Grewal: Moore Decides Less

TaxProf Blog Op-Ed:  Moore Decides Less, by Andy Grewal (Iowa; Google Scholar):

When the Supreme Court granted certiorari in Moore v. United States, 602 U.S. ___ (2024), it agreed to decide whether the Sixteenth Amendment allows Congress to tax unrealized sums. Alas, the Moore opinion directly resolved only relatively dull and straightforward questions. In doing so, however, the Court touched on some major issues that may affect Congress’s taxation authority in the future.

Moore involved a claim that Section 965(a) violated the Sixteenth Amendment. Section 965(a), dubbed the Mandatory Repatriation Tax or MRT, requires only a simplified explanation here. Basically, the MRT says that shareholders in foreign corporations must include those corporations’ accumulated earnings in their own incomes. The Moores argued that the MRT, by taxing them on income they never touched, violated realization principles. They further argued that the Sixteenth Amendment’s reference to “taxes on incomes” incorporated a realization requirement. So, the Moores argued, the MRT violated the Constitution.

The Court concluded that it was unnecessary to resolve whether the Sixteenth Amendment establishes a realization requirement. “Critically,” the Court concluded, “the MRT does tax realized income.” Slip Op. at 8. So, even if a realization requirement existed, no violation occurred here. That is, the MRT taxed the realized income of a foreign corporation by attributing that income to its shareholders. The shareholders faced taxes only on these realized amounts.

The Court concluded that numerous precedents supported Congress’s authority to attribute realized income in this way. The Moores argued that those precedents did not deal with the MRT. But the Court would not “differentiate the MRT from all of those other taxes long imposed by Congress and long upheld by this Court.” Id. at 17.

The Court acknowledged that it resolved Moore without addressing “whether realization is required for an income tax.” Id. at 12. The Court also emphasized that its attribution analysis was quite narrow. That is, its attribution holding applied “when Congress treats the entity as a pass-through.” Id. at 23.

Moore thus ended with a whimper. The case will inevitably disappoint anyone looking for guidance on the realization questions that have long plagued tax academics (if no one else). Nonetheless, there are some morsels for those who closely track realization issues. These issues will be important if and when Congress pursues measures to tax massive, accumulated wealth. See generally Grewal, Billionaire Taxes and the Constitution, 58 Georgia L. Rev. 249 (2023).

First, the Court confirmed that Eisner v. Macomber, 252 U.S. 189 (1920), is not dead. Some believe that the realization requirement acknowledged in Macomber has been rendered obsolete. Without a realization requirement, Congress can easily expand the base of the income tax, to potentially include even the value of unsold property.

However, Moore acknowledged Macomber’s “state[ment] that income requires realization.” Slip Opinion at 8. The Court did not go any further than this, leaving open “whatever else Eisner v. Macomber might stand for.” Id. at 13. Also, given its narrow holding, the Court did not need to consider how post-Macomber developments bore on the realization requirement. But Moore shows that Macomber must be taken seriously, unless and until the Court itself overrules it.

Second, the Court stated that “direct taxes are those taxes imposed on persons or property.” Id. at 5-6 (citing NFIB v. Sebelius, 567 U.S. 519, 570-571 (2012)). Some believe that a direct tax refers only to taxes on persons and real property, and not a tax on personal property. Under this view, Congress could easily tax the ownership of stock holdings, for example. But the Court in Moore cited the part of NFIB that “continued to consider taxes on personal property to be direct taxes.” Id. at 6.

Third, the Court left open whether an income tax can properly reach unrealized appreciation. Under a legislative proposal like Senator Ron Wyden’s, Congress would tax the mere increase in value of property. This would allegedly avoid the constitutional limitations that apply to taxing property ownership. That is, by taxing unrealized appreciation, the argument goes, Congress would have taxed property income rather than property ownership. But the Court in Moore left open “the constitutionality of a hypothetical unapportioned tax on appreciation.” Id. at 23. This suggests that the issue is far less clear-cut than advocates of an unrealized appreciation tax might believe.

Moore did not resolve the relationship between the realization requirement and the Sixteenth Amendment. But it laid out some key questions. Moore will thus help frame future debates over the realization requirement, even if did not advance them.

TaxProf Blog Op-Eds on Moore v. United States, No. 22–800 (June 20, 2024):

• Lawrence Zelenak (Duke), Moore Thoughts (June 21, 2024)
• Conor Clarke (Washington University), Four More Takeaways From Moore (June 22, 2024)
• Reuven Avi-Yonah (Michigan), Is A Mark To Market Tax Constitutional After Moore? (June 23, 2024)
• John Brooks (Fordham) & David Gamage (Missouri-Columbia), Moore v. United States: Initial Reactions (June 24, 2024)
• Brian Galle (Georgetown), What's Next For Wealth And Mark-To-Market Taxes After Moore? (June 25, 2024)
• Andy Grewal (Iowa), Moore Decides Less (June 26, 2024)
• Michael Graetz (Columbia), Moore v United States—Winning the Battle but the War Goes On (June 27, 2024)
• Alex Zhang (Emory), Moore And The Judicial Role In Tax Law (June 28, 2024)