Update (10/31): Justice Barrett’s husband’s law firm, Southbank Legal, was formed as an LLC (see p. 2), meaning his share of the profits as managing partner could be deferred indefinitely if the justices side with the Moores.
Three (update: four) justices or their spouses hold interests in businesses whose tax bills could be significantly lower for years to come thanks to a plausible, if not likely, outcome in Moore v. U.S. With such a result in the offing, recusals are warranted, and the continued participation of the three — Chief Justice Roberts and Justices Thomas and Jackson — would do further damage to the reputation of the Court.
And that’s before we get to the “facts” in the case.
According to his financial disclosures, Chief Justice Roberts has a stake in an Irish partnership, Caraheen Partners, that co-owns a cottage in Ireland and from which he’s received earnings (i.e., rent) in each of the last 15 years (2008-2022). Though nearly every year he’s reported receiving less than $1,000, he did bring in up to $15,000 in 2010.
Justice Thomas’ wife Ginni owns a stake in Ginger Holdings, LLC, which in recent years (2020-2022) has brought in as much as $100,000 in profits for the couple annually. In Aug. 2022, Justice Jackson’s husband appears to have started his own company, KayPac LLC, which lists the justice as a “beneficial owner.” It’s unknown if this was created for Dr. Patrick Jackson’s expert witness side job or for another purpose, and an FTC message to Dr. Jackson on Oct. 3 for additional information went unanswered.
Currently, interest holders in LLCs are taxed on profits regardless of where those profits end up — whether retained by the company, distributed or otherwise. With Moore asking the Court to outlaw the taxing of unrealized gains — his and others’ — a win for him could mean LLCs would be able to hold their profits in abeyance, thereby avoiding a tax hit on their interest holders.
Assume the Thomases made $100,000 in profit from Ginger Holdings last year. Depending on their tax bracket, they likely paid some $30,000 or more in taxes on that income, whether or not it was distributed to Mrs. Thomas. But under the Moore tax shelter opportunity described above, the couple would not pay taxes until the $100,000 was deposited into their bank account, which, contingent on how the LLC and their inheritance are structured, could be decades from now, if ever.
Under the federal recusal law, which the justices say they follow, disqualification is required when a justice possesses “an[…] interest that could be substantially affected by the outcome of the proceeding,” 28 U.S.C. §455(b)(4).
“Saving money on your annual tax bill, possibly in the thousands of dollars, qualifies as substantial. So that a third of the Court won’t benefit from a tax shelter they’ve created, Roberts, Thomas and Jackson should step aside from the case,” FTC’s Gabe Roth said.
Beyond the tax issue, recent press reports have highlighted newly uncovered public information about the company whose profits are at issue, an India-based concern called KisanKraft. These reports show several inconsistencies in the record and demonstrate that Charles Moore is not some random minor shareholder who received an unfair tax bill.
Instead, per Tax Notes (here and here), it’s clear that Moore was intimately involved in the company. He was its second-largest shareholder; was director on the Board for five years and was praised for his “contribution […] to the welfare and growth of the company” during his tenure; invested far more in the company ($150,000) than he stated in court filings ($40,000); lent the company $245,000, which he was paid back with interest; received $14,000 in travel reimbursements; and worked closely with the company’s founder to manipulate his ownership stake, possibly for both tax and litigation purposes.
All of that is a far cry from how he’s presented himself in court, e.g., “The Moores never received any distributions, dividends, or other payments from KisanKraft,” as page 4 of the cert. petition and his lower-court sworn declaration state.
“The defective record is enough to dismiss the case as improvidently granted, but when you add the tax shelter issue on top of that, it’s not a close call. This case has no business on the Supreme Court’s docket,” Roth added. “A DIG is the only reasonable and ethical option.”
Similar concerns where justices are asked to rule on cases that could impact their own financial health may arise in the future, so FTC is hoping post-DIG the justices work with Congress and the Judicial Conference to develop clearer standards for what constitutes a financial conflict. For example, the Conference currently outlaws blind trusts since they appear to be inconsistent with a recusal law subsection, 455(c), that states a judge “should inform himself about his personal and fiduciary financial interests.” A simple fix to the law — adding language explicitly permitting blind trusts under certain circumstances — or a clarification of Conference’s regulations would be welcome.