Moore v. United States is the most significant tax case to be argued before the U.S. Supreme Court in recent history. The petition for certiorari bluntly poses the question as: “Whether the Sixteenth Amendment authorizes Congress to tax unrealized sums without apportionment among the Several of the amicus briefs focus on the original meaning of the amendment phrase “taxes on incomes,” claiming that the public understanding of that phrase at the time of the amendment’s adoption necessarily limited an income tax to a tax on income derived from a narrowly interpreted realization event—when a taxpayer receives something of value such as cash or other property in exchange for goods or services provided or as a payment because of property ownership (for example, a dividend payment on stocks or rental payment on leased property). According to the Joint Committee on Taxation, such an expansive interpretation of the constitutional phrase would call into question the constitutionality of multiple significant tax provisions, including all of Subpart F and the GILTI regime, all of Subchapters K and S, the taxation of REMICs, the original issue discount (OID) rules and the rules for below-market and short-term loans, the mark-to-market rules for securities dealers and regulated futures contracts, imputed rental income, the Subchapter L mark-to-market rules, and section 877A, among
As noted by Caroline Rule, the Moore case approaches this substantial issue through a married couple’s challenge to the constitutionality of section 965’s mandatory repatriation tax (MRT)—a challenge that claims a purported “‘judicial consensus’ limiting the Sixteenth Amendment’s apportionment exemption to realizedRule suggests several possible outcomes for the case, including (i) a narrow victory for individual taxpayers holding that the MRT may be applied only to corporate taxpayers; (ii) a holding that the Sixteenth Amendment requires realization and the MRT satisfies that requirement; (iii) a clear holding for the government that the Sixteenth Amendment covers both realization-based and accrual-based taxation; or (iv) a narrow holding that accrual-based taxation is permissible but that the thirty-one year MRT look-back period is too long because it converts the tax from an accrual-based income tax into some sort of direct Of course, there could also be a broad holding that limits income taxes to taxes on income as determined by narrowly defined realization events.
That broadly applicable outcome dependent on a narrow definition of realization appears to be the goal of those supporting the plaintiffs. More than thirty amicus briefs, available here, have been filed in the Moore case. Many focus on the original public meaning of the Sixteenth Amendment’s term “taxes on incomes” through review of historical court cases, legal treatises, and dictionary definitions to argue that the term clearly included a realization requirement. This article first provides a brief overview of the issues and procedural history in Moore, and then challenges that assumption about the meaning of the phrase directly by examining other historical documents from the time of the amendment’s adoption that clearly contemplated that an income tax would be imposed on a mark-to-market or accrual basis.
II. Substantive and Procedural History of the Case
In Moore v. United the taxpayers were 11% shareholders in an Indian company that was a section 957(a) controlled foreign corporation (CFC). The taxpayers obtained their CFC interest in 2006 and had never received any distribution of its earnings and profits. Any CFC income was reinvested into the CFC.
The 2017 tax legislation (TCJA) amended the Code’s Subpart F sections. Prior to the TCJA, CFC income was generally not taxed, providing a major deferral tax advantage until distribution or otherThe TCJA made those earnings subject to current taxation and added the MRT as a one-time transition tax on CFC undistributed earnings and profits earned between January 1987 and December 2017 to ensure those past CFC earnings and profits did not permanently escape U.S. taxation. After passage of the TCJA, the Moores amended their 2017 tax return to include payment for the MRT, and then they sought an MRT refund in federal court. The Moores argued that the MRT is an unapportioned direct tax that violates the Constitution’s Apportionment Clause in Article I,
The Moore district court reviewed Supreme Court precedent, decisions regarding foreign income, and statutory provisions outside of subpart F to hold in favor of the government. The Supreme Court in Eisner v. Macomber held that a stock distribution was not taxable income because the “shareholder [had] not realized or received any income in theThe Moore court noted, however, that Macomber did not set a bright-line rule defining all —i.e., courts have not treated Macomber as establishing a realization requirement, as demonstrated by the Moore district court’s analysis of opinions from various federal appellate courts and the U.S. Tax Court establishing the constitutionality of Subpart F income There are also a number of current statutes that tax deemed or indirectly attributed unrealized Based on the cases and statutes that appropriately interpret Macomber as not mandating realization, the Moore district court held that the MRT was a tax on income that did not violate the Apportionment Clause; accordingly, the Moores were not entitled to a refund.