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

Supreme Court briefOct 23, 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 OF AMERICA,

Respondent.

On Writ of Certiorari to the United States

Court of Appeals for the Ninth Circuit

BRIEF OF JOHN R. BROOKS AND DAVID GAMAGE

AS AMICI CURIAE IN SUPPORT OF RESPONDENT

JOHN R. BROOKS

FORDHAM UNIVERSITY

SCHOOL OF LAW

150 West 62nd St.

New York, NY 10023

ELIZABETH B. WYDRA

BRIANNE J. GOROD*

BRIAN R. FRAZELLE

CONSTITUTIONAL

ACCOUNTABILITY CENTER

1200 18th St. NW

Suite 501

Washington, D.C. 20036

(202) 296-6889

brianne@theusconstitution.org

Counsel for Amici Curiae

October 23, 2023

* Counsel of Record

TABLE OF CONTENTS

Page

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

INTEREST OF AMICI CURIAE...........................

INTRODUCTION AND SUMMARY OF

ARGUMENT .......................................................

ARGUMENT ..........................................................

When the Sixteenth Amendment Was

Ratified, Federal Law Had Long

Treated Unrealized Gains as Taxable

Income .......................................................

A. The Civil War Income Tax ...............

B. The 1894 Income Tax .......................

C. The 1909 Corporate Income Tax .....

D. The 1913 Income Tax .......................

The Sixteenth Amendment Restored

the Broad Power to Tax Income that

Congress Possessed Before Pollock,

a Power that Included Taxing

Unrealized Gains ....................................

III. The Word “Income” Had an Expansive

Meaning in the Ratification Era that

Encompassed Virtually Any Financial

Gain, Realized or Unrealized ................

A. Dictionaries ......................................

B. Treatises ...........................................

CONCLUSION.......................................................

II.

(i)

TABLE OF AUTHORITIES

Page(s)

Cases

Brushaber v. Union Pac. R.R. Co.,

240 U.S. 1 (1916) ........................................ 3, 15, 17

Collector of Internal Revenue v. Hubbard,

79 U.S. 1 (1870) .................................... 1, 5, 7, 8, 26

Eisner v. Macomber,

252 U.S. 189 (1920) ....................................

4, 24

Flint v. Stone Tracy Co.,

220 U.S. 107 (1911) ....................................

Gray v. Darlington,

82 U.S. 63 (1872) ........................................

8, 9

Hylton v. United States,

3 U.S. 171 (1796) ........................................

Maryland Cas. Co. v. United States,

52 Ct. Cl. 201 (1917) ...................................

Minot v. Paine,

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

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

567 U.S. 519 (2012) ....................................

Pollock v. Farmers’ Loan & Trust Co.,

157 U.S. 429 (1895) ....................................

2, 10

Pollock v. Farmers’ Loan & Trust Co.,

158 U.S. 601 (1895) ................................ 2, 3, 14, 16

S. Pac. Co. v. Lowe,

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

iii

TABLE OF AUTHORITIES – cont’d

Page(s)

Springer v. United States,

102 U.S. 586 (1880) ....................................

Stanton v. Baltic Mining Co.,

240 U.S. 103 (1916) .................................... 3, 15, 17

Stratton’s Indep., Ltd. v. Howbert,

231 U.S. 399 (1913) .................................. 11, 12, 20

United States v. Frost,

25 F. Cas. 1221 (N.D. Ill. 1869) .................

Constitutional Provisions

U.S. Const. amends. I–XV ............................

U.S. Const. amend. XVI ........................... 1, 2, 18, 28

U.S. Const. art. I ...........................................

5, 15

Statutes and Legislative Materials

Acts of Assembly, ch. 496, 1897–98 Va.

Acts 527.......................................................

Act of Aug. 5, 1861, ch. 45, 12 Stat. 292 ......

Act of July 1, 1862, ch. 119, 12 Stat. 432 .....

Act of June 30, 1864, ch. 173,

13 Stat. 223 ............................................

5, 6, 7, 19

Act of July 13, 1866, ch. 184, 14 Stat. 98 .....

TABLE OF AUTHORITIES – cont’d

Page(s)

Act of July 14, 1870, ch. 255, 16 Stat. 256 ...

Act of Aug. 27, 1894, ch. 349, 28 Stat. 509 ..

10, 19

Act of Aug. 5, 1909, ch. 6, 36 Stat. 11 ..........

Act of Oct. 3, 1913, ch. 16, 38 Stat. 114 .......

13, 14

44 Cong. Rec. (1909).............................. 17, 18, 19, 21

45 Cong. Rec. (1910)......................................

The Income Tax Act, ch. 658, 1911 Wis.

Laws 985 .....................................................

Other Authorities

Steven A. Bank, Entity Theory as Myth in

the Origins of the Corporate Income Tax,

43 Wm. & Mary L. Rev. 447 (2001) ...........

Henry Campbell Black, A Treatise on the

Law of Income Taxation Under Federal

and State Laws (1913).................... 5, 10, 24, 26, 27

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

Bouvier’s Law Dictionary (8th ed. 1914) ......

John R. Brooks & David Gamage, “From

Whatever Source Derived”: The Sixteenth

Amendment and Congress’s Taxing Power

(Oct. 8, 2023), http://ssrn.com/abstract=4595884. ................................ 1, 2, 15, 21, 25

TABLE OF AUTHORITIES – cont’d

Page(s)

John R. Brooks & David Gamage, Taxation

and the Constitution, Reconsidered,

76 Tax L. Rev. 75 (2022) ............................ 1, 4, 15

Archibald Butt, Taft and Roosevelt

(1930) .........................................................

Century Dictionary and Cyclopedia

(1903) ..........................................................

22, 23

Concise Legal Dictionary (1909) ...................

Thomas Cooley, Treatise on the Law of

Taxation (1876)...........................................

Arthur Lowes Dickinson, Accounting

Practice and Procedure (1914) ...................

Dictionary of American and English Law

(1888) ..........................................................

Thomas Gold Frost, A Treatise on the

Federal Income Tax Law (1913) ................

25, 27

Robert Murray Haig, The Concept of

Income—Economic and Legal Aspects,

in The Federal Income Tax (Robert Murray

Haig ed., 1921) ............................................

Edwin Howes, The American Law Relating

to Income and Principal (1905)..................

Harry Hubbard, “From Whatever Source

Derived,” 6 A.B.A. J. 202 (1920) ................

17, 19

TABLE OF AUTHORITIES – cont’d

Page(s)

Robert Hunter & Charles Morris, Universal

Dictionary of the English Language

(1897) ..........................................................

Robert H. Montgomery, Income Tax

Procedure (1919) .........................................

24, 27

Godfrey Nelson, Income Tax Law and

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

Edwin Seligman, Are Stock Dividends

Income?, 9 Am. Econ. Rev. 517 (1919) .......

T.D. 1606 (Mar. 29, 1910), 13 Treas. Dec. Int.

Rev. 39 (1910) .............................................

T.D. 1675 (Feb. 14, 1911), 14 Treas. Dec. Int.

Rev. 16 (1911) .............................................

T.D. 1706 (June 9, 1911), 14 Treas. Dec. Int.

Rev. 75 (1911) .............................................

T.D. 1742 (Dec. 15, 1911), 14 Treas. Dec. Int.

Rev. 123 (1911) ...........................................

Webster’s Revised Unabridged Dictionary

(1913) ........................................................ 21, 22, 23

Joseph E. Worcester, Dictionary of the

English Language (1884) ...........................

22, 23

INTEREST OF AMICI CURIAE1

Amici are leading scholars of tax law and policy.

John R. Brooks is Professor of Law at Fordham University School of Law, and David Gamage is Professor

of Law and William W. Oliver Chair in Tax Law at Indiana University, Bloomington, Maurer School of Law.

Together, they are the coauthors of Taxation and the

Constitution, Reconsidered, 76 Tax L. Rev. 75 (2022),

and “From Whatever Source Derived”: The Sixteenth

Amendment and Congress’s Taxing Power (Oct. 8,

2023), http://ssrn.com/abstract=4595884.

INTRODUCTION AND

SUMMARY OF ARGUMENT

A person owns stock in a corporation. Federal law

declares that a portion of the company’s profits—

which remain in the company’s possession—is taxable

as that person’s “income.” Can those undistributed

corporate earnings legitimately be regarded as income

of the shareholder and taxed as such? Yes, as this

Court resolved more than 150 years ago. See Collector

of Internal Revenue v. Hubbard, 79 U.S. 1 (1870). Petitioners’ contrary position, that some form of “realization” is inherent in the meaning of income, is no more

persuasive now than it was in 1870, and it should be

just as firmly rejected.

When the Sixteenth Amendment gave Congress

the power, or rather restored its power, to collect unapportioned “taxes on incomes, from whatever source

derived,” U.S. Const. amend. XVI, it did not silently

1 No counsel for a party authored this brief in whole or in part,

and no counsel or party made a monetary contribution intended

to fund its preparation or submission. No person other than amici

or their counsel made a monetary contribution to its preparation

or submission.

constrict the meaning of “income” by imposing a realization requirement never before recognized in constitutional law. On the contrary, the Amendment was

adopted to return to the state of affairs before this

Court’s decisions in Pollock v. Farmers’ Loan & Trust

Co., 157 U.S. 429 (1895); 158 U.S. 601 (1895), which

held that taxing income “derived from” property was

the same as taxing the property itself, id. at 618. And

under that previous state of affairs, unrealized financial gains had long been taxed as “income.”

Half a century before the Sixteenth Amendment

was ratified, Congress taxed undistributed corporate

earnings and other unrealized financial gains in the

nation’s earliest income-tax laws. Congress also included unrealized income in the 1894 income tax

struck down in Pollock. Under a 1909 corporate income tax—enforced during the years the Sixteenth

Amendment was being ratified—unrealized gains

were taxed yet again. And in 1913, the very first personal income tax passed under the newly ratified Sixteenth Amendment once more taxed unrealized gains,

specifically undistributed corporate earnings. See

John R. Brooks & David Gamage, “From Whatever

Source Derived”: The Sixteenth Amendment and Congress’s Taxing Power 36-43 (Oct. 8, 2023),

http://ssrn.com/abstract=4595884 (“Derived”).

Simply put, the “power to lay and collect taxes on

incomes,” U.S. Const. amend. XVI, was not a new concept in 1913. Congress had taxed incomes for decades

and had repeatedly included unrealized gains in those

taxes. Absolutely nothing in the Amendment’s text or

history suggests that it narrowed Congress’s power to

collect “taxes on incomes,” departing from how that

power had been exercised in the past, by exempting

unrealized gains from taxation.

Instead, the Amendment’s aim was just the opposite: to restore Congress’s power to tax incomes in the

way it had done before Pollock. That decision held that

income “derived from … property” could no longer be

taxed without apportionment. 158 U.S. at 618. The

Amendment’s undisputed purpose was to reverse that

holding. And that helps illuminate a key phrase in the

Amendment: “from whatever source derived.” Rather

than implying a heretofore-unknown realization requirement, this language made clear that the Amendment was overruling Pollock’s holding that the source

of income determines whether an income tax must be

apportioned. Indeed, “the whole purpose of the

Amendment was to relieve all income taxes when imposed from apportionment from a consideration of the

source whence the income was derived.” Brushaber v.

Union Pac. R.R. Co., 240 U.S. 1, 187 (1916).

The Sixteenth Amendment was thus understood as

restoring a preexisting constitutional framework under which the government had long collected income

taxes—including taxes on undistributed corporate

earnings and other unrealized gains. The Amendment

“conferred no new power of taxation,” but simply prevented income taxes from “being placed in the category

of direct taxation … by a consideration of the sources

from which the income was derived,” under Pollock’s

“mistaken theory.” Stanton v. Baltic Mining Co., 240

U.S. 103, 112-13 (1916).

Moreover, the word “income” had a broad meaning

in the ratification era that encompassed financial

gains of virtually any kind, realized or unrealized. Petitioners’ effort to show otherwise involves selectively

quoting the narrowest dictionary definitions of this

word while omitting broader definitions that appear in

the same entries. Notably, none of Petitioners’ dictionaries uses the term “realize” to define the word income,

even when those same dictionaries include entries for

that term.

As for Petitioners’ reliance on case law and treatises, the story is essentially the same. Through selective omissions, Petitioners obscure that many of their

quoted sources are not even discussing the abstract

concept of income, but rather are describing the coverage of particular statutory provisions. And while some

academics from this period did argue that realization

was a necessary element of income, each was advocating a prescriptive definition. Invariably, these same

authors acknowledged that actual usage, including in

statutes, did not conform to their prescriptions.

Thus, as text and history demonstrate, the Amendment’s reference to “taxes on incomes” was meant to

include “everything which by reasonable understanding can fairly be regarded as income.” Eisner v. Macomber, 252 U.S. 189, 237 (1920) (Brandeis, J., dissenting). And as illustrated by a consistent line of legislation from the Civil War to 1913, a person’s unrealized

gains, including undistributed corporate earnings, can

fairly be regarded as “income.”

ARGUMENT

I. When the Sixteenth Amendment Was

Ratified, Federal Law Had Long Treated

Unrealized Gains as Taxable Income.

A. The Civil War Income Tax

1. Congress established the first federal income tax

in 1861. See John R. Brooks & David Gamage, Taxation and the Constitution, Reconsidered, 76 Tax L. Rev.

75, 105-06 (2022) (“Taxation”). And from the start,

Congress made personal income taxable regardless of

its source. Income was taxed “whether such income is

derived from any kind of property, or from any

profession, ... or from any other source whatever.” Act

of Aug. 5, 1861, ch. 45, § 49, 12 Stat. 292, 309; see also

Act of July 1, 1862, ch. 119, § 90, 12 Stat. 432, 473

(similar). Congress levied these income taxes under

its authority to impose “excises” and “duties” without

apportionment. See id.; U.S. Const. art. I, § 8, cl. i.

In 1864, Congress revised the federal income tax.

This time, Congress specified that taxable income included a shareholder’s portion of undistributed corporate earnings. And Congress expressly clarified that

it was irrelevant whether a shareholder had realized

his portion of those earnings or not. Under the statute,

“the gains and profits of all companies, whether incorporated or partnership,” with some enumerated exceptions, “shall be included in estimating the annual

gains, profits, or income of any person entitled to the

same, whether divided or otherwise.” Act of June 30,

1864, ch. 173, § 117, 13 Stat. 223, 282 (emphasis

added). “It was the design of Congress to tax the undivided gains and profits made by all corporations, as

well as those which are divided among the stockholders.” Hubbard, 79 U.S. at 7.

The 1864 statute made other forms of unrealized

income taxable as well. When calculating a person’s

annual earnings, net gains from interest had to be “included and assessed as part of the income of such person ... whether due and paid or not, if good and collectable.” Act of June 30, 1864, § 117, 13 Stat. at 281-82

(emphasis added); see United States v. Frost, 25 F. Cas.

1221, 1222 (N.D. Ill. 1869) (observing that the statute

taxed “interest accruing, but not paid,” on “notes,

bonds, etc., bearing interest”). Likewise, “the increased value” of certain personal property relating to

agriculture had to be included as well, “whether sold

or on hand.” Act of June 30, 1864, § 117, 13 Stat. at

282 (emphasis added); see Henry Campbell Black,

A Treatise on the Law of Income Taxation Under Federal and State Laws 15 (1913).

Notably, the 1864 statute taxed all these unrealized gains while simultaneously providing (like its predecessors) that the source from which income “derived”

could not exempt it from taxation. See Act of June 30,

1864, § 116, 13 Stat. at 281 (taxing gains, profits, and

income “whether derived from any kind of property,

rents, interests, dividends, salaries, or from any profession ... or from any other source whatever”).

In other words, the Congress that pioneered our national income tax flatly disagreed with Petitioners’

strained textual argument—that for income to be “derived from” a source, it necessarily must have been

severed from that source, converted into a different

form, conveyed to a new party, or otherwise realized.

See Pet. Br. 26-27. Congress taxed undistributed corporate earnings, unrealized interest gains, and appreciations in value while expressly recognizing that

these forms of income all “derived from” a source,

namely capital or property.2

The public was not likely under any misapprehension about the taxation of unrealized gains derived

from these sources. Taxpayers had to report the

2 Moreover, while parts of the statute referred to “gains, profits,

or income,” all three terms were subsumed within the broader label “income.” All three had to be reported by the taxpayer as “the

amount of his or her income,” Act of June 30, 1864, § 118, 13 Stat.

at 282, and taxpayers had to report “the sources from which said

income is derived,” id.; see id. § 117, 13 Stat. at 281 (referring to

the entire tax as “the national income tax”); id. § 119, 13 Stat. at

283 (referring to “the duties on incomes herein imposed”); see also

id. § 117, 13 Stat. at 282 (specifying that unrealized accumulated

interest and unrealized appreciations in value “shall be included

and assessed as part of the income of such person”).

amount of their annual income, “stating the sources

from which said income is derived.” Act of June 30,

1864, § 118, 13 Stat. at 282. Those sources included

“the gains and profits of all companies” to which the

taxpayer was entitled, “whether divided or otherwise,”

id. § 117, 13 Stat. at 282, any gains from interest,

“whether due and paid or not,” id., and “the increased

value” of certain property “whether sold or on hand,”

id.

2. When one taxpayer refused to report his share

of undistributed corporate profits, the dispute reached

this Court. The taxpayer offered the same arguments

that Petitioners offer here—denying that “undivided

profits” can fairly be regarded as “income.” Hubbard,

79 U.S. at 4. The taxpayer also made the same claims

about the necessity of realization—asserting that corporate profits “are mere increment and augmentation

of the stock … until separated from the stock by declaring a dividend.” Id. at 6 (quotation marks omitted). And he cited the same state court decisions in

support. Compare id. (quoting Minot v. Paine, 99

Mass. 101 (1868)), with Pet. Br. 28 (quoting the same

passage of Minot).

This Court was not persuaded—unanimously holding that “the tax was lawfully assessed.” Hubbard, 79

U.S. at 16. The Court recognized that, as the taxpayer

stressed, “the profits at the time of the assessment had

not been divided nor had they been in any way set

apart from the general assets of the respective corporations, nor had they been appropriated for the use of

the stockholders.” Id. at 10. Instead, “the corporations

invested the profits in part in real estate, machinery,

and raw material proper for carrying on their business.” Id. at 10-11. But the Court also recognized that

“the policy of Congress in that act was to tax all gains

and profits, whether divided or undivided.” Id. at 17.

This Court found nothing incongruous about taxing

unrealized gains like undistributed corporate earnings

as “income.” Regardless of whether a shareholder has

yet been paid those earnings or given title to them,

Hubbard explained, he “holds the share with all its incidents,” including “the right to receive all future dividends.” Id. at 18. Simply put, “as an incident to the

shares, undivided profits are property of the shareholder.” Id. If such profits are reinvested in the company (like in this case), they become “investments in

which the stockholders are interested.” Id.

Ultimately, “the decisive answer” to the taxpayer’s

realization argument was that “Congress possesses

the power to lay and collect taxes, duties, imposts, and

excises, and it is as competent for Congress to tax annual gains and profits before they are divided among

the holders of the stock as afterwards.” Id. If Congress

wanted to impose an “income tax on such proportion of

the entire net profits made by the two companies as

his stock bore to the whole stock of the corporations,”

id. at 11, it could do so.

3. This Court said nothing to the contrary two

years later in Gray v. Darlington, 82 U.S. 63 (1872).

Gray held that the profit from a sale of bonds was not

taxable as annual income under the terms of the income-tax statute. The bonds had appreciated in value

over several years, so attributing all this profit to the

year of sale would lump together several years’ worth

of gains. But the statute attempted to tax only annual

gains, and “[t]he advance in the value of property during a series of years can, in no just sense, be considered

the gains, profits, or income of any one particular year

of the series.” Id. at 65. “Mere advance in value in no

sense constitutes the gains, profits, or income specified

by the statute.” Id. at 66 (emphasis added); cf. Pet. Br.

27 (omitting the italicized words); compare also Gray,

82 U.S. at 65 (the statute is limited to “such gains or

profits as may be realized from a business transaction

begun and completed during the preceding year” (emphasis added)), with Pet. Br. 27 (omitting the italicized

words).

Far from laying down any rule about the inherent

nature of income, Gray noted that the statute included

“exceptions” to this “general rule of assessment.” 82

U.S. at 65. And as explained above, for some types of

property the 1864 statute did require individuals to

pay taxes on annual appreciation of value or net interest—regardless of whether the property was sold or

the interest paid. The bonds at issue in Gray simply

were not among those categories.

Petitioners’ mishandling of Gray is characteristic of

citations throughout their brief to judicial decisions

from the late nineteenth and early twentieth centuries. These decisions involved statutes that opted to

tax gains only after they were received by a taxpayer

in monetary form. E.g., Maryland Cas. Co. v. United

States, 52 Ct. Cl. 201, 209 (1917) (“What is taxed by the

terms of the foregoing statutes is ‘net income received,’

not income accruing or accrued which has not been received.” (emphasis added)).

The same decisions

acknowledge Congress’s freedom to depart from that

approach:

The word ‘income,’ as used in revenue legislation, has a settled legal meaning. The courts

have uniformly construed it to include only the

receipt of actual cash as opposed to contemplated revenue due but unpaid, unless a contrary purpose is manifest from the language of

the statute.

Id. (emphasis added); cf. Pet. Br. 27 (omitting the italicized words). Whether to tax unrealized gains was a

question of legislative policy, not a limit inherent in

the concept of income.

B. The 1894 Income Tax

The Civil War–era income tax lapsed after 1870.

See Act of July 13, 1866, ch. 184, 14 Stat. 98, 138; Act

of July 14, 1870, ch. 255, 16 Stat. 256. But in 1894,

Congress established a new income tax, which “did not

differ very materially” from the earlier ones. Black,

supra, at 16. And in this new statute, unrealized gains

continued to be taxed—specifically, “interest received

or accrued upon all notes, bonds, mortgages, or other

forms of indebtedness bearing interest, whether paid

or not, if good and collectible.” Act of Aug. 27, 1894,

ch. 349, § 28, 28 Stat. 509, 553 (emphasis added); see

Pollock, 157 U.S. at 654 n.2. Shareholders were no

longer taxed on undistributed corporate earnings; the

statute instead taxed corporations. See Act of Aug. 27,

1894, § 32, 28 Stat. at 556 (taxing corporate dividends

and profits); id. § 28, 28 Stat. at 554 (excluding dividends from shareholder income if the corporation paid

the tax). But that was a pragmatic choice about what

to tax and where, not a change in Congress’s understanding of what “income” meant. See Steven A. Bank,

Entity Theory as Myth in the Origins of the Corporate

Income Tax, 43 Wm. & Mary L. Rev. 447, 459-64 (2001)

(discussing congressional debates).

As discussed later, this Court struck down the 1894

tax before it was enforced. But the unpaid-interest

provision demonstrates that “[t]he period of modern

activity in income tax legislation,” Black, supra, at 15,

began with the taxation of unrealized gains—just like

the initial period decades earlier.3

C. The 1909 Corporate Income Tax

Congress was not alone in understanding that unrealized gains fit easily within the meaning of “income.” In 1909, Congress enacted a corporate income

tax, and Treasury Department decisions construing

that tax—rendered while the Sixteenth Amendment

was being ratified—ruled that unrealized gain from

appreciations in property value was taxable “income.”

Formally speaking, the corporate income tax was

an “excise” tax, Act of Aug. 5, 1909, ch. 6, § 38, 36 Stat.

11, 112, levied for the privilege of using the corporate

form. See Flint v. Stone Tracy Co., 220 U.S. 107 (1911).

The tax was measured, however, by a corporation’s

“net income.” Act of Aug. 5, 1909, § 38, 36 Stat. at 112;

see Stratton’s Indep., Ltd. v. Howbert, 231 U.S. 399,

414 (1913).

Treasury decisions applying this law concluded

that unrealized gains, specifically appreciations in the

value of property, qualified as taxable income. As one

decision stated, “increase in the value of unsold property, if taken up on the books of the corporation, [are]

to be included in income.” T.D. 1675 § 37 (Feb. 14,

1911), 14 Treas. Dec. Int. Rev. 16, 19 (1911). Another

3 State laws also taxed unrealized gains as “income” in this period. Virginia, for example, taxed undistributed corporate earnings: “The word ‘income’ shall include … the shares of the gains

and profits of all companies … of any person who would be entitled to the same if divided, whether said profits have been divided

or not.” Acts of Assembly, ch. 496, § 1, 1897–98 Va. Acts 527 (emphasis added); see also The Income Tax Act, ch. 658, § 1087m—

2(1)(a), 1911 Wis. Laws 985 (taxing the estimated rental value of

owner-occupied properties, where the owners received no actual

rent payments).

decision elaborated: “Any increase in the value of capital assets, as determined by a physical revaluation

and taken cognizance of by the corporation in book entries, is gain and must be accounted for as income for

the year in which such increase is so recognized.” T.D.

1742 § 48 (Dec. 15, 1911), 14 Treas. Dec. Int. Rev. 123,

127 (1911).

Yet another decision instructed that “appreciation

in the value of securities,” taken account of as a book

entry, “should be accounted for as gross income.” T.D.

1706 (June 9, 1911), 14 Treas. Dec. Int. Rev. 75 (1911).

The decision explained: “The appreciation having actually occurred and being so entered and carried on

your books as to show that the value of your assets was

greater by this amount at the close of the year than at

the beginning, this increase must be accounted for as

income.” Id. Indeed, an earlier decision instructed

corporations to report as gross income all “increase[s]

in value of unsold property,” whether or not taken account of on the books, T.D. 1606 § 40 (Mar. 29, 1910),

13 Treas. Dec. Int. Rev. 39, 42 (1910), further underscoring how broadly the concept of income was regarded at the time.

The 1909 corporate income tax was enforced

through 1913. Thus, the law in operation during the

ratification of the Sixteenth Amendment, as authoritatively interpreted by the government, treated unrealized gains as “income.” Although the 1909 tax addressed corporate incomes, this Court has recognized

that the meaning of “income” in that statute is the

same as in the income-tax laws passed after 1913 to

implement the Sixteenth Amendment. See, e.g., Stratton’s Indep., 231 U.S. at 416-17; S. Pac. Co. v. Lowe,

247 U.S. 330, 335 (1918).

D. The 1913 Income Tax

The year the Sixteenth Amendment was ratified—

five decades after Congress first imposed an income

tax on undistributed corporate earnings—it was still

understood that Congress could tax unrealized profits

or gains as part of someone’s “income.” Indeed, that is

precisely what Congress did in the first income tax

passed after the Amendment’s ratification.

The 1913 income tax, like its nineteenth-century

antecedents, expressly included undistributed corporate earnings in the incomes of some individuals. Specifically, for certain high earners, the act provided that

“the taxable income of any individual shall embrace

the share to which he would be entitled of the gains

and profits, if divided or distributed, whether divided

or distributed or not,” of all corporations and similar

entities that were used “for the purpose of preventing

the imposition of such tax” by “permitting such gains

and profits to accumulate instead of being divided or

distributed.” Act of Oct. 3, 1913, ch. 16, 38 Stat. 114,

166 (emphasis added). All that was necessary for this

shareholder tax to apply was a determination that the

earnings had “accumulate[d] beyond the reasonable

needs of the business.” Id. at 167.

Thus, the very year the Sixteenth Amendment was

adopted, Congress saw nothing odd in defining “the

taxable income of any individual” as including his or

her unrealized share of corporate gains and profits,

“whether divided or distributed or not.” Id. at 166.

Although this measure applied only where tax avoidance may have been afoot, that choice was a matter of

policy and pragmatism, not of Congress’s power to tax

this type of profit as income. Undistributed corporate

earnings, after all, either can legitimately be regarded

as “income” or they cannot.

Notably, too, the 1913 statute recognized—unlike

Petitioners—that income can be derived from a source

without being separated from that source, distributed,

or otherwise realized. The income tax covered a person’s “entire net income arising or accruing from all

sources in the preceding calendar year,” and everyone

who was subject to the tax on undistributed corporate

earnings had to “make a personal return of his total

net income from all sources, corporate or otherwise.”

Id. (emphasis added). Under Petitioners’ logic, it was

nonsense for Congress to say that taxpayers could derive income “from” a “source” when the gains in question were never separated from that source and conveyed to them. But that is not how Congress understood things in 1913.

In sum, when the Sixteenth Amendment was ratified, Congress and the executive department that implemented its tax laws understood that taxable income

could include unrealized gains—whether undistributed corporate earnings or increases in the value of unsold assets. That understanding traced back to the

earliest years of a national income tax. Did the ratification of the Sixteenth Amendment change that by

narrowly confining the word “income” through a constitutional realization requirement that never existed

before? As discussed below, the answer is no.

II. The Sixteenth Amendment Restored the

Broad Power to Tax Income that Congress

Possessed Before Pollock, a Power that

Included Taxing Unrealized Gains.

The history of the Sixteenth Amendment makes

clear that its purpose was to undo a key holding of the

Pollock decisions—that taxes on income “derived from”

property must be apportioned because they are equivalent to taxing “the property itself.” Pollock, 158 U.S.

at 618. Simply put, “the command of the Amendment”

was “that all income taxes shall not be subject to apportionment by a consideration of the sources from

which the taxed income may be derived.” Brushaber,

240 U.S. at 18.

Thus, the Amendment did not introduce a new concept of income taxation—rather, it was designed to return to the pre-Pollock status quo, in which income

taxes never required apportionment, regardless of the

source of the taxed income. See Brooks & Gamage, Derived, supra, at 28-35. And those unapportioned income taxes, as shown above, had long taxed unrealized

gains.

A. “The great object of the Constitution was, to give

Congress a power to lay taxes, adequate to the exigencies of government.” Hylton v. United States, 3 U.S.

171, 173 (1796) (Chase, J.). That authority has always

included the “complete and plenary power of income

taxation.” Stanton, 240 U.S. at 112.

The Founders specified, however, that any “direct”

tax must be apportioned among the states by population. U.S. Const. art. I, § 2, cl. 3; id. art. I, § 9, cl. 4. It

“was unclear” exactly what a “direct” tax meant, “other

than a capitation (also known as a ‘head tax’ or a ‘poll

tax’).” Nat’l Fed’n of Indep. Bus. v. Sebelius, 567 U.S.

519, 570 (2012); see Brooks & Gamage, Taxation, supra, at 75-99. The opinions in Hylton suggested “that

only two forms of taxation were direct: capitations and

land taxes,” and that view “persisted for a century.”

Sebelius, 567 U.S. at 571. Thus, this Court concluded

that the Civil War income tax was not a direct tax, but

rather fell “within the category of an excise or duty,”

Springer v. United States, 102 U.S. 586, 602 (1880),

which need not be apportioned. See Brooks & Gamage,

Taxation, supra, at 106-09.

It shocked the nation, therefore, when this Court

abruptly reversed itself in Pollock, overturning the

1894 income tax under the apportionment rule. According to the Court, taxing income derived from property was equivalent to taxing the property itself, making it a direct tax. Pollock, 158 U.S. at 618.4

Critically for understanding how the Sixteenth

Amendment was later phrased, however, Pollock did

not hold that all income taxes require apportionment—only taxes on income derived from property. It

did not question the settled rule that income from all

other sources, such as “gains or profits from business,

privileges, or employments,” 158 U.S. at 635, could be

taxed without apportionment. Pollock struck down

the entire 1894 income tax only by concluding that its

taxes on income from property could not be severed

from its taxes on income from “professions, trades, employments, or vocations.” Id. at 635, 637.

The obstacle that Pollock imposed to an income tax,

therefore, was its new source-based analysis, in which

the need for apportionment hinged on “the source

whence the income was derived.” Id. at 618.

B. Pollock caused an uproar. President Taft later

observed: “Nothing has ever injured the prestige of the

Supreme Court more.” 1 Archibald Butt, Taft and

Roosevelt 134 (1930). In 1909, while discussing the

proposed Sixteenth Amendment, one Congressman recounted “the spectacle” of the Court “turning backward, and uprooting the established laws of more than

three generations. Is it any wonder that the populace

4 Pollock also innovated by holding that taxes on ownership of

personal property (not just real property) were direct taxes, see

id., but that aspect of the decision is not relevant here.

stood aghast and the bar was amazed?” 44 Cong. Rec.

4413 (Rep. Henry).

The aim of the Sixteenth Amendment was thus “to

restore to the people and to Congress their right to levy

and collect taxes for the support of the Government in

the way it had been done … prior to this decision.” Id.

at 4409 (Rep. Bartlett). Because Pollock “decided that

certain incomes could not be taxed,” an amendment

was needed to reestablish “a complete grant of power

to tax all incomes.” Harry Hubbard, “From Whatever

Source Derived,” 6 A.B.A. J. 202, 204 (1920).

This history helps illuminate a key phrase in the

Amendment: “from whatever source derived.” While

Petitioners depict this language as implying a heretofore-unknown realization requirement, its function

was instead to overrule the flawed analysis of Pollock—its holding that the source of income determines

whether an income tax must be apportioned. Indeed,

“the whole purpose of the Amendment was to relieve

all income taxes when imposed from apportionment”

based on “the source whence the income was derived.”

Brushaber, 240 U.S. at 18.

The Sixteenth Amendment was thus understood as

restoring a preexisting constitutional framework under which the government had long collected income

taxes—including taxes on undistributed corporate

earnings and other unrealized gains. The Amendment

“conferred no new power of taxation,” but simply prevented income taxes from “being placed in the category

of direct taxation ... by a consideration of the sources

from which the income was derived,” under Pollock’s

“mistaken theory.” Stanton, 240 U.S. at 112-13.

That purpose explains the conspicuous lack of discussion during the Amendment’s drafting about the

meaning of “income.”

Its Framers were not

establishing a new concept, because Congress had already exercised the “power to lay and collect taxes on

incomes, from whatever source derived.” U.S. Const.

amend. XVI. And in doing so, Congress had taxed unrealized gains.

C. The historical record bears this out. In April

1909, Senator Norris Brown introduced a proposed

amendment, recounting how this Court “first held that

Congress could pass an income-tax law, and later, in

the Pollock case, held that it could not.” 44 Cong. Rec.

1568. Quoting extensively from Justice Harlan’s dissent, Brown said: “I do not believe the fathers ever contemplated that income taxes must be apportioned according to population, but the courts have said that

they did. I am here to-day presenting an amendment

to the Constitution which will compel the courts to

announce the contrary doctrine.” Id. at 1570; cf. id. at

1569 (citing the Civil War income taxes).

President Taft expressed similar views in a letter

read to the Senate. Pollock, he wrote, “deprived the

National Government of a power which, by reason of

previous decisions of the court, it was generally supposed that Government had.” Id. at 3344. Taft therefore endorsed an amendment “conferring the power to

levy an income tax ... without apportionment.” Id.

Many legislators made the same points. E.g., id. at

4408 (Rep. Bartlett). One Congressman, specifically

referencing the Civil War income taxes, said that Pollock severed an “unbroken chain of decisions ... so

strong that Abraham Lincoln girded it about the Republic in its darkest hour in the war between the

States.” Id. at 4398 (Rep. James). Others similarly

denounced Pollock and advocated its overthrow. E.g.,

id. at 4401 (Rep. Hull) (calling Pollock “clearly unsound” and exhorting legislators “to secure to Congress

its taxing power lost under this decision”).

D. The genesis of the phrase “from whatever

source derived” also belies the notion that it implies a

narrow concept of income. This language was added

by the Senate Finance Committee, see id. at 3377 (referral to committee); id. at 3900 (revised language),

and the Senator who reportedly suggested the addition

did so to make the language “as broad as ‘incomes’

themselves could possibly be,” Hubbard, supra, at 203.

The Amendment’s initial sponsor, Senator Brown,

later said that these words “neither add to nor take

away from the power of the Government to reach the

incomes of the country.” 45 Cong. Rec. 1699 (1910)

(emphasis added).

The phrase “from whatever source derived” also

echoed the income-tax statutes of the past. E.g., Act of

Aug. 27, 1894, § 28, 28 Stat. at 553 (“income derived

from any source whatever”); Act of June 30, 1864,

§ 116, 13 Stat. at 281 (“derived ... from any other

source whatever”). As that similarity underscores, the

aim was to return to an earlier era—one in which, notably, “the gains and profits of all companies” were

treated as part of a shareholder’s personal income,

“whether divided or otherwise.” Id. § 117, 13 Stat. at

282.

E. To support their narrow construction of the

Amendment, Petitioners point to the following episode: after the Senate Finance Committee had shaped

the Amendment’s language into its final form, 44

Cong. Rec. 3900, the Senate rejected a floor amendment offered by one Senator—on the day the amendment passed the Senate—that would have taken an

entirely different approach by striking the Constitution’s direct-tax clauses. Id. at 4120.

Petitioners say this shows that Congress eschewed

a “broader” approach and “carved out” only a “limited”

new sphere for income taxes. Pet. Br. 34. But the evidence is to the contrary.

First, apart from the ill-timing of the substitute

amendment, striking words from the existing text of

the Constitution was not how previous constitutional

amendments had ever been effected. See U.S. Const.

amend. I, II, III, IV, V, VI, VII, VIII, IX, X, XI, XII,

XIII, XIV, XV.

More importantly, the choice to focus exclusively on

income taxes does not imply that the Framers and ratifiers thought they were establishing a newly parsimonious definition of “income.” Throughout the congressional and ratification debates, no one argued that the

Amendment would give Congress less power “to lay

and collect taxes on incomes” than Congress had exercised before Pollock. The power the Amendment restored had been used to tax unrealized gains in the

past, and Congress used it to tax such gains once again

as soon as the Amendment was ratified. Just as income was still distinct from the accumulated wealth

that produced it, see Stratton’s Indep., 231 U.S. at 415

(“the gain derived from capital”), it was still taxable

before realization or separation from that initial capital. Petitioners offer no evidence that anyone understood “taxes on incomes” under the Amendment to

mean something narrower than the taxes on incomes

that Congress had levied in the past—which repeatedly included unrealized gains.

Instead, the choice to focus only on “incomes” reflected the Amendment’s purpose: reversing Pollock’s

new apportionment requirement for taxing income derived from property. The Amendment’s phrasing was

chosen to make this purpose clear. That is precisely

what Senator Brown said in his full response to the

idea of repealing the direct-tax clauses: “my purpose is

to confine it to income taxes alone, and to forever settle

the dispute by referring the subject to the several

States.” 44 Cong. Rec. 3377 (emphasis added). As

Brown remarked when introducing the amendment,

the goal was “to amend the Constitution and to make

it so definite and so certain that no question can ever

be raised again of the power of Congress to legislate on

the subject.” Id. at 1568.

Thus, the idea that the Amendment entrenched a

new constitutional rule against taxing unrealized

gains has no support in history. Nor in the Amendment’s text, as discussed below.

III. The Word “Income” Had an Expansive

Meaning in the Ratification Era that

Encompassed Virtually Any Financial

Gain, Realized or Unrealized.

Whether one looks to general-use dictionaries or

specialized treatises, “income” had a broad meaning in

1913 that encompassed financial gains of virtually any

kind, realized or unrealized. See Brooks & Gamage,

Derived, supra, at 44-54. Petitioners’ attempt to show

otherwise falls apart under scrutiny.

A. Dictionaries

Contemporary dictionaries all offered extremely

general definitions of “income” that did not imply any

need for realization.

The 1913 edition of Webster’s, for instance, broadly

defined income as including “[t]hat gain which proceeds from labor, business, property, or capital of any

kind, as ... the profits of commerce or of occupation, or

the interest of money or stock in funds, etc.” Webster’s

Revised Unabridged Dictionary (1913). Nothing here

requires one’s “gain” to be separated from the underlying source that generated it, converted into a new

form, or personally received by the owner. Petitioners

try to wring that implication from the statement that

gain “proceeds from” a source, but that does not follow.

Interest that accumulates in a bank account, for instance, “proceeds from” the initial deposit whether or

not the interest is withdrawn. Cf. id. (defining the

verb “proceed” as “to come from”). Under Webster’s

definition, income is merely distinct from whatever

“labor, business, property, or capital” produced it—

it is the “gain” from those sources. Id. And “gain” included the “amassing of profit or valuable possession;

acquisition; accumulation.” Id. Accordingly, Webster’s

supplies a long list of synonyms for “income,” some of

which may entail realization but others of which

clearly do not: “Gain; profit; proceeds; salary; revenue;

receipts; interest; emolument; produce.” Id.

Other definitions of “income” were similarly broad

and lacked any realization requirement. See, e.g., Joseph E. Worcester, Dictionary of the English Language

(1884) (“[g]ain derived from any business or property;

produce; profit”); Robert Hunter & Charles Morris,

Universal Dictionary of the English Language (1897)

(“[t]hat gain which a person derives from ... property

of any kind”).

Petitioners’ arguments from dictionary definitions

all suffer from the same flaw: they beg the question.

For example, one cited dictionary defined income as

“[t]hat which comes in to a person as payment ... or as

gain from lands, business, the investment of capital,

etc.” 4 Century Dictionary and Cyclopedia (1903) (emphasis added). But what does it mean for a financial

gain to “come in” to a person? Does it necessarily exclude situations in which the new funds are held by a

corporation that the person partially owns? The definition does not answer that question.

Legal dictionaries also defined “income” expansively to include gains and profits of all kinds, realized

or not. Black’s Law Dictionary defined it both as the

“return in money from one’s business, labor, or capital”

and also as “gains, profit, or private revenue.” Black’s

Law Dictionary (2d ed. 1910). Significantly, the same

entry defined “Income tax” in comparably sweeping

terms: “A tax on the yearly profits arising from property, professions, trades, and offices.” Id.

Likewise, Bouvier’s Law Dictionary defined income

as “[t]he gain which proceeds from property, labor, or

business.” Bouvier’s Law Dictionary (8th ed. 1914).

“The word is sometimes considered synonymous with

‘profits,’” and the “income” of an estate “may mean

‘money’ or the expectation of receiving money.” Id. (emphasis added). Other legal dictionaries were in accord.

E.g., Concise Legal Dictionary (1909) (“profit or gains

from business; property or other sources of wealth”);

Dictionary of American and English Law (1888)

(“[g]ains, or private revenue, from business, labor, or

the investment of property”).

Strikingly, although Petitioners insist that “income” invariably demanded realization, none of the

dictionaries they cite actually use that word in defining “income,” even when those same dictionaries contained entries for “realize.” E.g., Webster’s, supra (defining “realize” as “[t]o convert any kind of property

into money, especially property representing investments”); 6 Century Dictionary and Cyclopedia, supra

(“[t]o bring into form for actual or ready use; exchange

for cash or ready means”); Worcester, supra (“[t]o convert into land or real estate, as money,” or “[t]o make

certain; to substantiate”); Black’s Law Dictionary, supra (“[t]o convert any kind of property into money; but

especially to receive the returns from an investment”).

Even if “income” was most frequently used in 1913

in contexts involving realization, that speaks at most

to the core of the word’s meaning, not its outer bounds.

There is no reason to think that Americans believed

they were endorsing only the narrowest conception of

that word in the Sixteenth Amendment. And the history described above suggests exactly the opposite—

that “[t]hey intended to include thereby everything

which by reasonable understanding can fairly be regarded as income.” Macomber, 252 U.S. at 237

(Brandeis, J., dissenting). As shown by the long tradition of taxing unrealized gains, such gains not only can

be fairly regarded as income—they were so regarded.

Nothing in the Amendment’s text or history suggests

otherwise.

B. Treatises

Contemporary treatises likewise recognized that

“income” had a broad meaning, encompassing unrealized gains.

1. “Unless limited by the context,” Henry Campbell

Black explained, “the word ‘income’ is one of very

broad and comprehensive meaning.” Treatise on the

Law of Income Taxation, supra, at 76; cf. id. at 1 (“[a]n

income tax is in effect a tax upon earnings, taking that

term in its broadest sense” (emphasis added)).

Even academics who advocated a narrower view of

“income” recognized that it was used more comprehensively in tax law. “[T]he concept of income adopted in

the law is a compromise. The tax is imposed not

merely on ‘income’ in the strict economic sense but in

certain cases on appreciation of property values as

well.” Robert H. Montgomery, Income Tax Procedure

196-97 (1919); see id. (noting that some laws taxed income that was not “reduced to money”).

Furthermore, other academics took a broader view

of income. According to the influential economist Robert Murray Haig, income was “the money value of the

net accretion to one’s economic power between two

points of time.” The Concept of Income—Economic and

Legal Aspects, in The Federal Income Tax 1, 7 (Robert

Murray Haig ed., 1921). Although “one might urge

that no tax be placed on a gain arising from the appreciation of a fixed asset until it is actually sold,” following that approach was merely a “concession[]” to “exigencies.” Id. at 14. The inherent meaning of “income”

did not compel such a limit, for “[t]he economic fact is

that the owner of that asset comes into possession of

economic income whenever the increase in the value of

that asset is sufficient in amount and definite enough

in character to be susceptible of precise evaluation in

terms of money.” Id. Notably, this view of income was

in accord with contemporaneous accounting practice.

See, e.g., Arthur Lowes Dickinson, Accounting Practice

and Procedure 68 (1914) (“every appreciation of assets

is a profit, and every depreciation a loss”); see also

Brooks & Gamage, Derived, supra, at 54-56.

2. None of the treatises Petitioners quote shows

any consensus that income required realization. Instead, they show the opposite.

Many of these quotations are not even discussing

the concept of income, but rather are describing the

coverage of particular income-tax statutes.

E.g.,

Thomas Gold Frost, A Treatise on the Federal Income

Tax Law 7 (1913) (“the new Federal Income Tax is in

no sense a tax upon property” (emphasis added)). Petitioners selectively omit language to suggest, incorrectly, that these passages concern the abstract meaning of “income.” Compare Godfrey Nelson, Income Tax

Law and Accounting 19 (1918) (“Income, for the purpose of the tax, comprehends ... gains, profits, salaries

and wages received ….” (emphasis added)), with Pet.

Br. 33 (omitting the italicized words); compare also

Nelson, supra, at 36, with Pet. Br. 33 (similar).

Thus, when Thomas Cooley objected that “those

holding lands for the rise in value escape [income taxation] altogether—at least until they sell,” he did not

attribute that flaw to any inherent limit in what “income” can mean, but rather to “[t]he taxes imposed on

incomes by the United States during and immediately

following the late war,” which indeed did not attempt

to tax appreciations in the value of land. Treatise on

the Law of Taxation 20 (1876). On the contrary, Cooley

endorsed the broader concept of income that hinges on

increases in economic power: he criticized the Civil

War–era tax statutes for failing to include increases in

the value of landowners’ property, even though “their

actual increase in wealth may be great and sure,” regardless of whether they have sold the land and realized that profit. Id.

Other passages Petitioners cite merely explain that

income is distinct from the underlying capital that produced it—a point that is fully compatible with taxing

this income before it is separated from the capital.

E.g., Black, supra, at 1 (an income tax “is not a tax

upon accumulated wealth, but upon its periodical accretions” (emphasis added)).

Still other passages address general corporate-law

principles about whether the shareholder or the company has title to its earnings. E.g., Edwin Howes, The

American Law Relating to Income and Principal 17

(1905). This Court explained in 1870 why such principles are no bar to Congress treating the earnings as

“income” before they are distributed. Hubbard, 79

U.S. at 18. Indeed, the same treatises recognize that

“[a]ny increase in the property of the corporation in

whatever form would usually increase proportionately

the value of the shares of stock.” Howes, supra, at 26.

3. It is true that some authors of this period did

argue that realization should be considered a

necessary element of income. But critically, each was

advocating a prescriptive definition of income. Invariably, these writers acknowledged that actual practice

did not conform to their prescriptions.

In a passage Petitioners partially quote, for instance, Black writes that “it cannot be too strongly insisted upon that the word ‘income,’ when properly

used, is applicable only to receipts in cash,” thus excluding the increased value of an unsold bond. Black,

supra, at 76-77 (emphasis added). The caveat “when

properly used” highlights the existence of “improper”

usage to the contrary. Indeed, Black fully acknowledged the gap between reality and his prescriptions.

While he thought that interest “is not properly described as income until it is received,” he conceded that

“statutes have expressly included such items.” Id. at

77, 108 (emphasis added). And while he believed undistributed corporate earnings should not be thought

of as personal income, he acknowledged: “These are

taxable under the act of Congress of 1913, as income of

the stockholder,” in some situations. Id. at 119.

Black was hardly alone in offering a prescriptive

definition of “income” that concededly did not reflect

actual usage. See, e.g., Frost, supra, at 15 (“It is undoubtedly true that ‘profits’ and ‘income’ are sometimes used as synonymous terms,” but “strictly speaking” they are different.). Montgomery, for instance,

did not write that “the federal government has no

‘right to tax any transaction unless there is an actual

realization of income.’” Pet. Br. 33. Rather, having

acknowledged that the government did exactly that,

he wrote: “In the circumstances, no apology is needed

for a close inquiry into the right of Congress or the

Treasury Department to ... tax any transaction unless

there is an actual realization of income.” Montgomery,

supra, at 198 (emphasis added).

Similarly, when Edwin Seligman discussed realization, “purely from the economic point of view,” Are

Stock Dividends Income?, 9 Am. Econ. Rev. 517, 517

(1919), he acknowledged it was often a “difficult problem” to decide “whether a particular gain is income.”

Id. at 523. Illustrating the point, Seligman did not

view mere appreciations in value as income, but he felt

differently about the reinvestment of earnings—the issue here. Seligman regarded reinvested earnings as

income (“accumulated or reconverted income”) because

at one point the income had been “separated from the

principal.” Id. at 523. “While indeed it is now again

merged with the principal,” nevertheless “the gain,

even though added to the capital, is pure income.” Id.

Such esoteric distinctions were part of academic debate in the ratification era, but neither legislation nor

common usage reflected the narrower definitions of

“income” that some academic authors were prescribing—as those authors themselves recognized.

***

As soon as the Sixteenth Amendment was ratified,

Congress taxed unrealized financial gains as income,

as it did two decades before in the law that Pollock

struck down and two decades before that under the

earliest federal income taxes. By the ratification era,

there was a long tradition of treating undistributed

corporate earnings, appreciations in value, and other

unrealized gains as taxable “income.” The Sixteenth

Amendment, as everyone understood, simply restored

the legal regime under which Congress could levy such

taxes without apportionment. Not a shred of evidence

suggests that in returning to that status quo, Americans gave Congress any less power “to lay and collect

taxes on incomes, from whatever source derived,” U.S.

Const. amend. XVI, than Congress had long exercised.

CONCLUSION

For the foregoing reasons, the judgment of the

court of appeals should be affirmed.

Respectfully submitted,

ELIZABETH B. WYDRA

BRIANNE J. GOROD*

BRIAN R. FRAZELLE

CONSTITUTIONAL

ACCOUNTABILITY CENTER

1200 18th Street NW, Suite 501

Washington, D.C. 20036

(202) 296-6889

brianne@theusconstitution.org

JOHN R. BROOKS

FORDHAM UNIVERSITY SCHOOL

OF LAW

150 West 62nd St.

New York, NY 10023

Counsel for Amici Curiae

October 23, 2023

* Counsel of Record

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.