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

Supreme Court briefSep 6, 2023

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No. 22-800

IN THE

Supreme Court of the United States

CHARLES G. MOORE AND KATHLEEN F. MOORE,

Petitioners,

UNITED STATES,

Respondent.

ON A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

BRIEF OF AMICI CURIAE

SOUTHEASTERN LEGAL FOUNDATION AND

YOUNG AMERICA’S FOUNDATION

IN SUPPORT OF PETITIONERS

Kimberly S. Hermann

Braden H. Boucek

SOUTHEASTERN LEGAL

FOUNDATION

560 W. Crossville Rd.

Suite 104

Roswell, GA 30075

(770) 977-2131

Thomas R. McCarthy

Counsel of Record

J. Michael Connolly

Tiffany H. Bates

ANTONIN SCALIA LAW SCHOOL

SUPREME COURT CLINIC

CONSOVOY MCCARTHY PLLC

1600 Wilson Boulevard

Suite 700

Arlington, VA 22209

(703) 243-9423

tom@consovoymccarthy.com

September 6, 2023

Counsel for Amici Curiae

TABLE OF CONTENTS

Table of Authorities.................................................... ii

Interest of Amici Curiae.............................................. 1

Introduction and Summary of the Argument ............ 3

Argument ..................................................................... 5

The history leading up to the adoption of the

Sixteenth Amendment, the Amendment’s text,

and this Court’s precedent all demonstrate that a

tax on unrealized gains is unconstitutional......... 5

A. The Ninth Circuit’s novel expansion of the

power to tax income cannot be squared with

the history of the Sixteenth Amendment ........ 5

B. The Sixteenth Amendment adopted the plain

meaning of “income.” ...................................... 10

C. This Court’s precedents reaffirm that income

refers to a realized gain .................................. 14

Conclusion ................................................................. 19

TABLE OF AUTHORITIES

Cases

Baldwin Locomotive Works v. McCoach,

221 F. 59 (3d Cir. 1915) ......................................... 17

Burk-Waggoner Oil Ass’n v. Hopkins,

269 U.S. 110 (1925)................................................ 14

CIR v. Glenshaw Glass Co.,

348 U.S. 426 (1955)................................................ 16

Edwards v. Cuba R. Co.,

268 U.S. 628 (1925)................................................ 10

Eisner v. Macomber,

252 U.S. 189 (1920).................................... 13, 14, 15

Helvering v. Bruun,

309 U.S. 461 (1940)................................................ 16

Helvering v. Horst,

311 U.S. 112 (1940).......................................... 15, 16

Hylton v. United States,

3 U.S. 171 (1796).............................................. 6, 7, 8

Kisor v. Wilkie,

139 S. Ct. 2400 (2019)..............................................1

Loughborough v. Blake,

18 U.S. 317 (1820)....................................................6

Lynch v. Turrish,

247 U.S. 221 (1918)................................................ 17

Martin v. Hunter’s Lessee,

14 U.S. (1 Wheat.) 304 (1816) ............................... 14

Md. Cas. Co. v. United States,

52 Ct. Cl. 201 (Ct. Cl. 1917) ............................ 11, 15

iii

Merchants’ Loan & Trust Co. v. Smietanka,

255 U.S. 509 (1921)................................................ 14

Nat’l Ass’n of Mfrs. v. Dep’t of Def.,

138 S. Ct. 617 (2018)................................................1

Nat’l Fed’n of Indep. Bus. v. Sebelius,

567 U.S. 519 (2012)............................................ 6, 10

Pollock v. Farmers’ Loan & Tr. Co.,

157 U.S. 429 (1895)..............................................6, 8

S. Pac. Co. v. Lowe,

247 U.S. 330 (1918)................................................ 17

Springer v. United States,

102 U.S. 586 (1881)..................................................8

Stratton’s Independence, Ltd. v. Howbert,

231 U.S. 399 (1913).......................................... 16, 17

Taft v. Bowers,

278 U.S. 470 (1929).......................................... 14, 15

United States v. Phellis,

257 U.S. 156 (1921)................................................ 15

United States v. Safety Car Heating & Lighting Co.,

297 U.S. 88 (1936).................................................. 11

United States v. Sprague,

282 U.S. 716 (1931)................................................ 10

Util. Air Regul. Grp. v. EPA,

573 U.S. 302 (2014)..................................................1

Constitution

U.S. Const., art. I, §2, cl. 3 ..........................................5

U.S. Const., art. I, §9, cl. 4 ..........................................5

U.S. Const. amend. XVI ................ 3-5, 7-11, 13-16, 18

Other Authorities

4 Annals of Cong. (1794) .............................................5

Henry Campbell Black, A Treatise on the Law

of Income Taxation Under Federal and State

Laws (1913) ...................................................... 12, 13

Black’s Law Dictionary (2d ed. 1910) .......................11

Bouvier Law Dictionary (6th ed. 1856) .................... 11

David J. Brewer, The Income Tax Cases and

Some Comments Thereon (1898) ............................5

John R. Brooks & David Gamage, Forthcoming

Paper: Moore v. United States and the

Original Meaning of Income (July 2, 2023) .......... 16

Chambers’ Twentieth Century Dictionary of the

English Language (1903)....................................... 13

26 Cong. Rec. 1739 (Jan. 31, 1894) .............................8

44 Cong. Rec. 3377 (1909) ...........................................9

Cong. Research Service, The Constitution of the

United States of America: Analysis and

Interpretation, Centennial ed. (2013) ................... 17

George F. Edmunds, Salutary Results of the

Income Tax Decision, 19 The Forum 513

(1895)........................................................................3

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

...................................................................... 5, 6, 8, 9

Owen M. Fiss, Troubled Beginnings of the

Modern State, 1888-1910 (1993) .............................3

3 Gall. Writings (Adams ed.) ......................................6

E.L. Godkin, 60 The Nation 214 (Mar. 21, 1895) .......3

Robert Hunter & Charles Morris, Universal

Dictionary of the English Language (1897) .......... 12

Erik M. Jensen, Interpreting the Sixteenth

Amendment (By Way of the Direct-Tax

Clauses), 21 Const. Comment. 355 (2004) ..............8

Erik M. Jensen, The Taxing Power, the Sixteenth

Amendment, and the Meaning of “Incomes,” 33

Ariz. St. L.J. 1057 (2001) .........................................8

Robert H. Montgomery, Income Tax Procedure

(1919)......................................................................13

4 The Century Dictionary and Cyclopedia (1901) ....12

Webster’s Revised Unabridged Dictionary

(1913)................................................................ 11, 13

Joseph Emerson Worcester, Dictionary of the

English Language (1875)....................................... 12

INTEREST OF AMICI CURIAE 1

Southeastern Legal Foundation (SLF), founded in

1976, is a national nonprofit, public interest law firm

and policy center that advocates for constitutional

individual liberties, limited government, and free

enterprise in the courts of law and public opinion. In

particular, SLF advocates to protect individual rights

and the framework set forth to protect such rights in

the Constitution. This aspect of its advocacy is

reflected in the regular representation of those

challenging actions in violation of the constitutional

framework. See, e.g., Util. Air Regul. Grp. v. EPA, 573

U.S. 302 (2014); Nat’l Ass’n of Mfrs. v. Dep’t of Def.,

138 S. Ct. 617 (2018). SLF also regularly files amicus

curiae briefs with this Court about issues of agency

overreach and deference. See, e.g., Kisor v. Wilkie, 139

S. Ct. 2400 (2019).

Young America’s Foundation (YAF) is a 501(c)(3)

public charity whose mission is to educate and inspire

young Americans from middle school through college

with the ideas of individual freedom, a strong national

defense, free enterprise, and traditional values. This

case is important to YAF because it presents the Court

an opportunity to curb unconstitutional government

overreach and strengthen the fundamental principle

of private property, without which the American

1 Pursuant to this Court’s Rule 37.6, counsel for amici curiae

certifies that this brief was not authored in whole or in part by

counsel for any party and that no person or entity other than

amici curiae or its counsel has made a monetary contribution to

the preparation or submission of this brief.

experiment would not exist. The People are most able

to pursue life, liberty, and happiness, and in the best

position to contribute to America’s economy, when the

government stays out of their pocketbooks.

INTRODUCTION AND SUMMARY

OF THE ARGUMENT

The Constitution’s Framers “knew that

unrestrained and unregulated taxation had been, in

all the experiences of the world, the chief instruments

of tyranny.” George F. Edmunds, Salutary Results of

the Income Tax Decision, 19 The Forum 513, 516

(1895). And “while it was indispensable to the

existence of the nation, it was not the less necessary

that it should be kept within definite bounds.” Id.

Thus, they drafted the Constitution’s tax provisions in

a “context defined by the desire to prevent abuses of

the power of taxation.” Owen M. Fiss, Troubled

Beginnings of the Modern State, 1888-1910, 88-89

(1993). See also E.L. Godkin, 60 The Nation 214 (Mar.

21, 1895) (“Unrestricted power of taxation is the

greatest

power

over

accumulated

wealth,

manufactures, industry, and personal freedom which

any government can have; for liberty … cannot be

worth much to a man who may be taxed in any way

some other man pleases.”).

This case concerns an expansion of Congress’s

taxing power. As part of the Tax Cuts and Jobs Act of

2017, Congress enacted the Mandatory Repatriation

Act. That law deemed certain foreign corporations’

retained earnings as income, and taxed U.S.

shareholders on that “income” in proportion their

ownership stakes—even though no money was ever

distributed. In upholding this novel wealth tax, the

Ninth Circuit held (for the first time) that “realization

of income is not a constitutional requirement” for

Congress to impose a tax exempt from apportionment

under the Sixteenth Amendment. App. 12. In so

holding, the court left Petitioners on the hook for

thousands of dollars in income taxes despite not

having received any actual income. As Judge

Bumatay recognized, this holding “seriously

undermines the

constitutional apportionment

requirement.” App. 55 (Bumatay, J., dissenting from

the denial of rehearing en banc).

Amici agree with Petitioners that the decision

below should be reversed and write separately to

explain how it conflicts with the Sixteenth

Amendment’s “ordinary meaning, history, and

precedent.” App. 39 (Bumatay, J.). “Neither the text

and history of the Sixteenth Amendment nor

precedent support levying a direct tax on unrealized

gains. Ratification-era sources confirm that the

prevailing understanding of ‘income’ entailed some

form of realization. And a hundred years of precedent

establishes that only realized gains are taxable as

‘income’ under the Sixteenth Amendment.” App. 39

(Bumatay, J.). This Court has never “abandoned the

core requirement that income must be realized to be

taxable without apportionment under the Sixteenth

Amendment.” Id. It should reaffirm that requirement

by reversing the decision below.

ARGUMENT

The history leading up to the adoption of

the

Sixteenth

Amendment,

the

Amendment’s text, and this Court’s

precedent all demonstrate that a tax on

unrealized gains is unconstitutional.

The Ninth Circuit’s novel expansion of

the power to tax income cannot be

squared with the history of the

Sixteenth Amendment.

Before

the

Sixteenth

Amendment,

the

Constitution limited the power of Congress to levy

“direct Taxes” on property and income by requiring

that such taxes be “apportioned among the several

States … according to their respective Numbers.” U.S.

Const., art. I, §2, cl. 3. Apportionment for direct taxes

was “deemed by the framers of the constitution so

important,” David J. Brewer, The Income Tax Cases

and Some Comments Thereon, 5 (1898), that they

expressly provided for it a second time: “No

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

Proportion to the Census.” U.S. Const., art. I, §9, cl. 4.

Indeed, the “apportionment rule is the sole restriction

on Congress to be placed in the Constitution in two

separate sections.” 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, Feb.

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

James Madison considered the direct tax

provisions “one of safeguards of the Constitution.” 4

Annals of Cong. 729-30 (1794). And Chief Justice

Marshall later declared that “the principle of

apportionment” provided security “from any

oppressive exercise of the power to lay and collect

direct taxes.” Loughborough v. Blake, 18 U.S. 317, 325

(1820). The Framers thus “clearly regarded the

limitation on the imposition of direct taxes to be

important.” Ely, supra, at 5.

At the time, it was commonly understood that

taxes on personal property and incomes were direct

taxes requiring apportionment under these

provisions. In 1796, for example, future Treasury

Secretary Albert Gallatin reported that “[t]he most

generally received opinion … [was] that, by direct

taxes in the constitution, those are meant which are

raised on the capital or revenue of the [people.]”

Pollock v. Farmers’ Loan & Tr. Co., 157 U.S. 429, 569

(1895) (quoting 3 Gall. Writings (Adams ed.) 74, 75).

To be sure, this Court at first took an improperly

constrained view of “direct Taxes.” After “Congress

passed a tax on ownership of carriages, over James

Madison’s objection that it was an unapportioned

direct tax,” Nat’l Fed’n of Indep. Bus. v. Sebelius, 567

U.S. 519, 570 (2012) (NFIB), the Court upheld that

tax. In Hylton v. United States, 3 U.S. 171 (1796), the

Court suggested “that only two forms of taxation were

direct: capitations and land taxes.” NFIB, 567 U.S. at

571; see Hylton, 3 U.S. at 175 (opinion of Chase, J.)

(direct taxes included only “a capitation, or poll tax,

simply, without regard to property, profession, or any

other circumstances; and a tax on LAND”). Since a tax

on the use of carriages was neither, the Court held

that it need not be apportioned. 2

But numerous scholars have called Hylton’s

validity into question. Because of the “lack of

meaningful engagement … with the rationale for the

direct tax clauses,” several scholars have decried the

“questionable strength of Hylton as a precedent.” Ely,

supra, at 13, 16 n.69. To start, only three of six justices

participated in the case, 3 and “[a]ll were ardent

Federalists, anxious to uphold the authority of the

fledging national government.” Id. at 13. “Moreover,

this case was the first before the Supreme Court to

present a challenge to the constitutionality of a

congressional measure.” Id. And pre-Marbury, the

Court appeared hesitant to assert its judicial review

power. Justice Chase explained that “if the court have

such power [to declare an act of Congress void], I am

free to declare, that I will never exercise it, but in a

very clear case.” Hylton, 3 U.S. at 175. By refusing to

declare the tax void, the Court avoided the thorny

question of judicial review.

A leading Sixteenth Amendment scholar has gone

so far as to call Hylton “a phony dispute, with

manufactured ‘facts,’” and decried that “it’s hard to

see why the Court decided this case except to make a

2 The carriage tax was a tax on consumption (effectively, the

gas tax of its era), as well as a tax on a particular luxury item.

3 Justice Wilson additionally expressed his “sentiments[] in

favor of the constitutionality of the tax” but did not join any of

the decisions since he “had before expressed a judicial opinion on

the subject[] in the Circuit Court of Virginia.” Hylton, 3 U.S. at

183 (opinion of Wilson, J.).

statement about Federalist power.” Erik M. Jensen,

Interpreting the Sixteenth Amendment (By Way of the

Direct-Tax Clauses), 21 Const. Comment. 355, 380

(2004). And another has lamented that “[i]t is hard to

avoid the conclusion that the Hylton Court was more

concerned to affirm broad taxing authority in

Congress than to seriously investigate the purpose of

the direct tax clauses.” Ely, supra, 16. All of this

suggests that the Court was motivated more by

external concerns than by adherence to the original

meaning of the Constitution.

In any event, the Court followed Justice Chase’s

dicta in Hylton for nearly a century, see Springer v.

United States, 102 U.S. 586, 602 (1881), until it

returned to applying the original meaning of “direct

taxes” in 1895. See Pollock v. Farmers’ Loan & Tr. Co.

157 U.S. 429 (1895). The realization that the

Constitution did, in fact, subject both property and

income taxes to the apportionment requirement had

been simmering for some time. In 1894,

Representative James Maguire of California

recognized that the income tax wouldn’t reach

unrealized appreciation in land value and proposed a

direct tax on that value. 26 Cong. Rec. 1739 (Jan. 31,

1894); accord Erik M. Jensen, The Taxing Power, the

Sixteenth Amendment, and the Meaning of “Incomes,”

33 Ariz. St. L.J. 1057, 1129 n.375 (2001). One year

later, the Pollock Court struck down an income tax in

the Wilson Tariff Act of 1894, reasoning that the tax

on income from personal property was direct and

therefore required apportionment. 157 U.S. at 583.

Congress responded directly to the Pollock

decision by adopting the Sixteenth Amendment. It

exempted taxes on income—and only income—from

the apportionment requirement. That choice was

intentional. When Senator Norris Brown of Nebraska

introduced a joint resolution containing the

Amendment on June 17, 1909, Senator Anselm

McLaurin suggested that it would be more efficient to

eliminate the apportionment requirement for direct

taxes altogether. 44 Cong. Rec. 3377 (1909). Senator

Brown rejected this suggestion, explaining that the

“purpose” of introducing the Sixteenth Amendment

was to “confine it to income taxes alone, and to forever

settle the dispute by referring the subject to the

several States.” Id. (emphasis added). “Brown’s

understanding carried the day.” Ely, supra., at 41.

“When McLaurin offered an amendment to remove

the references to direct taxes in the Constitution, it

was defeated, apparently by voice vote.” Id. (citing 44

Cong. Rec. at 4120 (July 5, 1909)).

This history “clearly demonstrates that []

Congress adopted an important, but narrow …

amendment tailored to authorize the levy of an income

tax without apportionment.” Ely, supra, at 41. Yet the

Ninth Circuit ignored all this historical context.

Instead, the court upheld a novel wealth tax, offering

Congress the broad power to “redraw the boundaries

of its power to tax without apportionment.” App. 5354 (Bumatay, J.). The court suggested that “[o]nce the

federal government decides to tax something, then,

subject to any constitutional limitations, its power to

tax and flexibility as to how to accomplish that must

necessarily be broad.” App. 9. But the court failed to

grapple with those constitutional limitations and

ignored the history of the tax clauses.

The Sixteenth Amendment adopted the

plain meaning of “income.”

“The Constitution was written to be understood by

the voters; its words and phrases were used in their

normal and ordinary … meaning.” United States v.

Sprague, 282 U.S. 716, 731 (1931). “The Sixteenth

Amendment, like other laws authorizing or imposing

taxes, is to be taken as written, and is not to be

extended beyond the meaning clearly indicated by the

language used.” Edwards v. Cuba R. Co., 268 U.S.

628, 631 (1925). Despite this, the court below had

“difficulty in defining income” in the Sixteenth

Amendment. App. 11. It simply declared that the

“concept of income is a flexible one” and noted that the

definition of income “must be determined case by

case.” App. 11 (citations omitted). But the court below

failed to closely examine the text or even consult any

ratification-era sources defining income.

By its plain terms, the Sixteenth Amendment

exempts income tax from the requirement that “any

‘direct Tax’ must be apportioned so that each State

pays in proportion to its population.” NFIB, 567 U.S.

at 570. It gives Congress 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.” U.S.

Const. amend. XVI. But this exemption from

apportionment is limited to taxes on realized gains.

Indeed, “[t]hat limitation is plain on the face of the

Amendment’s text, which contemplates that ‘income’

will be ‘derived’ from a ‘source,’ and is the only

interpretation consistent with the universal

understanding of ‘income’ at the time of the

Amendment’s adoption.” Pet. 2.

Start with the definition of “income.” The decision

below concluded that there is “no set definition of

income under the Sixteenth Amendment.” App. 16.

Not so. “Income within the meaning of the Sixteenth

Amendment … is income as the word is known in the

common speech of men.” United States v. Safety Car

Heating & Lighting Co., 297 U.S. 88, 99 (1936). And

“income” at the time of ratification “ha[d] a settled

legal meaning.” Md. Cas. Co. v. United States, 52 Ct.

Cl. 201, 209 (Ct. Cl. 1917). It “include[d] only the

receipt of actual cash as opposed to contemplated

revenue due but unpaid.” Id. In other words, “the

ordinary meaning of ‘income’ was confined to realized

gains.” App. 46 (Bumatay, J.).

Ratification-era dictionaries confirm that the

Sixteenth Amendment adopts this plain meaning of

“income.” In 1910, Black’s Law Dictionary defined

“income” as “that which comes in or is received from

any business or investment of capital.” Black’s Law

Dictionary 612 (2d ed. 1910) (emphasis added). The

1913 edition of Webster’s defined “income” as “that

gain which proceeds from labor, business, property, or

capital of any kind.” Income, Webster’s Revised

Unabridged Dictionary (1913) (emphasis added).

Bouvier’s Law Dictionary adopted a nearly identical

definition: “The gain which proceeds from property,

labor, or business.” Income, Bouvier Law Dictionary

(6th ed. 1856) (emphasis added). And the Century

Dictionary similarly defined “income” as “[t]hat 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.” 4 The

Century Dictionary and Cyclopedia 3040 (1901)

(emphasis added). See also Income, Robert Hunter &

Charles Morris, Universal Dictionary of the English

Language 2636 (1897) (“That gain which a person

derives from his labour, business, profession, or

property of any kind.”); Income, Joseph Emerson

Worcester, Dictionary of the English Language 735

(1875) (“Gain derived from any business or

property.”).

This definition lines up with other ratification-era

interpretations of “income.” Black’s Dictionary editor,

Henry Campbell Black, for example, published a tax

treatise within months of ratification defining

“income” as “that gain which proceeds from labor,

business, property, or capital of any kind.” Henry

Campbell Black, A Treatise on the Law of Income

Taxation Under Federal and State Laws 73 (1913)

(emphasis added). According to Black, realization was

a critical part of income. An income tax, he explained,

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

periodical accretions.” Id. at 1. And accretions

occurred only when gains were realized. For example,

Black concluded that a bond owner “can realize a

profit if he sells the [matured] bond, but not otherwise.

If he sells, then the sum gained may constitute a part

of his income, but it cannot be so described while he

continues to hold the security.” Id. at 77. Indeed,

Black addressed the very issue in this case, explaining

that while “[t]he value of corporate stock may be

increased by good management, prospects of business,

and the like, … such increase is not income. It may

also be increased by the accumulation of a surplus

fund. But so long as that surplus is retained by the

corporation, either as a surplus or as increased stock,

it can in no proper sense be called income. It may

become income-producing, but it is not income.” Id. at

120.

A few years later, Robert Montgomery authored a

tax treatise, explaining that “the taxation of capital …

is not permitted” under the Constitution. Robert H.

Montgomery, Income Tax Procedure 198 (1919). That

reasoning, he wrote, “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

temporary fluctuations in values.” Id. (emphasis

added).

Returning to the text of the Sixteenth

Amendment, it provides that income can be taxed only

when it is “derived” “from” a “source.” U.S. Const.

amend. XVI. For income to be “derived,” it must be

“received or drawn by” the taxpayer. See Eisner v.

Macomber, 252 U.S. 189, 207 (1920) (emphasis in

original). One ratification-era dictionary defined

“derive” in this context to mean “to take or receive from

a source or origin.” Derive, Chambers’ Twentieth

Century Dictionary of the English Language (1903)

(emphasis added). Another defined “derive” to mean

“[t]o receive, as from a source or origin; to obtain by

descent or by transmission; to draw.” Derive,

Webster’s Revised Unabridged Dictionary (1913)

(emphases added). “Taken collectively, these sources

reinforce the common-sense notion” that “income”—

“derived” from a “source”—“refers to the receipt of

some economic benefit.” App. 49 (Bumatay, J.).

Put simply, ratification-era sources establish that

the word “income”—taken in its “natural and obvious

sense,” Martin v. Hunter’s Lessee, 14 U.S. (1 Wheat.)

304, 326 (1816)—inherently requires the realization of

gain. Indeed, this “commonly understood meaning”

was “in the minds of the people when they adopted the

Sixteenth Amendment.” Merchants’ Loan & Trust Co.

v. Smietanka, 255 U.S. 509, 519 (1921). Thus, neither

Congress nor this Court may “make a thing income

which is not so in fact.” Burk-Waggoner Oil Ass’n v.

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

This Court’s precedents reaffirm that

income refers to a realized gain.

Supreme Court precedent reaffirms that the

Sixteenth Amendment adopted the ordinary meaning

of income. Less than a decade after ratification, this

Court considered it “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 v.

Bowers, 278 U.S. 470, 481 (1929). In holding that

“realization of income is not a constitutional

requirement” for Sixteenth Amendment “taxes on

incomes,” the decision below breaks with more than a

century of this Court’s decisions, which have

consistently held the opposite. App. 42 (Bumatay, J.).

But “Congress cannot make a thing income which is

not so in fact.” Burk-Waggoner Oil Ass’n, 269 U.S. at

114.

This Court first interpreted “income” under the

Sixteenth Amendment in Eisner v. Macomber, 252

U.S. at 189. There, the Court addressed whether a

stockholder’s receipt of dividends counted as “income”

under the Sixteenth Amendment. Id. at 207-08. The

Court explained that the “clear definition of the term

‘income,’ as used in common speech” meant “the gain

derived from capital, from labor, or from both

combined.” Id. at 206-07. Applying the definition to a

stock dividend, the Court concluded, “[t]he dividend

normally is payable in money … and when so paid,

then only … does the stockholder realize a profit or

gain which becomes his separate property, and thus

derive income from the capital that he or his

predecessor has invested.” Id. at 209. “Put simply,

Macomber says that stock dividends do not constitute

‘income’ until ‘realize[d]’ as profit or gain.” App. 50

(Bumatay, J.).

Indeed, since Macomber, courts have “uniformly

construed” the word “income” “to include only the

receipt of actual cash as opposed to contemplated

revenue due but unpaid.” Md. Cas. Co., 52 Ct. Cl. at

209. In Taft, this Court held “[t]he gain derived from

capital, within the definition [of income], is not … a

growth or increment of value in the investment, but a

gain, a profit, … that is, received or drawn by the

claimant for his separate use, benefit and disposal.”

278 U.S. at 481 (citing United States v. Phellis, 257

U.S. 156, 169 (1921)) (internal quotations omitted)

(emphasis added). This Court again highlighted that

only “gain actually resulting from the increased value

of capital can be treated as taxable income.” Id. at 484.

In the 1940s, the Court reaffirmed this principle,

stating that “the rule [is] that income is not taxable

until realized.” Helvering v. Horst, 311 U.S. 112, 116

(1940). “From the beginning,” the Court explained,

“the revenue laws have been interpreted as defining

‘realization’ of income as the taxable event … [a]nd

‘realization’ is not deemed to occur until the income is

paid.” Id. at 115. The same year in Helvering v. Bruun,

the Court again recognized that a “realization of gain”

is required. 309 U.S. 461, 468-69 (1940).

The Court yet again reaffirmed its adherence to

the realization requirement in CIR v. Glenshaw Glass

Co., 348 U.S. 426 (1955). It noted that income may

reach “instances of undeniable accessions to wealth,

clearly realized, and over which the taxpayers have

complete dominion.” Id. at 431 (emphasis added).

Since then, this Court has never deviated from the

core principle that that income must be realized to be

taxable without apportionment under the Sixteenth

Amendment.

A pair of law professors has recently argued that

corporate taxes prior to the Sixteenth Amendment

show that the original meaning of “income” does not

require realization. See John R. Brooks & David

Gamage, Forthcoming Paper: Moore v. United States

and the Original Meaning of Income (July 2, 2023). In

support, they point to Treasury Decisions made under

the 1909 Corporation Excise Tax Act that include

“increase in the value” of certain assets as income. Id.

at 17. But this is not evidence of a broad

understanding of income. That Act, as its name

indicates, imposed an excise tax on “the conduct of

business in a corporate capacity” in an amount

determined by the taxed corporation’s net income.

Stratton’s Independence, Ltd. v. Howbert, 231 U.S.

399, 414, 417 (1913). In other words, this was as an

excise “on the privilege of doing business in corporate

form” that was “‘measured by income;’” it was not an

income tax itself. Cong. Research Service, The

Constitution of the United States of America: Analysis

and Interpretation, Centennial ed. 2275 (2013)

(quoting Stratton’s Indep., 231 U.S. at 414, 417).

More importantly, the Third Circuit ultimately

disagreed with the Treasury Decisions’ interpretation

of income in the Act. “[I]ncrease in valuation” the

court held, “can hardly be said to be income, or even

gain, in any proper sense.” Baldwin Locomotive Works

v. McCoach, 221 F. 59, 60 (3d Cir. 1915). A “company

could not become either richer or poorer by making a

few book entries that merely recorded a new estimate

of how much it was worth.” Id.; see also Lynch v.

Turrish, 247 U.S. 221, 230-31 (1918) (explaining that

“advance in value is not income at all, but merely

increase of capital and not subject to tax as income”);

S. Pac. Co. v. Lowe, 247 U.S. 330, 335 (1918) (rejecting

the contention that “all receipts—everything that

comes in—are income within the proper definition of

the term ‘gross income’”). Having been rejected by the

Third Circuit, the Treasury Decisions do nothing to

detract from the Court’s post-ratification cases

requiring realization for gains to count as income.

* * *

At bottom, the Sixteenth Amendment requires

that “an income tax must be a tax on realized income.”

App. 39 (Bumatay, J.). Based on text, history, and

precedent, the court below erred in disregarding that

realization requirement. “[W]ithout the guardrails of

a realization component, the federal government has

unfettered latitude to redefine ‘income’ and redraw

the boundaries of its power to tax without

apportionment.” Id. at 53-54. This case illustrates as

much. The decision below leaves Petitioners on the

hook for thousands of dollars in income taxes despite

not having received any income. Such a scheme

“seriously

undermines

the

constitutional

apportionment requirement.” App. 55 (Bumatay, J.).

CONCLUSION

For these reasons, the Court should reverse the

decision below.

Respectfully submitted,