive structures to prevent its application. Section 965 is not restrained in its application. In other words, if the retroactive application is arbitrary, harsh, or oppressive, as applied to a particular taxpayer, it will be unconstitutional as applied to that taxpayer.Īrbitrary means “not restrained or limited in the exercise” thereof. A tax law will be found unconstitutional if “the retroactive imposition of the tax after the was arbitrary, harsh, and oppressive.” Where the retroactive application of a tax law is “so harsh and oppressive as to transgress the constitutional limitation,” it will be found to violate due process. Court of Federal Claims has held that there “is an element of fiction about a retroactive statute which particularly justifies an interpretation which will avoid unfair and unintended consequences.” In other words, a tax law can be retroactive to apply to “prior” transactions, but those must still be “recent transactions.” No one can reasonably argue that earnings and profits from 1987 qualify as recent transactions. “he questioned provision cannot be declared in conflict with the Federal Constitution merely because it requires gains from prior but recent transactions to be treated as part of the taxpayer's gross income.” Section 965 applies to accumulated deferred foreign income going back to 1986. Beyond that, the retroactive tax would not benefit from established case law permitting retroactivity. In other words, although retroactivity is permitted and generally limited to 12 months retroactive, it can only include transactions completed during the year or while the new tax law was being enacted. The retroactive nature is generally limited to “relatively short periods so as to include profits from transactions consummated while the statute was in process of enactment, or within so much of the calendar year as preceded the enactment.” In other words, a change in a tax rate going back further than 12 months would not benefit from established case law permitting retroactivity. “Nobody has a vested right in the rate of taxation, which may be retroactively changed at the will of Congress at least for periods of less than twelve months.”
In other words, tax laws passed late in the year that relate back to the start of the year are always valid as a matter of law. “The Court consistently has held that the application of an income tax statute to the entire calendar year in which enactment took place does not per se violate the Due Process Clause of the Fifth Amendment.” In other words, a due process challenge to a retroactive tax law must point out more than the mere retroactive nature of the tax retroactivity is not an automatic, per se violation of due process. “etroactive imposition does not necessarily infringe due process, and to challenge the present tax it is not enough to point out that the taxable event, the receipt of income, antedated the statute.” Supreme Court’s rulings on this topic limiting retroactivity of tax laws with regard to time, unfair consequences, and unintended results stemming from arbitrary and harsh application. But don’t take our word from it, read below through a consolidated summary of all the U.S. It has long been declared that “the power of Congress to enact income tax laws with retroactive effect is clear.” Nothing could be further from the truth.
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