TaxProf Blog

Paul L. Caron
Dean





Friday, June 28, 2024

Zhang: Moore And The Judicial Role In Tax Law

TaxProf Blog Op-Ed:  Moore, and the Judicial Role in Tax Law, by Alex Zhang (Emory; Google Scholar):

ZhangMost tax scholars breathed a sigh of relief last Thursday.  The Supreme Court, in a 5-2-2 split, upheld the mandatory repatriation tax on narrow grounds.  Others have commented on the doctrinal implications of the case.  I will focus here on what Moore tells us about the judicial role in tax law.

When the Court granted certiorari in Moore last June, many voiced their fear of a bombshell decision that could upend key aspects of the income tax and progressive aspirations for a tax on wealth or unrealized gains.  Indeed, past judicial interventions in tax law have not been perceived as a success.  Long gone were the days when Stanley Surrey could count tax as the largest subject matter on the Supreme Court’s docket.  Two key cases in the Moore litigation itself—Pollock v. Farmers’ Loan and Trust Co. and Eisner v. Macomber—generated sharp criticism during their times.  The majority in Moore said that much as to Pollock, and acknowledged the “significant confusion and controversy” it sparked.  Justice Jackson, citing the Court’s own words, noted that Macomber invited no warmer reception.  (I continue to think that Eisner v. Macomber turns on the absence of economic income, not realization, and allows Congress to tax objects or transactions constitutive of an actual accretion to wealth.  I am happy to see both the majority and Justice Jackson give credence to this possible reading.)

History thus did not inspire confidence in Moore’s outcome.  A memorable quip by Michael Graetz summed up the mood before oral argument:

Based on grading exams at the Yale and Columbia law schools for many years—I was always disappointed how poorly I had taught the course because of what the exams revealed about the depth of the students’ knowledge.  My successors may be doing better than I did in that regard, but I would be surprised if there are many tax experts among the justices and clerks of the Supreme Court now.  I hope this does not cause major problems for the income tax.

As a former student of his, I shuddered at the thought whether I may have been one of those students.

Graetz recommended that the Court dismiss the petition in Moore as improvidently granted.  That the Court did not do.  But oral argument signaled that the Court was not going to axe sweeping portions of the Internal Revenue Code.  The Solicitor General ingeniously framed the issue as one of income attribution rather than realization.  The Chief, Justice Kavanaugh, and Justice Barrett all seemed to be on board.  Justice Barrett may have changed her position between the oral argument and last week, given her concurrence.

The majority opinion thus did not come as a surprise.  It may have assured some critics who called for a limited role for the courts in crafting federal tax law.  But worries remain.  Justice Thomas, joined by Justice Gorsuch, dissented.  That dissent, along with Justice Barrett’s concurrence, joined by Justice Alito, means there are four votes in favor of a constitutional realization requirement.  Enough votes to grant certiorari, and only one short of a majority.  Because of its narrow reasoning, the Court appears to welcome future litigation on the boundaries of the federal taxing power.  Writing for the majority, Justice Kavanaugh notes the “disagreement over realization” as a “potential issue[] for another day.”  Justice Thomas’s dissent starts with a lengthy overview of Founding-era debate.  It gives us a taste of what a “history and tradition” jurisprudence might look like in tax policy.  Justice Jackson alone counsels restraint:  She writes that taxpayers should look to the political process, not the Court, as the forum to vindicate their views of distributive fairness.

All this might dampen last week’s momentary optimism in the Court’s new foray into taxation.  But additional judicial engagement with tax issues might not be the worst development, with a couple of caveats.  I agree with Reuven Avi-Yonah who recently wrote about the distinctive U.S. practice of rarely subjecting tax law to judicial review.  The Court’s reluctance to take on tax cases relegates tax “to a technical subject fit only for specialists, rather than one at the heart of the relationship between the state and its citizens.”  Capable disposition of tax disputes by the Court could thus revitalize the field as the foundational regime that structures the fiscal relationship between citizens and democracy—what tax is.

But to do so, the Court must build institutional expertise in taxation.  That means starting small.  In 1941, Stanley Surrey wrote: “Federal tax cases constitute the largest group of cases by subject matter on the Court’s docket.”  That was a different world.  Today’s Court decides very few tax cases, many of them sounding in procedure or jurisdiction.  Substantive, but statutory, tax cases with less at stake might be the best place to start.  Losers before the Court can still turn to the political process, as Congress can override the Court.  All this will enable the Court to have a fuller view of the tax-doctrinal nitty-gritty, if and when it decides to constitutionalize.

How Moore played out reminds me of the Amgen Inc. v. Sanofi case in OT 2022.  That was about patent law, another technical subject matter.  The Court granted certiorari on a petition that emphasized history and tradition, relying on Founding-era practice and eighteenth-century English law.  But it quickly realized that the case was in fact about a technical aspect of the enablement doctrine in patent.  The Court affirmed the Federal Circuit in a unanimous opinion penned by Justice Gorsuch.

At One First Street, both patent and tax suffer from an ineffective infrastructure in the certiorari process.  In patent, it’s because the Federal Circuit has exclusive subject-matter jurisdiction, thus generating no circuit split to signal disagreement in the lower courts.  In tax, it’s because few tax cases are decided by the federal courts of appeals, and far fewer make it to the merits stage at the Supreme Court.  With its (not infrequent) engagement with sundry, vanilla issues in intellectual-property law, the Court easily saw what was at stake in Amgen.  But if every income-tax case at the Court is a Macomber, a Pollock, or a Moore, that would make many tax scholars less hopeful.

But I will end with a bright spot.  Encouraging in Moore is the Court’s readiness to listen to scholarly perspectives in deciding tax cases.  By my count, the Justices cited at least six amicus briefs drafted by academics, myself included.*  Many others no doubt influenced how the Court saw the case.  The Justices have often praised the Supreme Court bar for its help in the Court’s work.  Perhaps in tax, academics can help too.*

* By my cursory count, the Court cited the following amicus briefs submitted by academics:

By the majority:

  • Brief for The Tax Law Center at NYU Law and Professors Ari Glogower, David Kamin, Rebecca Kysar, Darien Shanske; and
  • Brief for the American Tax Policy Institute (with David Schizer on the cover).

By Justice Jackson:

  • Brief for Professors John R. Brooks and David Gamage;
  • Brief for Professors of Tax Law, Legal History, and Computational Science (with J. Clifton Fleming, Brian Galle, Jacob Goldin, Peter Henderson, Dan Ho, Edward McCaffery, Ajay K. Mehrotra, Richard Schmalbeck, and Kevin Tobia as signatories); and
  • Brief for Professor Alex Zhang.

By Justice Barrett:

  • Brief for Professors of Law and Linguistics (with Thomas R. Lee, Lawrence B. Solum, James C. Phillips, and Jesse A. Egbert as signatories).

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

https://taxprof.typepad.com/taxprof_blog/2024/06/zhang-moore-and-the-judicial-role-in-tax-law.html

New Cases, Tax, Tax Daily, Tax News | Permalink