Tax Notes logo

Records Show Moore’s Interest in Transition Tax Company Changed

Posted on Oct. 11, 2023

Charles Moore’s interest in the company at the center of the constitutional challenge to the transition tax now pending before the Supreme Court appears to have changed over the years, with stock purchases beyond what was previously revealed, according to Indian filings.

In an exclusive, Tax Notes obtained the financial, annual, and shareholder allottee statements of KisanKraft Machine Tools Pvt. Ltd., an Indian farming supply company, for the years between 2005 and 2013. (Fiscal years 2006, 2007, 2008, 2009, 2010, 2011, 2012, and 2013; shareholder allottee statements.) The documents show that Moore was allotted shares in the company each time he made purchases in 2006, 2011, and 2012. They also show that Moore’s interest in the company was below 10 percent for several years.

At an ownership level below 10 percent of the foreign corporation, Moore would not be considered a U.S. shareholder subject to tax under the subpart F regime.

Moore and his wife Kathleen’s dispute over the constitutionality of the section 965 transition tax is awaiting the government’s brief before the Supreme Court. The Moores 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 a taxpayer’s post-1986 accumulated foreign earnings, arguing that it is a direct tax and not a tax on income and therefore 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.

The fiscal 2006 KisanKraft documents show that the company initially issued 1 million shares with an authorization of 10 million. Moore is not listed as a shareholder there. The financial statements for the fiscal year ending March 31, 2006, state that there were 446,000 shares pending allotment, but they provide no more details on that amount. Moore is listed as a shareholder allottee on Form-2 in April 2006, receiving 266,660 shares for almost INR 1.8 million, the equivalent of $40,000 at the exchange rate at the time. With that number of shares among the 5,741,660 shares issued overall as of September 2007, Moore owned 4.6 percent of KisanKraft.

In September 2011 Moore was allotted 1,189,320 more shares with a new purchase at a lower premium than previously paid. Moore paid almost INR 1.5 million, or approximately $30,000, for the shares. His ownership percentage, which had fallen to 3.8 percent from share dilution, jumped to 8.9 percent.

In February 2012 Moore made a third purchase of stock, buying 782,880 shares at a higher premium once again, for INR 3.9 million rupees, or approximately $80,000. At that point, Moore owned 13 percent of the company.

In a March 2020 district court declaration, which was reproduced in the appendix to the petition for the writ of certiorari, Moore said that he and his wife had invested in KisanKraft at its inception with an investment amount of $40,000, representing 11 percent of the company’s start-up capital.

“That was a lot of money for us, but we believed in Ravi’s idea and wanted to support him and see it to fruition,” the declaration states, referring to KisanKraft founder Ravi Agrawal.

The Moores’ August brief to the Supreme Court states that their $40,000 was exchanged for an approximately 13 percent interest in the company. Neither Moore’s declaration nor the Supreme Court brief mentions additional purchases made by Moore or a change in his ownership amount.

Previous documents received by Tax Notes for the years between 2012 and 2020 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. Throughout the litigation, Moore has tried to show himself as a minority shareholder in KisanKraft who had no control over distributions or any involvement in management.

“Obviously Moore and [KisanKraft’s CEO] had ongoing negotiations and discussions over the timing and amount Moore staged, increasing share acquisitions, culminating in fiscal 2012/2013 when Moore joined the board. This history of share acquisitions suggests, and adds to the evidence, that Moore was not a hapless, passive minority investor, and he was involved . . . in overseeing KisanKraft,” a former senior U.S. Treasury official said.

Between Moore’s subsequent share purchases and his 2014 share application money, which also wasn't referenced in court filings, Moore committed nearly $400,000 to the company, not $40,000, the former official noted, adding, “You don’t do that if you are a hapless investor.”

Earlier revelations about Moore’s involvement in the company led to the group Patriotic Millionaires calling on Moore’s counsel to correct the record with the Supreme Court. The former Treasury official indicated that another, more dramatic move needs to be considered, arguing that the solicitor general may want to file a motion to dismiss the case for certiorari being improvidently granted.

“This seems like a manufactured case. At some point, you have to say enough is enough,” the former official said.

Reuven Avi-Yonah of the University of Michigan Law School agreed.

“The record in the case is even more seriously deficient than previously thought. The misleading and deficient record supports a narrative that Moore is another manufactured case,” Avi-Yonah said. “Moreover, the apparent willful disregard by Moore and his lawyers of key facts that are available from public sources in India is very troublesome and disturbing. The Court should dismiss the case as improvidently granted and send it back to the lower courts for further examination based on the true facts.”

A dismissal for certiorari being improvidently granted would not be unprecedented even this year in the tax world. In January the Supreme Court dismissed In re Grand Jury, No. 21-1397 (S. Ct. 2022), as having been improvidently granted certiorari. That case concerned whether communications involving legal and tax return preparation advice have attorney-client privilege. At the time of its dismissal, an expert estimated that 2 percent of Supreme Court cases are dismissed as improvidently granted, which can happen when the case is a poor vehicle to resolve the issue before the Court or if petitioners rely on different arguments than were relied on during briefing.

Moore’s attorneys did not respond to repeated requests for comment.

Copy RID