Amicus Curiae Brief — Charles G. Moore, et ux., Petitioners v. United States

No. 22-800

IN THE

Supreme Court of the United States

CHARLES G. MOORE AND KATHLEEN F. MOORE,

Petitioners,

v.

UNITED STATES OF AMERICA,

Respondent.

On Writ of Certiorari to the

United States Court of Appeals

for the Ninth Circuit

BRIEF OF AMICUS CURIAE AMERICANS FOR

TAX REFORM IN SUPPORT OF PETITIONERS

BRIAN A. KULP

DECHERT LLP

Cira Centre

2929 Arch Street

Philadelphia, PA 19104

STEVEN A. ENGEL

Counsel of Record

MICHAEL H. MCGINLEY

ERIC D. HAGEMAN

JUSTIN W. AIMONETTI

DECHERT LLP

1900 K Street, NW

Washington, DC 20006

(202) 261-3369

steven.engel@dechert.com

Counsel for Amicus Curiae

September 6, 2023

i

TABLE OF CONTENTS

TABLE OF AUTHORITIES ...................................... iii

INTEREST OF AMICUS CURIAE............................. 1

INTRODUCTION

AND

SUMMARY

OF

ARGUMENT ................................................................ 2

ARGUMENT ................................................................ 3

I.

Congress May Not Levy An Unapportioned

Direct Tax On Unrealized Gains .......................... 3

A. The Mandatory Repatriation Tax Is An

Unapportioned Direct Tax.............................. 4

B. The Mandatory Repatriation Tax Is Not A

Tax On “Incomes.” .......................................... 7

1. The Original Public Meaning of

“Incomes”

Does

Not

Include

Unrealized Gains...................................... 7

a. Contemporaneous

Dictionary

Definitions .......................................... 7

b. Contemporaneous Legal Authorities .... 8

c.

Textual Context ................................ 10

d. Pre-Ratification Case Law ............... 11

e.

Contemporaneous State Statutes ..... 15

f.

Federal Law Implementing the

Income Tax ....................................... 16

g. This Court’s Early Cases ................. 18

2. A Realization Requirement Respects

The Balance Struck By The Sixteenth

Amendment’s Framers ........................... 20

ii

3. Post-Ratification

History

Has

Consistently Treated “Income” As

Requiring Realization ............................ 24

II. The Ninth Circuit’s Decision Invites Future

Efforts To Expand Congress’s Taxing Power

Beyond Constitutional Constraints .................... 27

CONCLUSION .......................................................... 30

iii

TABLE OF AUTHORITIES

Cases

Baldwin Locomotive Works v. McCoach,

221 F. 59 (3d Cir. 1915) ......................................... 14

Bates v. Porter,

15 P. 732 (Cal. 1887) .............................................. 13

Braun’s Appeal,

105 Pa. 414 (1884) ................................................. 13

Burk-Waggoner Oil Ass’n v. Hopkins,

269 U.S. 110 (1925).......................................... 16, 19

Busbey v. Russell,

1898 WL 1419 (Ohio Cir. Ct. Nov. 1, 1898) .......... 13

Chisholm v. Georgia,

2 U.S. (2 Dall.) 419 (1793) ..................................... 23

Commissioner v. Glenshaw Glass Co.,

348 U.S. 426 (1955)................................................ 24

Davis v. Mich. Dep’t of Treasury,

489 U.S. 803 (1989)................................................ 10

Eisner v. Macomber,

252 U.S. 189 (1920)............................ 2, 6, 11, 19, 23

Gibbons v. Mahon,

136 U.S. 549 (1890)................................................ 14

Glasgow v. Rowse,

43 Mo. 479 (1869)................................................... 13

Gray v. Darlington,

82 U.S. (15 Wall.) 63 (1872) .................................. 14

Hans v. Louisiana,

134 U.S. 1 (1890).............................................. 20, 23

iv

Helvering v. Horst,

311 U.S. 112 (1940).......................................... 19, 20

Judge v. Spencer,

48 P. 1097 (Utah 1897) .......................................... 13

Levi v. City of Louisville,

30 S.W. 973 (Ky. 1895) .......................................... 13

Matter of Gerry,

18 Abb. N. Cas. 178 (N.Y. 1886) ............................ 12

Maxwell v. Dow,

176 U.S. 581 (1900)................................................ 20

Mayor & Aldermen of the City of Charleston v. State

ex rel. Adger,

29 S.C.L. 719 (S.C. App. L. 1844) .......................... 11

McClintock v. Dana,

106 Pa. 386 (1884) ................................................. 13

McCulloch v. Maryland,

17 U.S. (4 Wheat.) 316 (1819) ................................. 5

Merchants’ Loan & Tr. Co. v. Smietanka,

255 U.S. 509 (1921).................................................. 7

Minot v. Paine,

99 Mass. 101 (1868) ............................................... 14

Mut. Ben. Life Ins. Co. v. Herold,

198 F. 199 (D.N.J. 1912) ........................................ 14

N. Am. Oil Consol. v. Burnet,

286 U.S. 417 (1932)................................................ 25

NFIB v. Sebelius,

567 U.S. 519 (2012).............................................. 5, 6

NLRB v. Noel Canning,

573 U.S. 513 (2014)................................................ 26

v

People ex rel. McMaster & Harvey v. Bd. of

Supervisors of Niagara Cnty.,

4 Hill 20 (N.Y. Sup. Ct. 1842)................................ 12

Pollock v. Farmers’ Loan & Tr. Co.,

157 U.S. 429 (1895)............................ 5, 6, 20, 21, 23

Seila Law LLC v. Consumer Fin. Prot. Bureau,

140 S. Ct. 2183 (2020)............................................ 26

Sims’s Appeal,

44 Pa. 345 (1863) ................................................... 13

Smith v. Hooper,

51 A. 844 (Md. 1902) .............................................. 13

Soc’y for Sav. v. Coite,

73 U.S. (6 Wall.) 594 (1868)................................... 29

Solomon v. Cosby (In re Solomon),

67 F.3d 1128 (4th Cir. 1995).................................. 11

Spooner v. Phillips,

24 A. 524 (Conn. 1892)........................................... 13

Staples v. United States,

21 F. Supp. 737 (E.D. Pa. 1937) ............................ 25

State ex rel. Bolens v. Frear,

134 N.W. 673 (Wis. 1912) ................................ 15, 16

State ex rel. Mechanics’ & Traders’ Ins. Co. v.

Bd. of Assessors, 18 So. 462 (La. 1895) ................. 13

State ex rel. Tait & Meggett v. Elfe,

34 S.C.L. 395 (S.C. App. L. 1849) .......................... 11

Taft v. Bowers,

278 U.S. 470 (1929).......................................... 19, 24

Towne v. Eisner,

245 U.S. 418 (1918)................................................ 18

vi

United States v. Schillinger,

27 F. Cas. 973 (C.C.S.D.N.Y. 1876)....................... 14

Waring v. Mayor & Aldermen of the City of

Savannah,

60 Ga. 93 (1878) ..................................................... 12

Weiss v. Stearn,

265 U.S. 242 (1924)................................................ 19

Williams v. Florida,

399 U.S. 78 (1970).................................................. 20

Constitution

U.S. Const. amend. XVI ......................................... 2, 6

U.S. Const. art. I, § 2, cl. 3 ......................................... 4

U.S. Const. art. I, § 8, cl. 1 ......................................... 4

U.S. Const. art. I, § 9, cl. 4 ......................................... 4

Statutes and Legislation

26 U.S.C. § 1001(a) ................................................... 26

26 U.S.C. § 1011 ....................................................... 26

44 Cong. Rec. 3377 (June 17, 1909) ......................... 22

44 Cong. Rec. 4109 (July 5, 1909) ............................ 22

44 Cong. Rec. 4408 (July 12, 1909) .......................... 24

H.R. 1459, 117th Cong. (2021) ................................. 27

H.R. 8558, 117th Cong. (2022) ................................. 27

H.R. Rep. No. 67-350 (1921) ..................................... 24

Revenue Act of 1913, Pub. L. No. 63-16, 38 Stat.

114 (1913) ......................................................... 16, 17

vii

Revenue Act of 1921, Pub. L. No. 67-98, 42 Stat.

227 (1921) ............................................................... 24

S. 510, 117th Cong. § 2901(b) (2021) ....................... 27

S. Rep. No. 67-275 (1921) ......................................... 24

Other Authorities

1 The Records of the Federal Convention of 1787

(Max Farrand ed., 1911) .......................................... 5

2 Robert Hunter & Charles Morris, Universal

Dictionary of the English Language (1897) ............ 8

4 Century Dictionary and Cyclopedia (1899)............. 8

93 A guide and analytical index to the Internal

Revenue Acts of the United States, 1909–1950

(Bernard D. Reams ed., 1979) ............................... 21

Americans for Tax Reform, 104 Years of the

Income Tax: Then and Now (Apr. 13, 2017),

bit.ly/3YXK9Dz ...................................................... 28

Note, George J. Argeris, State Authority to Tax

Private Interests in Federal Property, 13 Wyo.

L.J. 229 (1959) ....................................................... 29

Note, Benjamin G. Barokh, The Meaning of

“Incomes” in the Sixteenth Amendment, 15 Geo.

J.L. & Pub. Pol’y 409 (2017) .................................. 26

Boris I. Bittker, Fundamentals of Federal Income

Taxation (Richard L. Doernberg et al. eds., 1983)

................................................................................ 26

Henry Campbell Black, A Treatise on the Law of

Income Taxation (1913) ........................................... 9

Black’s Law Dictionary (2d ed. 1910) ........................ 8

viii

Roy G. Blakey & Gladys C. Blakey, The Federal

Income Tax (2006).................................................. 21

Bouvier’s Law Dictionary ......................................... 13

John R. Brooks & David Gamage, Taxation and

the Constitution, Reconsidered, 76 Tax. L. Rev.

201 (forthcoming 2023), bit.ly/3Ev9a1f ................. 25

Charles Edward Clark, Eisner v. Macomber and

Some Income Tax Problems, 29 Yale L.J. 735

(1920) ........................................................................ 9

Thomas Cooley, A Treatise on the Law of Taxation

Including the Law of Local Assessments (1876) ..... 9

James W. Ely Jr., “One of the Safeguards of the

Constitution:” The Direct Tax Clauses Revisited,

12 Brigham-Kanner Prop. Rts. J., (Vanderbilt L.

Rsch., Working Paper No. 23-02, last revised

Feb. 2, 2023), bit.ly/3FygLgb ................................. 22

Final Report of the Board of Commissioners on

Revenue and Taxation for the State of Utah (The

Arrow Press Jan. 20, 1913) ................................... 15

Thomas Gold Frost, A Treatise on the Federal

Income Tax Law of 1913 (1913)............................. 10

Bryan A. Garner et al., The Law of Judicial

Precedent (2016) ..................................................... 27

Benjamin H. Harris et al., The Individual AMT:

Problems and Potential Solutions, Brookings

(Sept. 18, 2002), bit.ly/3LMBQYm ........................ 28

Alex Hendrie, Ten Reasons to Be Concerned with

Biden’s 20 Percent Tax on Unrealized Gains,

Americans for Tax Reform (Mar. 28, 2022),

bit.ly/3LTDpUD ..................................................... 28

ix

Improvements by Lessee as Income to the Lessor,

51 Harv. L. Rev. 1113 (1938) ................................. 10

Erik M. Jensen, Taxation and the Constitution:

How to Read the Direct Tax Clauses, 15 J.L. &

Pol. 687 (1999) ......................................................... 5

Erik M. Jensen, The Apportionment of “Direct

Taxes”: Are Consumption Taxes Constitutional?,

97 Colum. L. Rev. 2334 (1997) ............................ 4, 5

Jeffrey M. Jones, What Percentage of Americans

Own Stock?, Gallup (May 24, 2023),

http://bit.ly/3yvPrvr ............................................... 29

Marjorie E. Kornhauser, The Constitutional

Meaning of Income and the Income Taxation of

Gifts, 25 Conn. L. Rev. 1 (1992) ............................ 18

Marjorie E. Kornhauser, The Story of Macomber:

The Continuing Legacy of Realization, in Tax

Stories: An In-Depth Look At Ten Leading

Federal Income Tax Cases (Paul L. Caron ed., 2d

ed. 2009) ................................................................. 25

Rodney P. Mock & Jeffrey Tolin, Realization and

Its Evil Twin Deemed Realization, 31 Va. Tax

Rev. 573 (2012) ...................................................... 26

Robert H. Montgomery, Income Tax Procedure

(1917) ...................................................................... 17

Robert H. Montgomery, Income Tax Procedure

(1919) ........................................................................ 9

Godfrey N. Nelson, Income Tax Law and

Accounting (1918) .................................................. 10

x

Mike Palicz, List of Tax Hikes in Biden’s Budget,

Americans for Tax Reform (Mar. 9, 2023),

http://bit.ly/3mHFqbD ........................................... 27

Thomas Reed Powell, Income from Corporate

Dividends, 35 Harv. L. Rev. 363 (1922) ................ 25

Recent Cases, 51 Harv. L. Rev. 1286 (1938) ............ 25

Remarks of President Joe Biden – State of the

Union Address as Prepared for Delivery (Feb. 7,

2023), bit.ly/3XxeEjb.............................................. 28

Theodore Roosevelt, Sixth Annual Message, The

Am. Presidency Project (Dec. 3, 1906),

https://bit.ly/3OCup5H .......................................... 21

Antonin Scalia & Bryan A. Garner, Reading Law:

The Interpretation of Legal Texts (2012) ......... 17, 20

Blake Seitz, AMT Set to Lasso 27 Million More

Taxpayers in 2013, Americans for Tax Reform

(July 6, 2012), bit.ly/3yXZERf ............................... 28

Edwin Seligman, The Income Tax (1911) .................. 9

Senate Finance Committee, Elimination of

Deferral, https://bit.ly/423u5Df ............................. 27

Senate Finance Committee Democrats, Treat

Wealth Like Wages (Sept. 12, 2019),

https://bit.ly/3mkKqk8 ........................................... 27

Henry C. Simons, Personal Income Taxation: The

Definition of Income as a Problem of Fiscal Policy

(1938) .................................................................. 7, 18

Robert Stanley, Dimensions of Law in the Service

of Order: Origins of the Federal Income Tax,

1861–1913 (1993) ................................................... 22

xi

John O. Stark, The Establishment of Wisconsin’s

Income Tax, 71 Wis. Mag. of Hist. 27 (1987) ........ 15

Tax Policy Center, What Is the AMT? (May 2020),

http://bit.ly/3yANhe0 ............................................. 28

Taxation of Increment in Capital Value Before

Acquisition as Income to Donee, 37 Yale L.J. 392

(1928) ...................................................................... 10

The Federal Corporation Tax, 70 Cent. L.J. 91

(1910) ...................................................................... 10

The Federalist No. 21 (Alexander Hamilton) ........ 5, 6

The Federalist No. 30 (Alexander Hamilton) ............ 4

The Federalist No. 36 (Alexander Hamilton) ............ 6

Webster’s American Dictionary of the English

Language (1889) ...................................................... 8

Webster’s Revised Unabridged Dictionary (1913) ..... 7

Augustus E. Wilson, The Income Tax Amendment,

43 Chi. Legal News 249 (1911).............................. 30

Joseph E. Worcester, Dictionary of the English

Language (1860) ...................................................... 8

L. Hart Wright, The Effect of the Source of

Realized Benefits upon the Supreme Court’s

Concept of Taxable Receipts, 8 Stan. L. Rev. 164

(1956) ...................................................................... 10

1

INTEREST OF AMICUS CURIAE 1

Americans for Tax Reform (“ATR”) is a non-profit

501(c)(4) organization that represents the interests of

American taxpayers at the federal, state, and local

levels. Founded in 1985 at the request of President

Reagan, ATR has for nearly 40 years publicly

advocated for a system in which taxes are simpler,

flatter, more visible, and lower than they are today.

ATR educates citizens and government officials about

sound tax policies to further these goals. Having

premised the American Revolution upon objections to

British taxes, the Founding generation knew well that

the government’s power to control the lives of the

people derives from its power to tax them. ATR has

consistently advocated for limits upon that power,

often urging federal courts to safeguard the

boundaries that the Framers inscribed in the

Constitution.

The Ninth Circuit’s decision departs from these

well-established limitations.

As a longstanding

advocate for restraints on the taxing power, ATR is

well-suited to provide additional insight into the

original public meaning of the Sixteenth Amendment

and the broad implications of the decision below for

taxpayers across the country.

1

Pursuant to Rule 37.6, amicus curiae affirms that no

counsel for a party authored this brief in whole or in part and

that no person other than amicus curiae, its members, and its

counsel made a monetary contribution to its preparation or

submission.

2

INTRODUCTION AND

SUMMARY OF ARGUMENT

The Sixteenth Amendment provides that

“Congress shall have power to lay and collect taxes on

incomes, from whatever source derived, without

apportionment among the several States.” U.S. Const.

amend. XVI. This case tests the boundaries of that

exception to the Constitution’s constraints on direct

taxes.

When the Sixteenth Amendment was ratified, it

was widely understood that “income” required that a

taxpayer realize a gain. Contemporaneous dictionary

definitions, legal commentary, state legislation, and

case law surrounding the Sixteenth Amendment’s

ratification all reflected a shared understanding that

unrealized gains do not qualify as “income.” Preratification cases similarly regarded “income” as

synonymous with realization. And, consistent with

that definition, the statute implementing the federal

income tax under the Sixteenth Amendment taxed

only realized gains. This Court confirmed that

constitutional

requirement

soon

after

the

Amendment’s ratification. See Eisner v. Macomber,

252 U.S. 189, 207 (1920). And a century of historical

practice has followed that settled understanding.

Despite Macomber, its progeny, and a litany of

historical evidence supporting the realization

requirement, the Ninth Circuit held below that the

“realization of income is not a constitutional

requirement” before Congress may impose a direct tax

exempt from Article I’s apportionment requirement.

Pet.App.12. That holding is indefensible as an

original matter. And taken to its logical extreme, the

3

Ninth Circuit’s view opens the door to Congress

enacting unconstitutional wealth taxes that upset the

settled expectations of American taxpayers.

Although this case involves the Mandatory

Repatriation Tax (“MRT”), its implications are far

broader. The President and certain Members of

Congress

have

recently

proposed

several

unapportioned wealth taxes aimed at the unrealized

gains of those they claim have too much. But the

income tax, too, was originally billed as a tax only on

the wealthy. As history shows, new taxing powers

inevitably sweep in more and more taxpayers. It thus

falls to this Court to recognize and enforce the

Sixteenth Amendment’s realization requirement and

the constitutional limit upon direct taxation.

In short, the MRT exceeds Congress’s taxing

power because it is an unapportioned direct tax on

unrealized gains. Endorsing the Ninth Circuit’s

diluted view of the Sixteenth Amendment would give

Congress an unbounded license to tax unrealized

wealth as “income.” And it would thereby upset the

balance that the people struck for Congress’s taxing

power when they adopted the Sixteenth Amendment.

ATR thus respectfully urges this Court to reverse the

decision below and confirm that Congress may not

impose unapportioned taxes on unrealized gains.

ARGUMENT

I.

Congress May Not Levy An Unapportioned

Direct Tax On Unrealized Gains.

The MRT is an unapportioned direct tax on

personal property. This Court’s precedent confirms as

much. Thus, the MRT passes constitutional muster

4

only if it is a tax on “incomes” within the meaning of

the Sixteenth Amendment.

The Sixteenth

Amendment’s text and history, as well as this Court’s

precedents, all confirm that realization is part of the

constitutional definition of income. But the Ninth

Circuit viewed realization as merely a matter of

administrative

convenience,

rather

than

a

constitutional requirement. This Court should reject

that unprecedented view.

A. The Mandatory Repatriation Tax Is An

Unapportioned Direct Tax.

The Framers recognized that a chief defect of the

Articles of Confederation was that the federal

government could not raise its own revenues and was

instead entirely reliant on requisitions from the

States. See, e.g., The Federalist No. 30, at 184–85

(Alexander Hamilton) (Clinton Rossiter ed., 2003).

Yet, at the same time, there was considerable

resistance to vesting a plenary taxing power in a

central government that might prefer one region over

another. See Erik M. Jensen, The Apportionment of

“Direct

Taxes”:

Are

Consumption

Taxes

Constitutional?, 97 Colum. L. Rev. 2334, 2337, 2380–

84 (1997).

The Framers thus struck a careful balance in

defining Congress’s power to tax. They granted

Congress the power to “lay and collect Taxes, Duties,

Imposts and Excises.” U.S. Const. art. I, § 8, cl. 1. But

they qualified that power by providing that “[n]o

Capitation, or other direct, Tax shall be laid, unless in

Proportion to the Census.” Id. art. I, § 9, cl. 4; see also

id. art. I, § 2, cl. 3 (“[D]irect Taxes shall be apportioned

among the several States . . . according to their

5

respective Numbers . . . .”); 1 The Records of the

Federal Convention of 1787, at 592 (Max Farrand ed.,

1911)

(statement

of

Gouverneur

Morris)

(“[R]estraining the rule to direct taxation” so that

“[w]ith regard to indirect taxes on exports & imports

& on consumption, the rule would be inapplicable.”

(italics omitted)). “This requirement means that any

‘direct Tax’ must be apportioned so that each State

pays in proportion to its population.” NFIB v.

Sebelius, 567 U.S. 519, 570 (2012).

The reason for this limitation was straightforward.

“[W]hat the Constitution intended to guard against

was the exercise by the general government of the

power of directly taxing persons and property within

any State through a majority made up from the other

States.” Pollock v. Farmers’ Loan & Tr. Co., 157 U.S.

429, 582 (1895). After all, “the power to tax involves

the power to destroy.” McCulloch v. Maryland, 17

U.S. (4 Wheat.) 316, 431 (1819). And “direct taxes

were a special concern precisely because such taxes do

not contain natural limitations on their use.” Erik M.

Jensen, Taxation and the Constitution: How to Read

the Direct Tax Clauses, 15 J.L. & Pol. 687, 694 (1999).

At the same time, the Framers expected that the

federal government would rely principally on duties,

imposts, and excises—i.e., indirect taxes—to raise

revenue. See, e.g., Jensen, Apportionment, supra at

2382.

Those

“taxes

on

articles

of

consumption . . . contain in their own nature a

security against excess.” The Federalist No. 21, at 138

(Alexander Hamilton). “The amount to be contributed

by each citizen will in a degree be at his own option,

and can be regulated by an attention to his resources.”

6

Id. If the tax is too high, then consumption will

naturally decrease, and so will revenue from the tax.

See id. In that way, indirect taxes “prescribe their own

limit.” Id.

Direct taxes do not contain the same protection.

The government imposes them directly on an

individual or her property, thereby limiting her ability

to shift the burden or avoid it altogether. Though

wary of such taxes if left unchecked, the Framers did

not deprive Congress of the power to impose them

entirely. Instead, they protected against the risk of

unequal

treatment

through

a

system

of

apportionment that “effectually shuts the door to

partiality or oppression.” The Federalist No. 36, at

216 (Alexander Hamilton).

After this Court enforced these limitations against

an initial version of the income tax in Pollock, the

Sixteenth Amendment created a targeted exception to

the apportionment requirement. The Amendment

authorizes Congress to “lay and collect taxes on

incomes, from whatever source derived, without

apportionment among the several States.” U.S. Const.

amend. XVI. Yet it remains clear that any direct tax

that does not fall on “incomes” must still comply with

the apportionment requirement. See Macomber, 252

U.S. at 206.

The MRT falls on petitioners, not because they (or

anyone else) engaged in a taxable transaction, but

solely because they hold shares in a foreign company.

That is a direct, non-apportioned tax on personal

property. See NFIB, 567 U.S. at 571 (observing that

the Court has “continued to consider taxes on personal

property to be direct taxes”). The only dispute then is

7

whether the MRT is authorized by the Sixteenth

Amendment as a tax on “incomes.” A thorough

examination of the original public meaning of the term

“incomes” demonstrates that the answer is an

emphatic no.

B. The Mandatory Repatriation Tax Is Not A

Tax On “Incomes.”

The original public meaning of the term “incomes”

did not include unrealized gains of personal property.

And this Court’s precedents, along with the history

underlying the income tax, remove any reasonable

doubt.

1. The Original Public Meaning of “Incomes”

Does Not Include Unrealized Gains.

The term “incomes” in the Sixteenth Amendment

included a realization requirement “in the minds of

the people when they adopted” it. Merchants’ Loan &

Tr. Co. v. Smietanka, 255 U.S. 509, 519 (1921).

Consequently, the ratifying public understood that

“income not realized is not income.” Henry C. Simons,

Personal Income Taxation: The Definition of Income

as a Problem of Fiscal Policy 81 (1938). A plethora of

sources makes this clear.

a. Contemporaneous Dictionary Definitions

Contemporaneous dictionary definitions show that

to qualify as “income,” new property must make its

way from a source to the income earner and come

under his control. For example, a 1913 Webster’s

Dictionary defined “income” as “[t]hat gain which

proceeds from labor, business, property, or capital of

any kind . . . revenue; receipts; salary.”

Income,

Webster’s Revised Unabridged Dictionary (1913)

8

(emphasis added); see also Webster’s American

Dictionary of the English Language 674 (1889) (“That

gain which proceeds from labor, business, or property

of any kind”). The Century Dictionary defined income

similarly as “[t]hat which comes in to a person as

payment for labor or services rendered in some office,

or as gains from lands, business, the investment of

capital, etc.” 4 Century Dictionary and Cyclopedia

3040 (1899) (emphasis added). The phrases “proceeds

from” and “comes in” denote movement of the property

from a source to its new owner. This is the core of the

realization requirement: that the taxpayer exercises

control over that which is taxed.

Similar phrases abound in other dictionaries from

that time. For instance, some specified that “income”

is the “gain which a person derives from his labour,

business, profession, or property of any kind.” 2

Robert Hunter & Charles Morris, Universal

Dictionary of the English Language 2636 (1897)

(emphasis added); see also Joseph E. Worcester,

Dictionary of the English Language 735 (1860) (“Gain

derived from any business or property”). And Black’s

Law Dictionary likewise explained that income

“means that which comes in or is received from any

business or investment of capital.” Black’s Law

Dictionary 612 (2d ed. 1910) (emphases added; citation

omitted). Black’s further sub-defined “income tax” as

“[a] tax on the yearly profits arising from property,

professions, trades, and offices.” Id.

b. Contemporaneous Legal Authorities

Tax commentators of the time similarly defined

“income” to include only realized gains. For example,

Professor Edwin Seligman wrote that “income is a flow

9

of wealth.” The Income Tax 19 (1911). And he stressed

that “income as contrasted with capital denotes that

amount of wealth which flows in during a definite

period and which is at the disposal of the owner for

purposes of consumption, so that in consuming it, his

capital remains unimpaired.” Id.

Others sang a similar tune. Thomas Cooley, for

instance, recognized that one downside of an income

tax is that “those holding lands for the rise in value

escape it altogether—at least until they sell.” A

Treatise on the Law of Taxation Including the Law of

Local Assessments 20 (1876). And that, of course, is

because a mere increase in value is not “income.” See

id. at 160 n.1 (“Income means that which comes in and

is received from any business or investment of

capital.”). Likewise, Charles Edward Clark, former

dean of Yale Law School and Second Circuit judge,

noted that the “mere general appreciation in value of

capital should not be deemed income so long as it is

unrealized to the owner.” Eisner v. Macomber and

Some Income Tax Problems, 29 Yale L.J. 735, 738

(1920).

The original author of Black’s Law Dictionary,

Henry Campbell Black, similarly explained that an

income tax “is not a tax upon accumulated wealth, but

upon its periodical accretions.” A Treatise on the Law

of Income Taxation 1 (1913). And many other

contemporaries shared similar views. See, e.g., Robert

H. Montgomery, Income Tax Procedure 198 (1919)

(“And the inquiry naturally extends itself into the

right to tax any transaction unless there is an actual

realization of income, as distinguished from the

apparent income which may be and often is due to the

10

temporary fluctuations in values.”); Thomas Gold

Frost, A Treatise on the Federal Income Tax Law of

1913, at 7, 15 (1913) (explaining that “the new Federal

Income Tax is in no sense a tax upon property” and

defining income as “that which comes in or is

received”); Godfrey N. Nelson, Income Tax Law and

Accounting 19, 36 (1918) (defining taxable income as

“gains, profits, salaries and wages received” and

explaining that an “increase in the book value of

assets” is not “taxable as income”); The Federal

Corporation Tax, 70 Cent. L.J. 91, 91 (1910) (“[I]ncome

does not vest in the shareholders, until it is formally

set apart by the declaration of a dividend.”); Taxation

of Increment in Capital Value Before Acquisition as

Income to Donee, 37 Yale L.J. 392, 393 (1928) (noting

that “gains must be realized by the actual sale or

conversation of the assets” for them to be taxable);

Improvements by Lessee as Income to the Lessor, 51

Harv. L. Rev. 1113, 1114 (1938) (noting that “the

voluntary erection of the building by the lessee is not

taxable income to the lessor under the Sixteenth

Amendment until it is realized by the sale or other

disposition of the land”).

c. Textual Context

The context of the term “incomes” confirms this

settled meaning. See Davis v. Mich. Dep’t of Treasury,

489 U.S. 803, 809 (1989) (noting that courts must

interpret words “in their context and with a view to

their place in the overall . . . scheme”). The phrase

“from whatever source derived” follows the word

“incomes.” Yet one does not “derive” anything from

unrealized gains. See L. Hart Wright, The Effect of the

Source of Realized Benefits upon the Supreme Court’s

11

Concept of Taxable Receipts, 8 Stan. L. Rev. 164, 177

(1956) (noting that one does not “derive” a gain unless

he “fully realize[s]” it “for his separate use and

benefit”); Solomon v. Cosby (In re Solomon), 67 F.3d

1128, 1133 (4th Cir. 1995) (Wilkinson, J.) (“[I]ncome”

is “derived, that is, received or drawn by the recipient

for his separate use, benefit, and disposal.” (citation

omitted)). It follows that unrealized gains are not

taxable under the Sixteenth Amendment.

See

Macomber, 252 U.S. at 207.

d. Pre-Ratification Case Law

Case law preceding the Sixteenth Amendment

similarly understood that “income” entailed

realization. Consider State ex rel. Tait & Meggett v.

Elfe, 34 S.C.L. 395 (S.C. App. L. 1849), a case

interpreting whether an early local income tax covered

certain profits. The court asked: “What is profit or

income; some possibility yet to arise; or something

which has been realized?” Id. at 398. The court

remarked that “[m]any engage in business, like the

relators, and expect to realize wealth, when, instead of

it, they experience loss!” Id. As a result, the court

embraced the realization requirement, stating that

“any one who would talk of such a result being profit

or income, would be wiser or madder than all the rest

of his race.” Id. The court made clear that a mere

booked increase in wealth was not income, reasoning

that for something to be income, it must be “realized

and ascertained.” Id. at 399; see also Mayor &

Aldermen of the City of Charleston v. State ex rel.

Adger, 29 S.C.L. 719, 730–31 (S.C. App. L. 1844)

(similar).

12

Also instructive is the case of Waring v. Mayor &

Aldermen of the City of Savannah, 60 Ga. 93 (1878).

There, the City of Savannah adopted an ordinance

that taxed the “income derived from certain kinds of

business.” Id. at 95. Mr. Waring filed a lawsuit,

arguing that income constituted property, and that

Georgia’s constitution required property taxes to be

“uniform on all species of property taxed.” Id. at 97.

The court upheld the ordinance, ruling that income

does not always count as property. Id. at 100. In

explaining its rationale, the court cautioned that it

would “be a perversion of terms” if “income” were

conflated with “property.” Id. at 99. “[P]roperty is a

tree; income is the fruit; labor is a tree; income, the

fruit; capital, the tree; income, the fruit.” Id. In other

words, “income” is that which is “plucked to eat” by

the taxpayer from some source. Id. It does not include

that which remains on the metaphorical tree.

Other States also recognized that “income”

requires the realization of gain. New York courts, for

instance, understood income to mean “that which

comes in, or is received from any business or

investment of capital, without reference to the

outgoing expenditures; while ‘profits’ generally mean

the gain which is made upon any business or

investment when both receipts and payments are

taken into the account.” People ex rel. McMaster &

Harvey v. Bd. of Supervisors of Niagara Cnty., 4 Hill

20, 23 (N.Y. Sup. Ct. 1842); see also Matter of Gerry,

18 Abb. N. Cas. 178, 183 (N.Y. 1886) (noting “the

advantage of any extraordinary profits realized from

the investments”). Pennsylvania courts embraced a

similar conception, defining income as “‘the gain

which proceeds from property, labour, or business:’

13

. . . . When applied to a sum of money, or money in the

public debt, it is equivalent to ‘interest.’” Sims’s

Appeal, 44 Pa. 345, 347 (1863) (quoting Bouvier’s Law

Dictionary); see Braun’s Appeal, 105 Pa. 414, 415–16

(1884) (similar); McClintock v. Dana, 106 Pa. 386, 391

(1884) (similar).

And a host of other state courts adopted a

comparable understanding of income. See, e.g.,

Glasgow v. Rowse, 43 Mo. 479, 484 (1869) (“Whatever

was so received or realized by him is for that reason

assessed as income.”); State ex rel. Mechanics’ &

Traders’ Ins. Co. v. Bd. of Assessors, 18 So. 462, 470

(La. 1895) (holding that “uncollected premiums of an

insurance company” were not “income” because they

were “assets which ha[d] not yet materialized into

cash; not yet realized”); Levi v. City of Louisville, 30

S.W. 973, 974 (Ky. 1895) (noting that “the income tax”

relates “to the product or income from property or from

business pursuits”); Judge v. Spencer, 48 P. 1097, 1099

(Utah 1897) (“The products of the soil constitute the

income of the owner. The interest on the money

loaned constitutes the income of the holder of the

mortgages.”); Busbey v. Russell, 1898 WL 1419, at *3

(Ohio Cir. Ct. Nov. 1, 1898) (“[B]y the word ‘income’

was meant gross income; that it was used in the sense

of product, revenue or receipts.”); Bates v. Porter, 15 P.

732, 739 (Cal. 1887) (“‘[I]ncome’ means that which

comes in, or is received from any business or

investment of capital.” (citation omitted)); Smith v.

Hooper, 51 A. 844, 846 (Md. 1902) (“The word ‘income’

has a broader meaning, but hardly broad enough to

include things not separated in some way from the

principal. It is not synonymous with ‘increase.’”

(quoting Spooner v. Phillips, 24 A. 524, 525 (Conn.

14

1892)); Minot v. Paine, 99 Mass. 101, 111 (1868) (“The

money in the hands of the directors may be income to

the corporation; but it is not so to a stockholder till a

dividend is made.”).

The federal courts only reinforced that

understanding: “[I]ncome must be taken to mean

money, and not the expectation of receiving it, or the

right to receive it, at a future time.” United States v.

Schillinger, 27 F. Cas. 973, 973 (C.C.S.D.N.Y. 1876);

see also Baldwin Locomotive Works v. McCoach, 221

F. 59, 60 (3d Cir. 1915) (“The only thing done was to

put upon the company’s books an expression of expert

opinion that certain property was worth a certain sum,

and this can hardly be said to be income, or even gain,

in any proper sense.”). That is, income is that which

has “actually been received”—has been realized—by

the taxpayer. Mut. Ben. Life Ins. Co. v. Herold, 198 F.

199, 214–15 (D.N.J. 1912). As a result, the “[r]eserved

and accumulated earnings” of a corporation are, to

shareholders, “capital, and not income.” Gibbons v.

Mahon, 136 U.S. 549, 558 (1890); see also Gray v.

Darlington, 82 U.S. (15 Wall.) 63, 66 (1872) (“Mere

advance in value in no sense constitutes the gains,

profits, or income specified by the statute.

It

constitutes and can be treated merely as increase of

capital.”).

In sum, by the time Congress proposed the

Sixteenth Amendment to the States for ratification,

courts across the land had reached a common

understanding that “income” presupposed a

realization requirement.

15

e. Contemporaneous State Statutes

Contemporaneous

state

legislation further

demonstrates that the ratifying public connected

income with realization. Wisconsin took the lead in

modern efforts to tax income, considering an incometax amendment to its constitution in 1903. See John

O. Stark, The Establishment of Wisconsin’s Income

Tax, 71 Wis. Mag. of Hist. 27, 29 (1987).

Over the next decade, Wisconsin debated the scope

of taxable “income,” and in 1911 “enacted the nation’s

first workable income tax law.” Id. at 27; see also id.

at 29–33. One historian has described the “Wisconsin

income tax legislation of 1911 [as] a landmark and a

beacon to the federal government and the forty-five

other states which since have passed income tax laws

and depend on them for a substantial share of their

revenue.” Id. at 27; see also, e.g., Final Report of the

Board of Commissioners on Revenue and Taxation for

the State of Utah 27 (The Arrow Press Jan. 20, 1913)

(“In 1911 the State of Wisconsin enacted an income tax

law, the result of the labors of some of the most

practical and experienced authorities on taxation

matters in the United States.”).

As far as the Wisconsin law itself went, it defined

“income” by six categories: “rent,” “[i]nterest on loans,”

“wages, salaries, or fees derived from services,”

“dividends or profits from stock or from the purchase

and sale of any property acquired within three years

previously or from any business whatever,”

“[r]oyalties,” and “[a]ll other income from any source.”

State ex rel. Bolens v. Frear, 134 N.W. 673, 676 (Wis.

1912) (quoting the text). Each of those defined

subdivisions presumed realization.

And so the

16

Wisconsin Supreme Court construed income

consistent with its ordinary understanding to mean

that which “comes in to a person as payment for labor

or services rendered in some office, or as gain from

lands, business, the investment of capital, etc.” Id. at

691 (citation omitted). It also recognized that the

meaning of “income” is fixed, and it confirmed that

“things which are not in fact income cannot be made

such by mere legislative fiat.” Id. The same principle

applies here.

See Burk-Waggoner Oil Ass’n v.

Hopkins, 269 U.S. 110, 114 (1925).

f. Federal Law Implementing the Income Tax

The Revenue Act of 1913, which Congress passed

to implement a federal income tax, sheds additional

light on the original meaning of “income.” The Act

stated that “there shall be levied, assessed, collected

and paid annually upon the entire net income arising

or accruing from all sources in the preceding calendar

year to every citizen of the United States.” Revenue

Act of 1913, Pub. L. No. 63-16, § 2, 38 Stat. 114, 166

(1913). It further defined income to:

include gains, profits, and income derived from

salaries, wages, or compensation for personal

service of whatever kind and in whatever form

paid, or from professions, vocations, businesses,

trade, commerce, or sales, or dealings in

property, whether real or personal, growing out

of the ownership or use of or interest in real or

personal property, also from interest, rent,

dividends, securities, or the transaction of any

lawful business carried on for gain or profit, or

gains or profits and income derived from any

source whatever, including the income from but

17

not the value of property acquired by gift,

bequest, devise, or descent.

Id. at 167.

The word “income” in the Act is defined to include

“gains” and “profits” in all of their various forms. This

definition aligns with the existing federal and state

caselaw, and each of the examples provided in the

statute (salaries, wages, interest, dividends, etc.),

presupposes realization as a condition of income.

Moreover, the Revenue Act reinforced that in order to

be “income,” new property must be “derived from”

some source—and thus come into the control of the

taxpayer—which is a realization requirement, if only

by a different name. Cf. Antonin Scalia & Bryan A.

Garner, Reading Law: The Interpretation of Legal

Texts 195 (2012) (“Associated words bear on one

another’s meaning (noscitur a sociis).”).

The Treasury Department recognized as much.

Shortly after enactment of the income tax, it

instructed tax collectors that “[r]eturnable and

taxable income is that actually realized during the

year.” Robert H. Montgomery, Income Tax Procedure

20 (1917) (reprinting Letter to Collectors, Aug. 14,

1914). Mere “appreciation in the value of assets” was

“held not to be income . . . until such appreciation, as

a result of a completed, a closed transaction, has been

converted into cash or its equivalent, that is, has been

realized.” Id. at 19–20.

Consistent with that understanding, earlytwentieth-century discussions surrounding the

implementation of an income tax settled upon

realization as the event most relevant to measuring

18

income. In so doing, these commentators rejected an

alternative by which the taxpayer’s income would be

measured by annual assessments based on changes to

the taxpayer’s wealth. See, e.g., Simons, supra, at 207

(“The proper underlying conception of income cannot

be directly and fully applied in the determination of

year-to-year assessments. Outright abandonment of

the realization criterion would be utter folly.”). As a

result, the ratifiers of the Sixteenth Amendment

understood that income would be accounted for by a

realization system of accounting. See id. at 80

(remarking that the inclusion of a realization

requirement in the word “income” was “widely held by

accountants, by the courts, and even by some

economists” and that it “derives clearly enough from

the conventional practices of financial accounting”);

Marjorie E. Kornhauser, The Constitutional Meaning

of Income and the Income Taxation of Gifts, 25 Conn.

L. Rev. 1, 14 (1992) (“This [realization] requirement

not only fit the common understanding, but also fit

some economic conceptions of income.”).

g. This Court’s Early Cases

This Court’s early-twentieth-century decisions also

underscore the understanding that income requires

realization. In one of the Court’s first tax decisions

following the adoption of the Sixteenth Amendment, it

interpreted the Revenue Act of 1913 to hold that a

stock dividend did not create a realization event for

the shareholder, meaning that it fell outside the

statutory definition of “income.” See Towne v. Eisner,

245 U.S. 418, 425–26 (1918).

Then, after Congress revised the Revenue Act, the

Court considered whether a stock dividend was

19

income under the Sixteenth Amendment itself. See

Macomber, 252 U.S. at 205. In Macomber, the Court

reaffirmed the realization requirement and held that

“income” meant “the gain derived from capital, from

labor, or from both combined.” Id. at 207 (citation

omitted).

The “enrichment in value of capital

investment is not income in any proper meaning of the

term.” Id. at 214–15. So unrealized gains like stock

dividends could not qualify as income. See id. at 219.

Other early cases followed Macomber’s lead and

treated realization as a critical component of taxable

income. See, e.g., Weiss v. Stearn, 265 U.S. 242, 253–

54 (1924); Taft v. Bowers, 278 U.S. 470, 482 (1929).

And this Court confirmed early on that “Congress

cannot make a thing income which is not so in fact.”

Burk-Waggoner Oil Ass’n, 269 U.S. at 114. In 1940,

the Court reiterated “the rule that income is not

taxable until realized.” Helvering v. Horst, 311 U.S.

112, 116 (1940). 2 And the Court has not departed from

that rule ever since. See Pet.Br. at 24–26.

The Ninth Circuit quoted Horst as suggesting that the rule

“that income is not taxable until realized . . . [is] founded on

administrative convenience,” as though that meant it had no

constitutional import.

Pet.App.12 (alterations in original)

(quoting Horst, 311 U.S. at 116). But Horst itself recognized a

realization requirement, holding only that it could be

“consummated by some event other than the taxpayer’s personal

receipt of money or property,” such as the taxpayer’s direction

that his son receive the realized money in his stead. 311 U.S. at

116–17. In that case, “income is ‘realized’ by the assignor because

he, who owns or controls the source of the income, also controls

the disposition of that which he could have received himself and

diverts the payment from himself to others as the means of

2

20

2. A Realization Requirement Respects The

Balance

Struck

By

The

Sixteenth

Amendment’s Framers.

If any doubts remain as to the meaning of “income,”

they are dispelled by the historical context

surrounding the Sixteenth Amendment’s passage.

This Court has long recognized that a

constitutional amendment must be read “in

connection with the known condition of affairs out of

which the occasion for its adoption may have arisen.”

Maxwell v. Dow, 176 U.S. 581, 602 (1900), abrogated

on other grounds by Williams v. Florida, 399 U.S. 78

(1970). And, with that historical context in mind,

courts should construe the constitutional text “in a

way, so far as is reasonably possible, to forward the

known purpose or object for which the amendment

was adopted.” Id.; see Hans v. Louisiana, 134 U.S. 1,

11–12, 15 (1890); Scalia & Garner, supra, at 20 (“The

evident purpose of what a text seeks to achieve is an

essential element of context that gives meaning to

[the] words.”).

Here, the Sixteenth Amendment sought to

accomplish the limited goal of overruling this Court’s

decision in Pollock. As Representative (and future

Secretary of State) Cordell Hull of Tennessee

explained in 1913:

The Pollock decision held the income tax

invalid not on the ground that income

procuring the satisfaction of his wants.” Id.; see also id. at 118

(“The exercise of that power to procure the payment of income to

another is the enjoyment, and hence the realization, of the

income by him who exercises it.”).

21

could become capital and escape the tax,

but on account of its origin; that it was,

in effect, a tax on realty and personalty.

The only proper inquiry in the light of the

recent amendment, therefore, is not as to

the origin or disposition of the income in

question, but what amount of income

accrued to a taxable individual during a

given period. It must follow that the

account of annual income required of a

citizen for the purpose solely of

ascertaining what amount of tax ought to

be imposed upon him in consequence of

his having made profits and collected by

the Government not necessarily out of

the specific income in question but from

the general property of the taxpayer as

well.

Memorandum for the Attorney General by T. M.

Gordon, July 31, 1913, in S. Doc. No. 171, 63d Cong.,

1st Sess. 6, at 5 (1913), reprinted in 93 A guide and

analytical index to the Internal Revenue Acts of the

United States, 1909–1950 (Bernard D. Reams ed.,

1979) (emphases omitted). Representative Hull not

only equated the proper amount of taxable income

with the “profits” a citizen has made each year, but he

also identified the purpose of the Sixteenth

Amendment: to overrule Pollock.

That view aligns with the historical record.

Progressive political figures were clearly dismayed in

the aftermath of Pollock. See Theodore Roosevelt,

Sixth Annual Message, The Am. Presidency Project

(Dec. 3, 1906), https://bit.ly/3OCup5H; Roy G. Blakey

22

& Gladys C. Blakey, The Federal Income Tax 20–23

(2006). Many who still supported a federal income tax

had to decide whether to push for removing the

Constitution’s

apportionment

requirements

altogether or for passing a constitutional amendment

that would carve out income taxes—and only income

taxes—from the apportionment requirement. See

Robert Stanley, Dimensions of Law in the Service of

Order: Origins of the Federal Income Tax, 1861–1913

at 177 (1993).

Congress entertained both options and chose the

latter. Senator Anselm McLaurin advocated for

removing the apportionment components of the

Constitution entirely. See 44 Cong. Rec. 3377 (June

17, 1909); 44 Cong. Rec. 4109 (July 5, 1909). But the

Senate rejected McLaurin’s sweeping proposal, which

“would have had the effect of allowing future

Congresses to levy any type of taxes without

limitation, including a tax on real property.” James

W. Ely Jr., “One of the Safeguards of the Constitution:”

The Direct Tax Clauses Revisited, 12 Brigham-Kanner

Prop. Rts. J., at 41 (Vanderbilt L. Rsch., Working

Paper No. 23-02, last revised Feb. 2, 2023),

bit.ly/3FygLgb. Senator Norris Brown of Nebraska,

speaking against Senator McLaurin’s proposal,

explained that the purpose behind his own proposed

amendment was “to confine [the amendment] to

income taxes alone, and to forever settle the dispute

by referring the matter to the several states.” 44

Cong. Rec. 3377 (1909) (June 17, 1909). Congress

chose Senator Brown’s position over Senator

McLaurin’s, and the States ratified it.

23

Failing to honor the realization requirement would

upset that choice. And it would open the door to a

limitless new federal tax power. As Judge Bumatay

put it: “Divorcing income from realization opens the

door to new federal taxes on all sorts of wealth and

property without the constitutional requirement of

apportionment.”

Pet.App.55.

For “without a

realization requirement to cabin the scope of

‘incomes,’” he explained, “it is hard to see how the

apportionment requirement has any remaining

relevance.” Id.

Indeed, the Sixteenth Amendment’s relationship

with Pollock is similar to the Eleventh Amendment’s

relationship with Chisholm v. Georgia, 2 U.S. (2 Dall.)

419 (1793). In Chisholm, this Court held that Georgia

could be sued by a citizen of another State, abandoning

state sovereign immunity. See id. The country

reacted to that decision with the passage of the

Eleventh Amendment, which restored state sovereign

immunity. This Court has construed that amendment

against the backdrop of Chisholm. See, e.g., Hans, 134

U.S. at 11–12. And it should do the same thing here

for the Sixteenth Amendment, just as it has from the

beginning. See Macomber, 252 U.S. at 205. In Pollock,

as in Chisholm, “the highest authority of this country

was in accord rather with the minority than with the

majority of the court.” Hans, 134 U.S. at 12. 3

Representative Charles Bartlett of Georgia noted as much

during the debates over the Sixteenth Amendment:

3

[T]he American people are again presented with the

proposition to amend their fundamental law because of

an extraordinary decision by the Supreme Court of [the]

24

3. Post-Ratification History Has Consistently

Treated

“Income”

As

Requiring

Realization.

Since Macomber, this Court has described income

as “instances of undeniable accessions to wealth,

clearly realized, and over which the taxpayers have

complete dominion.” Commissioner v. Glenshaw Glass

Co., 348 U.S. 426, 431 (1955). And Congress codified

Macomber’s core holding in the Revenue Act of 1921,

Pub. L. No. 67-98, 42 Stat. 227 (1921). The legislative

history confirms this. See H.R. Rep. No. 67-350, at 8

(1921); S. Rep. No. 67-275, at 9 (1921). Shortly

thereafter, this Court confirmed “the settled doctrine”

that “the Sixteenth Amendment confers no power

upon Congress to define and tax as income without

apportionment something which theretofore could not

have been properly regarded as income.” Taft, 278

U.S. at 481. The line between income and not-income,

then, has always been realization.

Indeed, early commentators recognized that this

Court had settled the relationship between realization

United States [in Pollock]. In the case of Chisholm v.

Georgia the court held that the sovereign State of

Georgia was subject to be sued by a private citizen of

another State, and in that case the court abandoned the

universal and accepted rule that the sovereign could not

be sued except by its own consent. This so aroused the

people and the representatives of the people in Congress

that they insisted that the rule so promulgated by the

Supreme Court of the United States, that a sovereign

State should be subject to be dragged into court against

its consent by a private citizen, should be cured by an

amendment to the Constitution.

44 Cong. Rec. 4408 (July 12, 1909).

25

and income: “Gain is not income in the constitutional

sense until it is ‘derived’ or ‘drawn from’ that in which

it has been inhering.” Thomas Reed Powell, Income

from Corporate Dividends, 35 Harv. L. Rev. 363, 377

(1922). So when it comes to a “gain accrued but not

realized, it is incorrect to call it income.” Id. at 380;

see also Recent Cases, 51 Harv. L. Rev. 1286, 1297

(1938) (noting that case law indicated “a trend toward

treating any realized increment to wealth as income

within the meaning of the 16th Amendment”). Early

courts similarly recognized this Court’s settled law

holding that a gain is “not taxable until it is realized.”

Staples v. United States, 21 F. Supp. 737, 739 (E.D. Pa.

1937) (citing N. Am. Oil Consol. v. Burnet, 286 U.S.

417 (1932)).

Congress has consistently rejected tax proposals

targeting unrealized gains on this very basis. See

John R. Brooks & David Gamage, Taxation and the

Constitution, Reconsidered, 76 Tax. L. Rev. 201, 257

(forthcoming 2023), bit.ly/3Ev9a1f (“When Congress

previously considered substantial income tax reforms

to reach unrealized gains—such as taxing

shareholders on certain undistributed profits in 1962,

or taxing unrealized gains at death in 1963—there

was controversy over whether the Supreme Court

would uphold those reforms without apportionment,

and that controversy played a role in those reforms

being defeated.” (citing Marjorie E. Kornhauser, The

Story of Macomber: The Continuing Legacy of

Realization, in Tax Stories: An In-Depth Look At Ten

Leading Federal Income Tax Cases 112, 129–30 (Paul

L. Caron ed., 2d ed. 2009))).

26

It should come as no surprise, then, that “[o]ne of

the foundational principles of the Internal Revenue

Code is that gains and losses are subject to taxation

only when they are realized, and only to the extent

that the amount realized exceeds the adjusted basis.”

Note, Benjamin G. Barokh, The Meaning of “Incomes”

in the Sixteenth Amendment, 15 Geo. J.L. & Pub. Pol’y

409, 419 (2017) (internal footnote omitted) (citing 26

U.S.C. §§ 1001(a), 1011); see Rodney P. Mock & Jeffrey

Tolin, Realization and Its Evil Twin Deemed

Realization, 31 Va. Tax Rev. 573, 576 (2012) (“The

doctrine of realization has been intertwined with the

federal tax definition of income since the early days of

the U.S. income tax system.”); Boris I. Bittker,

Fundamentals of Federal Income Taxation ¶ 1.5, at 1–

36 (Richard L. Doernberg et al. eds., 1983) (“[D]espite

occasional judicial statements that all gains are

embraced by I.R.C. § 61(a) unless specifically excluded

by statute, realization is so basic to the taxing

structure of existing law that the general principle is

simply not challenged.”).

The MRT clearly and abruptly departs from this

practice. Even the Ninth Circuit recognized its

“novel[ty].” Pet.App.8. And this Court has noted in

other constitutional contexts that such a lack of “a

foundation in historical practice” can be a sign of an

unconstitutional statutory scheme. Seila Law LLC v.

Consumer Fin. Prot. Bureau, 140 S. Ct. 2183, 2192

(2020); see also NLRB v. Noel Canning, 573 U.S. 513,

525 (2014) (“[T]he longstanding practice of the

government . . . can inform our determination of what

the law is” (internal citations and quotation marks

omitted)).

27

II. The Ninth Circuit’s Decision Invites Future

Efforts To Expand Congress’s Taxing Power

Beyond Constitutional Constraints.

Though Macomber’s proximity to the Sixteenth

Amendment’s ratification makes it especially

probative of the Amendment’s meaning, see Bryan A.

Garner et al., The Law of Judicial Precedent 176–77

(2016), the absence of recent guidance has emboldened

proponents of sweeping tax proposals that conflict

with the Amendment’s original meaning.

Recent years have seen a slurry of proposed

wealth taxes. Some of these proposals try to seize the

net unrealized gains of wealthy taxpayers. See, e.g.,

H.R. 8558, 117th Cong. (2022) (Billionaire Minimum

Income Tax Act that would generally impose a

minimum 20% tax on the net unrealized gains plus

taxable income of any person whose net worth exceeds

$100 million); S. 510, 117th Cong. § 2901(b) (2021)

(Ultra-Millionaire Tax Act of 2021 that would collect

2% annually on the net value of all covered assets in

excess of $50 million, and up to 8% on the value in

excess of $ 1 billion); H.R. 1459, 117th Cong. (2021)

(similar to Ultra-Millionaire Tax Act of 2021); Senate

Finance Committee Democrats, Treat Wealth Like

Wages 4 (Sept. 12, 2019), https://bit.ly/3mkKqk8

(describing “mark-to-market” proposal that would tax

unrealized capital gains on an annual basis); Senate

Finance Committee, Elimination of Deferral,

https://bit.ly/423u5Df (proposal to tax unrealized

capital gains of wealthy taxpayers).

President Biden’s 2024 budget proposal similarly

contains an annual minimum tax on unrealized gains

on capital exceeding $100 million. See Mike Palicz,

28

List of Tax Hikes in Biden’s Budget, Americans for Tax

Reform (Mar. 9, 2023), http://bit.ly/3mHFqbD; see also

Remarks of President Joe Biden – State of the Union

Address as Prepared for Delivery (Feb. 7, 2023),

bit.ly/3XxeEjb (“Pass my proposal for a billionaire

minimum tax.”). This echoes a previous proposal of

his to tax unrealized capital gains on taxpayers worth

over $100 million. See Alex Hendrie, Ten Reasons to

Be Concerned with Biden’s 20 Percent Tax on

Unrealized Gains, Americans for Tax Reform (Mar.

28, 2022), bit.ly/3LTDpUD.

These proposals purport to target a small number

of wealthy taxpayers. But history has shown that

Congress will not stop there. The federal income tax

itself began as a 1% to 7% assessment that applied to

fewer than 400,000 Americans. See Americans for Tax

Reform, 104 Years of the Income Tax: Then and Now

(Apr. 13, 2017), bit.ly/3YXK9Dz. Yet, in 2017, almost

150 million Americans filed tax returns, and tax

revenues were nearly 200 times what they were in

1913, adjusted for inflation. Id.

The alternative minimum tax (“AMT”), too, began

as a circumscribed attack on the wealthy. Congress

enacted the AMT in 1969, spurred by outrage over just

155 taxpayers with incomes over $200,000 who paid

no income tax. See Blake Seitz, AMT Set to Lasso 27

Million More Taxpayers in 2013, Americans for Tax

Reform (July 6, 2012), bit.ly/3yXZERf; Benjamin H.

Harris et al., The Individual AMT: Problems and

Potential Solutions, Brookings (Sept. 18, 2002),

bit.ly/3LMBQYm. By 2017, the AMT had ballooned to

cover over 5 million taxpayers. See Tax Policy Center,

What Is the AMT? (May 2020), http://bit.ly/3yANhe0.

29

The federal income tax and the AMT teach a

lesson: When it comes to taxation, Congress will test

the waters with a small number of wealthy taxpayers.

But, eventually, Congress’s appetite for new revenue

ensnares far more Americans. Indeed, over 60% of

Americans own securities, making them susceptible to

congressional attempts to tax unrealized capital

gains. See Jeffrey M. Jones, What Percentage of

Americans Own Stock?, Gallup (May 24, 2023),

http://bit.ly/3yvPrvr. Taking the Ninth Circuit at its

word, the decision below authorizes Congress to tax

every single American’s retirement and investment

accounts before they are liquidated.

Although the MRT itself is levied on a relatively

small number of taxpayers, the Ninth Circuit’s

holding extends to the unrealized appreciation of any

asset. Under that view, Congress could seize annually

the increase in a taxpayer’s 401k or the value of her

home, and call such levies “income.” As Judge

Bumatay recognized, the decision below opens the

door to all such unapportioned taxes. See Pet.App.55.

Without the realization requirement, the Sixteenth

Amendment becomes the exception that swallows the

rule.

The interests of federalism also counsel against

the Ninth Circuit’s view. “The state taxing power is

one of the fundamental powers of state government.”

Note, George J. Argeris, State Authority to Tax Private

Interests in Federal Property, 13 Wyo. L.J. 229, 229

(1959). States may impose and collect their own taxes

to fund their affairs. Those taxes come in a variety of

forms, including income taxes, sales taxes, property

taxes, and even wealth taxes. See Soc’y for Sav. v.

30

Coite, 73 U.S. (6 Wall.) 594, 604–05 (1868) (“[T]he

States may tax all subjects over which the sovereign

power of the State extends[.]”). But by decoupling

“income” from realization, Congress may intrude upon

the States’ established tax base.

As the Governor of Kentucky stated in opposition

to the ratification of the Sixteenth Amendment: “This

income tax amendment, authorizing the Federal

Government to levy this new great class of taxes on

the States, which it could not levy before, is the most

serious encroachment on the States’ rights since the

organization of our Government.”

Augustus E.

Wilson, The Income Tax Amendment, 43 Chi. Legal

News 249, 251 (1911). As predicted, the Sixteenth

Amendment fueled a massive expansion of federal

power, at the ultimate expense of the States. But,

until the decision below, it was widely recognized that

the Sixteenth Amendment’s reach was strictly limited

to realized gains. This Court should reaffirm that

longstanding rule and reverse.

CONCLUSION

For the foregoing reasons, the judgment of the

Ninth Circuit should be reversed.

31

Respectfully submitted,

BRIAN A. KULP

DECHERT LLP

CIRA CENTRE

2929 Arch Street

Philadelphia, PA 19104

STEVEN A. ENGEL

Counsel of Record

MICHAEL H. MCGINLEY

ERIC D. HAGEMAN

JUSTIN W. AIMONETTI

DECHERT LLP

1900 K Street, NW

Washington, DC 20006

(202) 261-3369

steven.engel@dechert.com

Counsel for Amicus Curiae

September 6, 2023