With Supreme Court oral arguments days away, more information about Charles Moore’s involvement in the company at the center of his transition tax constitutional challenge has been discovered, this time concerning large stock sales.
Tax Notes has obtained Indian filings detailing share transfers of KisanKraft Machine Tools Pvt. Ltd., an Indian farming supply company, that show that Moore sold 521,000 shares of the company in August and September 2019 at a sales price of INR 40.24 per share. That is a relatively large capital gain not previously disclosed by Moore in his court filings.
Moore purchased shares of KisanKraft in 2006, 2011, and 2012 for approximately $40,000, $30,000, and $80,000, respectively. Those purchases were made for INR 6.72 per share in 2006, INR 1.25 per share in 2011, and INR 5 per share in 2012, according to the share transfer documents. Moore's 2019 share sales represented 23 percent of his ownership interest from those previous purchases. Converted to dollars, his 2019 sale amounted to approximately $294,000. Depending on which shares he sold, and calculating based off the 2019 currency conversion rate, Moore’s capital gain may have ranged from $273,000 to $284,000, without accounting for any basis adjustments.
Throughout the litigation, Moore and his wife, Kathleen, have attempted to portray themselves as sympathetic small shareholders without significant involvement in KisanKraft who were caught off guard by the transition tax. In a March 2020 district court declaration, Moore said he and his wife had invested in KisanKraft at its inception, with the $40,000 investment in 2006 representing 11 percent of the company’s start-up capital. Moore argued that the investment “was a lot of money for us.” With the dramatic rise in valuation of the KisanKraft shares, in 2019 Moore would have had approximately $1.3 million worth of stock in the company before the sale.
A former senior Treasury official said the new information about the stock sale for such a robust price, and largely to company insiders, is further proof that Moore himself was an insider.
The Moores have challenged the constitutionality of the section 965 transition tax. They are seeking a refund of $15,000 in taxes they paid, as minority shareholders, on undistributed earnings from KisanKraft. They have challenged the transition tax imposed on taxpayers' post-1986 accumulated foreign earnings, arguing that it is a direct tax and not a tax on income and so is unconstitutional because it is not subject to the 16th Amendment’s exemption from apportionment. A realization requirement for income has become the focus of litigation. While the Moores have sought to narrow the focus of the challenge to section 965, numerous observers, including the Joint Committee on Taxation, argued that a broad ruling in the taxpayers’ favor on a realization requirement for income could upend huge portions of the code.
Supreme Court oral arguments in Moore v. United States are scheduled for December 5.
This revelation is the latest in a series of discoveries from Indian financial, annual, and shareholder filings. They show that Moore’s interest in KisanKraft changed over the years, including being below a 10 percent ownership threshold such that he would no longer be considered a U.S. shareholder subject to tax under the subpart F regime. Filings also reveal that Moore was a director at KisanKraft from October 2012 to March 2017, that he received $14,000 in reimbursement for travel expenses incurred while visiting the company, and that he lent $245,000 in share application money to the company and was paid back with interest.
When Moore resigned from the board of directors in March 2017, the CEO and director of KisanKraft sent him a letter stating that his “contribution to the welfare and growth of the company is highly appreciated by the board.”
None of those facts, including the stock sale, were revealed in Moore’s declaration or in his Supreme Court briefs. Several tax experts have argued that his lack of transparency is enough to warrant the Court's dismissal of the case for certiorari as improvidently granted. The solicitor general has not made such a motion.
The Moores are represented by Baker & Hostetler LLP and the Competitive Enterprise Institute. Their counsel did not respond to a request for comment.