Moore versus United States, the landmark tax case at the Supreme Court 

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Case summary 

In December 2023, the US Supreme Court heard oral argument in Moore v. United States, a case in which petitioners have asked the Court to find that Congress’s power to tax income under the Sixteenth Amendment extends only to “realized” income. A ruling for the petitioners could result in a windfall for large multinational corporations and dismantle or unsettle wide swaths of the tax code, including fundamentals of the tax system that have been on the books for decades and that were built on a bipartisan basis. As the Tax Law Center has argued, the income at issue was realized, so the Court does not need to -- and should not – reach the question of whether the 16th Amendment requires realization. But if it does, it should reject the petitioners’ radical theory: there is no realization requirement to be found in text or history of the 16th Amendment, which says the federal government has the power to tax incomes “from whatever source derived,” and the petitioners’ sweeping argument certainly is not consistent with more than 100 years of the Supreme Court’s own cases, or with the existing tax code.  

The Supreme Court is expected to issue a decision by June 2024. 
 

Tax Law Center analysis 

January 2023: “Moore v. United States: Avoiding a Damaging Limiting Principle in the Sixteenth Amendment"

Even as the justices for the most part approached the petitioners’ claim skeptically, they raised questions for both sides in the case as to the appropriate limiting principle for determining what Congress can tax as income under the 16th Amendment. In this post with Professors Ari Glogower, Rebecca Kysar, Darien Shankse, and David Kamin, we analyze several “limiting principles” to the 16th Amendment that were discussed in oral argument, and explain how many–though not all–of these could significantly undercut the income tax.  

June 2023: “New Supreme Court Case Could Unsettle Large, Longstanding, Parts of the Tax Code Built on a Bipartisan Basis Over Decades and Give a Windfall to Multinational Corporations” 

The Supreme Court today announced it will hear Moore v. United States, a case that challenges the constitutionality of the mandatory repatriation tax (MRT) enacted in 2017 as part of the Tax Cuts and Jobs Act (TCJA). This post is an introduction to the Moore case and the broad risks it poses to the tax system. 
 

Additional resources 

Tax Law Center perspectives in selected news coverage about the case 

Summary of Argument from Amicus Brief by Tax Law Center and Professors Ari Glogower, David Kamin, Rebecca Kysar, and Darien Shanske. Full brief can be found here. 

Petitioners frame the question presented in this case (at i) as whether the Sixteenth Amendment authorizes Congress to tax “unrealized sums” as income. But the statute at issue here, the mandatory repatriation tax (or MRT), does not tax unrealized sums. It taxes income that has unquestionably been realized at the corporate level. So the real question presented is not whether Congress may tax income that has not been realized. It is instead whether Congress may attribute the income realized by a corporation to its shareholders, rather than to the corporation itself, and tax them based on their attributable shares of that realized income. 

In arguing that the answer is no, petitioners rely primarily on a 5–4 decision from the early 20th century, Eisner v. Macomber, 252 U.S. 189 (1920). Petitioners read Macomber as standing for the broad proposition that Congress may tax shareholders on a company’s profits only if the profits are actually distributed to them. But Macomber addressed the issuance of stock dividends by a corporation that had already been taxed on its income. It did not involve a scenario where, as here, the corporation’s income had not yet been taxed when it was attributed to the shareholders. In the 103 years since the case was decided, this Court has never used Macomber to invalidate a tax outside of stock dividends. Quite the opposite: The Court has repeatedly refused to extend Macomber’s reasoning beyond the specific context of that case. And for many decades since it was decided, Congress has legislated based on the understanding that Macomber is limited to that context. Petitioners’ theory of realization cannot be reconciled with this understanding and would imperil numerous tax provisions that have long been on the books. 

Even petitioners cannot bring themselves to embrace the implications of their reading of Macomber. At the very back of their brief (at 44–53), they attempt to distinguish the MRT from various longstanding federal income-tax provisions, including other provisions that (like the MRT) govern controlled foreign corporations (or CFCs); the taxation of partnerships, S corporations, and other pass-through entities; and certain accrual-based taxes. In doing so, petitioners try to reassure this Court that the MRT is the one and only tax provision that is invalid under their view of the Sixteenth Amendment. Pet’rs Br. 2. 

But petitioners offer no principled way to harmonize their theory of realization and their reading of Macomber with these longstanding tax provisions. Nor do they offer any principled way to distinguish these provisions from the MRT for purposes of the Sixteenth Amendment. To the contrary, in attempting to square their theory with these provisions, petitioners end up acknowledging a key point (at 51): that realization is ultimately a “legislative determination” for Congress to make based on policy judgments, not a constitutional limitation on legislative power whose meaning is fixed by federal judges. 

Unable to distinguish the MRT from well-established features of the tax system, petitioners end up retreating to an argument that the MRT reaches too far back in time. But Congress’s decision to end the deferral of taxation on income realized over multiple years does not somehow transform the taxation of that income into something other than an income tax. The underlying tax base is still income because it reaches net gain. That it was realized over multiple years is irrelevant. Indeed, petitioners’ fallback argument has little to do with the Sixteenth Amendment and nothing to do with realization. Rather, it is a repurposed Fifth Amendment argument about retroactivity — and one that petitioners made below, rightly lost under well-established doctrine, and then abandoned. Thus, this alternative claim is not before the Court in this case. The Court should decide only the narrow issue before it: whether Congress may attribute income realized at the corporate level to the corporation’s shareholders and impose a tax on that income. Relying on decades of judicial precedent and congressional action permitting the attribution of income among related parties, this Court should answer yes.

 

The picture "Supreme Court" by Mark Fischer is licensed under CC BY-SA 2.0.