Joint Tax Committee: Tax Code Provisions Implicated In Moore

Letter from Thomas Barthold (Chief of Staff, Joint Committee on Taxation) to Richard Neal (Ranking Member, House Ways & Means Committee) (Oct. 3, 2023):

This letter responds to your request for a delineation of present law provisions of the Internal Revenue Code of 1986, as amended (the "Code"), that could be affected by a ruling for the petitioners in Moore, which is currently before the Supreme Court. The question presented in Moore is whether the one-time transition tax imposed under section 965 (refened to in the petition for writ of certiorari as the "mandatory repatriation tax" or "MRT" is unconstitutional because it is an unapportioned direct tax and is not an income tax under the meaning of the Sixteenth Amendment.

According to the petition for writ of certiorari, the question presented for the court is "fw]hether the Sixteenth Amendment authorizes Congress to tax unrealized sums without apportionment among the states." By contrast, the brief of the United States in opposition to ceftiorari frames the question for the court as "fw]hether the MRT is a 'tax[] on incomes, from whatever source derived,' within the meaning of the Sixteenth Amendment."

The petitioners assert that the MRT is a tax on unrealized income and that Congress for purposes of the Sixteenth Amendment cannot tax unrealized income. They rely primarily on Eisner v. Macomber, 252 U. S. I 89 ( I 920), which the lower court found inapplicable to the Moores' case. The Government, in turn, asserts that the Constitution "does not restrict Congress to taxing only realized gains" and that, even if it did, the MRT is a tax on realized income. The Court may leave unanswered the question of whether the Constitution imposes a realization requirement if it finds that the MRT is a tax on realized income. This letter describes several types of present law provisions that may be implicated if the Court adopts certain definitions of realization suggested in the Petition or the petitioners' reply brief, along with a nonexhaustive set of examples of each type.

Commentators have asked whether the MRT and other tax proposals are direct taxes and therefore (if they are not income taxes for pu{poses of the Sixteenth Amendment) unconstitutional because they are not apportioned among the States or, instead, excise taxes not subject to apportionment. This letter focuses instead on the Sixteenth Amendment issue argued by the parties in their briefs.