Tag Archives: Andrew Grossman

Part 49 – 2012 Report Of Congressional Research Service Suggests @USTransitionTax May Be Unconstitutionally Retroactive

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Introduction and purpose

In an earlier post I argued that in the Moore appeal the Supreme Court should consider the retroactive nature of the MRT AKA transition tax. My argument was based my interpreting the law to be that retroactive legislation might be unconstitutional if it:

1. Was retroactive for an extensive period of time (in this case the period of retroactivity was 31 years); and

2. Was new legislation

After writing that post, I came across this 2012 Congressional Research Report which suggests that tax legislation could be unconstitutionally retroactive based on the same two principles.

A relevant excerpt from the report follows.

The 2012 Congressional Research Report: CRS Report for Congress Prepared for Members and Committees of Congress Constitutionality of Retroactive Tax Legislation

The following excerpt is of interest and relevance to the Moore appeal

Period of Retroactivity

The most common potential concern with respect to substantive due process is the length of the retroactivity. The Supreme Court has made clear that a modest retroactive application of tax laws is permissible, describing it as a “customary congressional practice” required by “the practicalities of producing national legislation.”9 As a result, tax legislation that is retroactive to the beginning of the year of enactment has routinely been upheld against due process challenges.10 There does not seem to be any serious question as to whether such a period of retroactivity is constitutional.

What then happens with periods of application that go beyond the year of enactment? The Court has upheld several tax laws where the period of retroactivity extended into the preceding calendar year.11 For example, in United States v. Carlton, the Court upheld the retroactive application of a federal estate tax provision that limited the availability of a recently added deduction for the proceeds of sales of stock to employee stock ownership plans. The deduction was added by the Tax Reform Act of 1986, which had not included a requirement that the taxpayer own the stock immediately prior to death. The lack of such a requirement essentially created a loophole that Congress fixed with the 1987 amendment. The Tax Reform Act of 1986 was enacted in October 1986, and the amendment was enacted in December 1987, to apply as if incorporated in the 1986 law. In upholding the 1987 law, the Court explained that the period of retroactivity was permissible since it was only slightly more than one year, as well as noting that the IRS had announced its concern with the original law as early as January 1987 and a bill to make the correction was introduced in Congress the very next month.12

However, it does appear that due process concerns may be raised by a more extended period of retroactivity. In Nichols v. Coolidge (one of the few cases where the Supreme Court struck down a retroactive tax on due process grounds),13 the Court disallowed the retroactive application of an estate tax provision that changed the tax treatment of a transfer 12 years after the transfer had occurred.14 The Court later unfavorably compared the 12-year period with periods where the “retroactive effect is limited.”15 This suggests that due process concerns are raised by an extended period of retroactivity. However, it is not clear how long a period might be constitutionally problematic. The Court has recognized retroactive liability for periods beyond one or two years in non-taxation contexts,16 but it is not clear how a similar situation arising under the tax laws would be addressed.

Reliance and Lack of Notice

One issue often raised is that it may seem unfair to change the tax laws once a taxpayer has done something based on the law as it existed at the time. The fact that taxpayers may have concluded a transaction in reliance on prior law is generally not important to the analysis as “reliance alone is insufficient to establish a constitutional violation.”17 As the Court has made clear, “[t]ax legislation is not a promise, and a taxpayer has no vested right in the Internal Revenue Code.”18 In other words,

Taxation is neither a penalty imposed on the taxpayer nor a liability which he assumes by contract. It is but a way of apportioning the cost of government among those who in some measure are privileged to enjoy its benefits and must bear its burdens. Since no citizen enjoys immunity from that burden, its retroactive imposition does not necessarily infringe due process….19

Additionally, lack of notice of the retroactive effect of a tax law is not dispositive of whether due process has been violated.20 Lack of notice may, nonetheless, be a concern when the retroactive legislation enacts a wholly new tax. This was the issue in two cases where the Court struck down retroactive tax legislation on due process grounds—Blodgett v. Holden and Untermyer v. Anderson.21 Both dealt with the constitutionality of retroactive application of the Revenue Act of 1924, which enacted the gift tax. The legislation was introduced in February 1924, enacted that June, and applied to gifts made after January 1, 1924. The taxpayer in Blodgett made a gift in January 1924, and the taxpayer in Untermyer made a gift in May 1924, while the bill was in conference. The plurality in Blodgett and the majority in Untermyer held the retroactive application was unconstitutional because it was arbitrary as the taxpayers made gifts without knowing they would subsequently be subject to tax.22 In such a situation, a taxpayer has “no reason to suppose that any transactions of the sort will be taxed at all.”23

The Court in later cases has clearly distinguished the two cases on the basis that they dealt with the “creation of a wholly new tax” and therefore “their authority is of limited value in assessing the constitutionality of subsequent amendments that bring about certain changes in operation of the tax laws.”24 Thus, while lack of notice is not dispositive, the Court has suggested that lack of notice may violate due process if the retroactive law creates a “wholly new tax.”

Since the two cases dealing with the creation of the gift tax, it does not appear the Court has found any other situations where lack of notice was an issue.25 In some instances, the Court determined the retroactive tax provision was not a wholly new tax, as with the provision in Carlton, which amended a new estate tax deduction that was enacted 14 months prior as part of a major overhaul of the tax code.26 Even in a case with what looked like a brand new tax—a tax on silver under the Silver Purchase Act—the Court upheld a 35-day period of retroactivity.27 In that case, the law was enacted on June 19, 1934, retroactive back to May 15, 1934. In upholding the law’s retroactive application, the Court suggested that taxpayers had sufficient notice since there had been pressure for legislation for months, the President had sent a message to Congress encouraging such a tax on May 15, and the bill that became the act was introduced on May 23. This suggests that it would be rare for a tax provision to be characterized as a “wholly new tax” so long as taxpayers were on some kind of notice that a tax might be imposed.

The full report is available here:

https://sgp.fas.org/crs/misc/R42791.pdf

A pdf of the full report is here:

Retroactive Tax R42791

Interested in Moore about the § 965 transition tax?

Read “The Little Red Transition Tax Book“.

John Richardson – Follow me on Twitter @Expatriationlaw

Part 50 – Moore: The Government And The Tax Academics Strike Back

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Introduction

The U.S. Supreme Court will hear the case of Charles G. Moore v. United States on December 5, 2023. It is certain to be the most closely watched oral argument ever. I had originally considered travelling to DC to observe the spectacle in person. But, I have no desire to stand in a long line. I will have to settle for listening to audio online.

https://www.supremecourt.gov/search.aspx?filename=/docket/docketfiles/html/public/22-800.html

The government’s reply was filed on October 16, 2023. It has been supported by (so far) a relatively small number of amicus briefs from various tax academics (law professors). The purpose of this post is to offer my impressions of what I have read so far. There is a saying that two good trial lawyers are like two ships passing in the night (each with a different theory of the case). This is also descriptive of the briefs (collectively) in support of the Moores and the briefs (collectively) in support of the government.

Outline

Part A – A Review – What is the Moore case actually about?
Part B – Some preliminary questions – in the context of understanding the 16th amendment:
Part C – The government’s reply and the “tax academic” supporters are notable in that they:
Part D – An attempt to consolidate what the government and tax profs are saying …
Part E – Retroactivity – An Uncomfortable Truth
Appendix – The Tax Law Center

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Part 48 – Discussing The @USTransitionTax and Moore With @FAIRTaxGuys of @FAIRTaxOfficial

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Introduction – Previous Podcasts and Posts About The Fair Tax

I have previously written about the FAIR Tax as an alternative the existing income tax system. Basically, the FAIR Tax is a consumption based tax that would replace the income tax.

The Moore Appeal And The Income Tax

The Moore appeal is the most important case the U.S. Supreme Court has ever heard. The result will determine whether Congress can extinguish individual liberty under the guise of taxation.

At a minimum, the issue of whether Congress can tax unrealized income illuminates the evil and potential for weaponization and oppression the income tax affords. The FAIRTax is the only alternative.

During September of 2023 I had the opportunity to appear on Fair Tax Power Radio with Steve Hayes, Bob Scarborough and Bob Paxton.

John Richardson – Follow me on Twitter @Expatriationlaw

Part 47 – Are Refunds For Payments Of The MRT Possible If The Moore Appeal Succeeds?

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To file a protective refund claim or to not seek a refund, that is question …

Individuals who were subject to the 2017 965 Transition Tax would have responded (whether using the 962 election or not) to the tax obligation in one of two ways:

1. They would have paid the tax in full.

2. They would have chosen to pay the tax over the eight year instalment period.

The Supreme Court will hear the appeal in Moore. It is possible that the Court will issue a decision that means the MRT was unconstitutional with respect to (some or all) individual taxpayers. Are those individuals who paid the tax in full entitled to a refund?

An interesting post from U.S. tax lawyer Virginia La Torre Jeker provides a possible answer:

Virginia’s post (focusing on whether to file a protective refund claim) includes an excellent analysis. I highly recommend taking the time to read it. In relevant part she writes:

Here’s the law in a nutshell:

Section 965(k) provides the IRS 6 years to assess any transition tax that is owed. However, this 6-year statute only favors the IRS. Taxpayers seeking a refund are bound to Section 6511 which deals with refund claims. Pursuant to Section 6511(a) a taxpayer must file a refund claim by the later of 3 years of filing the tax return, or 2 years of paying the tax.

Lost Opportunity

Under the general refund claim rule, taxpayers that paid the full transition tax on their 2017 income tax return filed in 2018 (or 2018 tax return, filed in 2019, if they report on a fiscal year that is not a calendar year) will not be able to claim a refund. The time for claiming the refund expired in 2021 (or 2022 for fiscal year filers). Normally refund claims must be filed within 3 years of filing the tax return or 2 years from the date the tax was paid so these taxpayers are out of luck.

Clearly “No Good Deed Goes Unpunished”!

Interested in Moore (pun intended) about the § 965 transition tax?

Read “The Little Red Transition Tax Book“.

John Richardson – Follow me on Twitter @Expatriationlaw

Part 46 – Why Other Countries Should File Amicus Briefs In The Moore MRT Appeal

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Why U.S. deemed income events cause problems for U.S. citizens living in other countries and erode the tax based of the countries where they live

All countries in the world have an interest in the Moore MRT appeal and should file Amicus briefs in support of the Moores.

The U.S. citizenship tax AKA extraterritorial tax regime applies to ALL U.S. citizens and residents wherever they live in the world. With its very expansive definition of “tax residency”, the United States claims the tax residents of other countries as U.S. tax residents. Those unlucky dual filers are subject to additional administrative fees, additional taxation and the opportunity cost of the inability to effectively engage in retirement and financial planning.

In the Moore MRT appeal the U.S. Supreme Court will consider whether “income” requires the actual receipt of income or whether “deemed income” meets the 16th Amendment test for income. Does the 16th Amendment require objective tests that must be satisfied before “income” can exist? The answer to this question will have profound implications for both the “U.S. citizen” residents of other countries and (2) the countries where they live. As previously discussed, if income does NOT have to be actually received, this opens the door for the U.S. tax the residents of other countries on income they have never received. Often the taxable event in the U.S. will take place before the taxable event in that other country.

The following post describes some examples where the United States is already deeming income to have been received for U.S. tax purposes before income has been received in the other country.

The following post describes how the U.S. deeming income to have been received for U.S. tax purposes prior to income having been received in the other country may result in (1) double taxation to the individual and (2) erosion of the tax base of the other country.

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Part 44 – The Moores, Unrealized Income And Exporting US Taxes, Forms And Penalties To Residents Of Other Countries

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Exporting U.S. taxes, forms and penalties to the residents of other countries

In the Moore appeal, the Supreme Court of the United States is charged with the task of determining whether “realization” is a necessary condition, for an “accession to wealth”, to qualify as “income” under the 16th Amendment. This broad question arises in the context of the Moores, who as “U.S. Shareholders” of a CFC, were subjected to the MRT which facilitated the double taxation of the Moores. The Moores, who reside in the United States, certainly have not and have no expectation of receiving a distribution from the India corporation. As problematic as the MRT was for the Moores, the MRT was far more devastating for Americans abroad, who were operating businesses that although “foreign to the United States”, were “local” to them. For the Moores their investment in the CFC represented an investment in a corporation that was “foreign” to both the Moores and the United States. Americans abroad were shareholders in CFCs (unlike the Moores and other resident Americans) that were “local” to them but foreign to the United States. In addition, for Americans abroad the CFC typically represents a pension/retirement planning vehicle. How can it be that the MRT could apply to individuals who live in other countries and are shareholders of corporations created in those countries? The answer is of course the extra-territorial application of the U.S. tax system to residents of other countries who happen to be U.S. citizens. In fact, the use of Canadian Controlled Private Corporations by dual US/Canada citizens living in Canada, demonstrates that it is possible for a U.S. citizen in Canada to be a shareholder in a Canadian corporation that would not qualify as CFCs if owned by U.S. residents.

The key takeaway is that the U.S. tax system, because of the extra-territorial tax regime (citizenship-based taxation) has a profoundly negative effect on individuals who are residents of other countries! U.S. tax law applies NOT only to U.S. residents but to residents of other countries who cannot demonstrate they are nonresident aliens. Therefore, a decision that the 16th Amendment does NOT require “realization” means that the U.S. will export the taxation of “unrealized income” to residents of other countries. The U.S. would tax the “unrealized income” of residents of other countries even when those other countries did not recognize the unrealized income as a taxable event!

In some circumstances the taxation of unrealized income would lead to double taxation. In other circumstances the taxation of unrealized income would frustrate the objectives of the tax policy of the other country. In many circumstances the taxation of “unrealized income” allows the United States to tax the wealth of other nations. It’s important to recognize that when the Supreme Court rules in the Moore appeal, it will also be deciding whether the U.S. can export the taxation of “unrealized income” to other countries! This has huge implications for both the residents and tax sovereignty of other countries.

Some EXISTING examples

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Part 43 – The 1996 Treasury Regs, 2017 TCJA And The Looting Of Canadian Controlled Private Corporations

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Punishing U.S. citizens who live outside the United States As Tax Residents Of Canada

The deadline for the submission of Amicus briefs in the Moore MRT appeal is rapidly approaching. As a result (partly by accident and partly by design) I have been rethinking a number of concepts including Subpart F generally, the 965 Transition Tax specifically, retroactivity in the context of the transition tax and (of course) the injustice inflicted by the U.S. “citizenship taxation” regime on dual Canada/US citizens who are resident in Canada. I just realized something that although obvious has not (to my knowledge) been discussed.

Bottom line: US citizens living in Canada who are subject to the 965 MRT AKA transition tax are (as individual shareholders of Canadian Controlled Private Corporations) subject to a tax that a U.S. citizen residing in the United States could NEVER be subject to!! Putting it another way: The U.S. citizen living in Canada is subject to a tax based on an activity (being a shareholder of a Canadian Controlled Private Corp) that a U.S. resident is not eligible to do. A U.S. citizen living in the United States is simply not eligible to be a shareholder of a Canadian Controlled Private Corporation that is a “Controlled Foreign Corporation”. A U.S. living in Canada is eligible to be a shareholder in a Canadian Controlled Private Corporation. Therefore, a Canadian resident is subject to the 965 transition tax with respect to a corporation that – vis-a-vis a U.S. resident – can never be a Controlled Foreign Corporation.

On the one hand this is clearly an abuse of U.S. citizens living in Canada (because of the U.S. citizenship tax regime) AND an attack on the Canadian tax base. On the other hand (as this post will demonstrate):

“It’s the American way!”

Part A – Prologue 1996: Treasury Creates The Legal Structure To Facilitate The 2017 Looting Of Canadian Controlled Private Corporations

America is obsessed with its corporations. The primary purpose of the 2017 TCJA was to lower the corporate tax rate from 35% to 21%. Individuals have a “love hate” relationship with Corporations. A country’s tax code is a reflection of the country’s values. The U.S. Internal Revenue Code has a hatred of “all things foreign”. But, nowhere is this hatred reflected more in the treatment of “foreign corporations” (think Subpart F, GILTI, transition tax and PFIC). Given the importance of corporations in U.S. culture and taxation, one would expect the Internal Revenue Code would define “corporation”. Shockingly it does not! The kinds of activities that are to be treated as corporations (unless there is an “opt out”) are defined NOT in the Internal Revenue Code, but in the Treasury Regulations – specifically the entity classification rules found in the 7701 entity classification regulations. These regulations were last subject to significant modification in 1996. The regulations created a class of entities that are called “**per se corporations”. A “per se corporation” is always treated as a “corporation”. This means that if they are “foreign corporations” they are always potentially subject to both the Subpart F and PFIC regimes. Notably almost ALL categories of Canadian corporations (including *Canadian Controlled Private Corporations) are treated as “per se” corporations. Because Canadian Controlled Private Corporations are deemed to be “per se corporations” they were “sitting ducks” for the 2017 TCJA changes – specifically GILT and the 965 Transition Tax.

In an earlier discussion how the 7701 Treasury entity classification regulations deemed Canadian Controlled Private Corporations to be “per se” corporations, I noted that:

Canadian corporations should NOT be deemed (under the Treasury entity classification regulations) to be “per se” corporations. The reality is that corporations play different roles in different tax and business cultures. Corporations in Canada have many uses and purposes, including operating as private pension plans for small business owners (including medical professionals).

Deeming Canadian corporations to be “per se” corporations means that they are always treated as “foreign corporations” for the purposes of US tax rules. This has resulted in their being treated as CFCs or as PFICs in circumstances which do not align with the purpose of the CFC and PFIC rules.

The 2017 965 Transition Tax confiscated the pensions of a large numbers of Canadian residents. The ongoing GILTI rules have made it very difficult for small business corporations to be used for their intended purposes in Canada.

Clearly Treasury deemed Canadian Controlled Private Corporations to be “per se” corporations without:

1. Understanding the use and role of these corporations in Canada; and

2. Assuming that ONLY US residents might be shareholders in Canadian corporations. As usual, the lives of US citizens living outside the United States were not considered.

These are the problems that inevitably arise under the US citizenship-based AKA extraterritorial tax regime, coupled with a lack of sensitivity to how these rules impact Americans abroad. The US citizenship-based AKA extraterritorial tax regime may be defined as:

The United States imposing worldwide taxation on the non-US source income of people who are tax residents of other countries and do not live in the United States!

It is imperative that the United States transition to a system of pure residence-based taxation!

Conclusion: The 1996 Treasury regulations deemed Canadian Controlled Private Corporations to be per se foreign corporations. Because they were deemed to be corporations this meant that they their “U.S. Shareholders” were subject to the Subpart F regime. Being subject to the Subpart F regime was both a necessary and sufficient condition for the 2017 looting of the retained earnings of those corporations through the 2017 965 MRT AKA transition tax.

Part B – The applicability of Subpart F, GILTI and the Transition Tax to “Canadian Controlled Private Corporations”

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Part 42 – In Moore The Supreme Court Should Consider The Retroactive Nature Of The Transition Tax

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Prologue – Taxation, Fairness And “The Man On The Street”

Imagine asking an individual (who was not a tax academic, lawyer or accountant) the following two questions:

1. Do you think that people should be forced to pay taxes on income never received?

2. Do you think people should be forced to pay taxes on income from the previous 30 years that they had never received?

The average person would be shocked by the possibility of this.

It may be difficult for the average person to understand Subpart F’s attribution of the income of a corporation to a shareholder. The average person would not doubt the unfairness of attributing 30 years of untaxed earnings of the corporation to the shareholder (especially when the income was never received by the shareholder).

Moore and Retroactivity – The Readers Digest Version

This history of the Moore case is described by Professors Brooks and Gamage as follows:

The taxpayers brought suit challenging the MRT, arguing that it was an unapportioned direct tax and therefore in violation of the Constitution.25 (They also argued that its seeming retroactivity was in violation of the Due Process clause of the Fifth Amendment,26 though this was not the main focus of the case, nor did the dissenters address it, nor do the petitioners raise the issue in the cert petition, so we put that claim aside.27) The district court dismissed the claim, and a three-judge panel of the Ninth Circuit unanimously affirmed the dismissal.28 The taxpayers’ subsequent petition for rehearing and rehearing en banc was denied.29

The Chamber of Commerce’s amicus cert brief filed on March 27, 2023 included on page 18:

The Constitution imposes numerous safeguards that prevent the government from making rapid changes that would unsettle expectations. Such principles “find[] expression in several [constitutional] provisions,” Landgraf v. USI Film Prods., 511 U.S. 244, 265 (1994), and often implicate tax laws.

First, “a retroactive tax provision [can be] so harsh and oppressive as to transgress the constitutional limitation” of due process. Carlton, 512 U.S. at 30. When “Congress act[s] promptly and establishe[s] only a modest period of retroactivity,” like “only slightly greater than one year,” a tax law’s retroactive effect has been deemed permissible. Id. at 32–33. But a tax law that deals with a “novel development” regarding “a transfer that occurred 12 years earlier” has been held unconstitutional. Id. at 34 (discussing Nichols v. Coolidge, 274 U.S. 531 (1927)). Here, of course, the Ninth Circuit called the MRT a “novel concept,” and it reached back—not one, not twelve—but more than thirty years into the past, long after companies made decisions about where to locate their long-term as- sets.2 App 6. The MRT’s aggressive retroactivity showcases the danger of unmooring income from its defining principle of realization. Erasing the realization requirement upends taxpayer expectations—leaving them looking over their shoulders for what unrealized gain Congress might next call “income.”

How “retroactivity” was considered by the District Court and the 9th Circuit

The District court specifically found that the transition tax was a retroactive tax, but ruled that the retroactivity did NOT violate the 5th Amendment. The 9th Circuit “assumed” (without considering) the retroactivity of the tax and like the District Court ruled that the retroactivity did NOT violate the 5th Amendment.

The Supreme Court granted the cert petition based only on the question of whether the 16th amendment requires income to be “realized”. The issue in Moore is whether 30 years of income realized by a CFC, never distributed to the US shareholder, and never previously taxable to the U.S. shareholder (under Subpart F) in that 30 year period, can be deemed to be “income” and taxed directly to the U.S. citizen shareholder in 2017.

Can a current attribution to a shareholder, of income earned by a corporation 30 years ago, meet the constitutional requirement of “income” under the 16th Amendment?

A ruling that 30 years of retroactive income could not qualify as 16th Amendment income might allow the court to:

1. Provide relief to the Moores (and other individual shareholders of CFCs); and

2. Avoid ruling on the broader and more general issue of realization.

Arguably a finding of “retroactivity” could mean that (whether realized or not), income earned by the CFC in the past 30 years cannot be considered to be current “income” under the 16th Amendment.

The purpose of this post is to focus on the issue of retroactivity. I do not believe that “retroactivity” was properly analyzed by either the District Court or 9th Circuit.

This post is divided into the following parts:

Part A – Introduction – Thinking about taxation of income
Part B – What is it about the “transition tax” that raises the question of retroactivity?
Part C – Retroactivity and the “Carlton” standard
Part D – Discussion of retroactivity: District Court Decision Moore
Part E – Discussion of retroactivity – 9th Circuit – Moore
Part F – Concluding thoughts …
Appendixes – Excerpts from relevant cases and articles
Appendix A – Excerpt from Hank Adler interview discussing the retroactive nature of the MRT
Appendix B – Moore District Court
Appendix C – Moore the 9th Circuit
Appendix D – Quarty
Appendix E – Justice Blackmun’s majority decision in Carlton
Appendix F – Justice O’Connor concurrence in Carlton
Appendix G – Justice Scalia and Justice Thomas in Carlton

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Part 39 – The § 965 Transition Tax: Congress Said: “Let There Be Income And There Was Income”

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Outline

Part A – Prologue And Introduction
Part B – A wealth tax may NOT be a 16th Amendment income tax
Part C – The identification of existing income, new income and retroactivity
Part D – “Deferred income”: A newly created form of income or previously existing income exempt from taxation
Part E – The Moore’s visit the Supreme Court Of The United States – The Government’s Response
Part F – Conclusion

Part A – Prologue And Introduction

The Moore transition tax appeal is about whether “income” under the 16th Amendment requires “realization” in order to qualify as income. Resolution of this issue requires an analysis of both the meaning of “income” (whatever “income” may mean) and whether “income” must be “realized” to meet constitutional requirements. Generally, the taxation of income receives its constitutional legitimacy because of the 16th amendment which reads:

The Congress shall have the power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.”

The 16th Amendment (1) creates the constitutional jurisdiction for Congress to tax “incomes” but (2) extends the constitutional jurisdiction to tax, ONLY to “income”.

The 16th Amendment does NOT say that Congress has the power to collect taxes on anything that Congress decides to designate as income. Rather the 16th Amendment specifies a tax on “income”. In this respect, the 16th Amendment implies that there are limitations on the kinds of “accessions to wealth, clearly realized, and over which the taxpayers have complete dominion” (or other events) that qualify as income. Something must have some objective characteristics in order to qualify as “income”. Perhaps an “event”. Perhaps an “accession to wealth”. Perhaps “realization”. Perhaps something else.

Income must meet some necessary and objective requirements

The word “income” (difficult as it may be to define) must have some “objective” limitation. Absent an “objective” limitation, Congress could simply “designate” anything as income and then impose taxation on it. Specifically legislating something as income is neither a necessary (See IRC § 61) nor sufficient condition (possibly the 965 transition tax) for something to objectively qualify as income. (That said, there are some who believe that there are no constitutional limitations on what Congress may define as income.)

Income must have some objective meaning and some objective limitation.

In summary:

To be taxable under the 16th Amendment, something must qualify as income.

Although income may not be possible to define with precision and certainty, there are certain things that clearly are NOT income.

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Part 38 – The § 965 Transition Tax Caused The Moore’s To Pay $14,712 Moore In Double Taxation

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In my last post I discussed the fact that the U.S. Supreme Court has agreed to hear the Moore’s challenge to the 965 Transition Tax.

A direct link to the Supreme Court site which will track the progress and filings of all briefs (including what are expected to be a large number of amicus briefs) is here.

Although the 965 Transition Tax was the fact that prompted the litigation, the issue as framed for the Supreme Court was:

22-800 MOORE V. UNITED STATES
DECISION BELOW: 36 F.4TH 930
CERT. GRANTED 6/26/2023

QUESTION PRESENTED:

The Sixteenth Amendment authorizes Congress to lay “taxes on incomes … without apportionment among the several States.” Beginning with Eisner v. Macomber, 252 U.S. 189 (1920), this Court’s decisions have uniformly held “income,” for Sixteenth Amendment purposes, to require realization by the taxpayer. In the decision below, however, the Ninth Circuit approved taxation of a married couple on earnings that they undisputedly did not realize but were instead retained and reinvested by a corporation in which they are minority shareholders. It held that “realization of income is not a constitutional requirement” for Congress to lay an “income” tax exempt from apportionment. App.12. In so holding, the Ninth Circuit became “the first court in the country to state that an ‘income tax’ doesn’t require that a ‘taxpayer has realized income.”‘ App.38 (Bumatay, J., dissenting from denial of rehearing en banc).

The question presented is:

Whether the Sixteenth Amendment authorizes Congress to tax unrealized sums without apportionment among the states.

LOWER COURT CASE NUMBER: 20-36122

The relevant facts as recited in the petition may be found in the Appendix* below.

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