Moore v. United States (22-800)

argument 22-800

Moore v. United States

Supreme Court of the United States 2h 4m 8 speakers 8 chapters transcribed 8 days ago official recording ↗

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What is the Court’s definition of “income” under the 16th Amendment?

John G. Roberts 0:00

We'll hear argument this morning in Case 22-800, Moore v. United States.

Michael D. Granston 0:07

Counsel? Mr. Chief Justice, and may it please the Court, the word income is not an inkblot. Income was understood at the time of the 16th Amendment's adoption to refer to gains coming into the taxpayer, like wages, rents, and dividends. Appreciation in the value of a home, a stock investment, or other property is not and never has been taxed as income. The reason is that a gain is not income unless and until it has been realized by the taxpayer. The Court squarely held as much in Eisner v. McComber just a few years following adoption of the amendment, and the Court's decisions have held that line for a century. That precedent makes easy work of this case. It is undisputed that the petitioners realized nothing from their stock investment.

Michael D. Granston 0:49

They were taxed not because they had any income, but because in 2017 they happened to own shares in a corporation that carrying retained earnings on its books. This is a tax on the ownership of property. It therefore must be apportioned. Dispensing with the need for realization sweeps away what the framers regarded as the essential check on Congress's power to tax property. The government cannot identify a single thing that Congress couldn't tax as income under its position that realization is unnecessary. Without realization, there is no limiting principle. Accepting the government's position on income would make a hash of the current law. The tax code's gateway definition of gross income exerts the full measure of Congress's taxing power under the 16th Amendment by reaching all income from whatever source derived.

Michael D. Granston 1:36

If the government's position in this case is right, then current law already requires taxpayers to report and pay tax on appreciation and the value of all their assets, on corporate earnings for any stocks that they own, and on any paper gains from their contracts and loans. That's not how the income tax has ever worked, going back to 1913. Again, the reason the law doesn't work that way is the obvious one. Unrealized gains are not income. The only way to make sense of the income tax, as it's existed for a century, is to stick with the original meaning of the 16th Amendment. The Court should reaffirm that there is no income without realization. I welcome the Court's questions.

Clarence Thomas 2:15

When you say realization, do you have a definition for that or an explanation as to exactly what it is? And how is it different from, say, attribution?

Michael D. Granston 2:26

Thank you, Justice Thomas. Realization in the main is going to be receipt, but in other instances it would be other types of enjoyment of an economic gain such that the taxpayer can put that gain to his or her own uses and benefits. That might be forgiveness of a loan or it might be assignment of income to a third party.

John G. Roberts 2:50

There certainly is realization here by the corporation, if not the taxpayers, right? It isn't a case like appreciation of property where nothing has happened. You know, you buy property, you're holding it for 20 years, you haven't sold it, nothing has happened. Here something has happened and income has gone

Michael D. Granston 3:11

to the corporation. Isn't that right? Yes. The corporation has income. And we don't dispute that the corporation realized income over the decade-plus years that are being taxed by the MRT. But I think it really is like the instance of simply appreciation of property from the point of view of the shareholders. The shareholders' interest in the corporation is solely a capital interest, a property interest. And so the value of their capital has increased. It has appreciated. But as shareholders, no, they have not realized any income.

Elena Kagan 3:42

So tell me, why do we permit taxing of individual partners when either state law or their partnership agreement doesn't realize the income to them. In many states, a partner doesn't have personal ownership, doesn't get the value of the partnership, yet we've permitted that tax.

Michael D. Granston 4:08

Thank you, Justice Sotomayor. A partnership is a fundamentally different form of organization than a corporation. The law has always recognized that