In June 2024, the United States Supreme Court decided Moore v. United States. The petitioners in Moore challenged of the Mandatory Repatriation Tax (“MRT”), a provision of the international-tax regime of the 2017 Tax Cuts and Jobs Act (“TCJA”). Before 2017, Congress taxed domestic shareholders on foreign corporations’ offshore business income when they repatriated such income: for example, through a dividend. In 2017, Congress enacted a general rule exempting U.S. shareholders from domestic taxation when foreign corporations distribute those earnings. But to prevent a windfall to corporations which had accumulated unrepatriated earnings, Congress enacted the MRT. Under the MRT, foreign earnings accumulated after 1986 are deemed repatriated and subject to preferential rates of taxation. The Moore petitioners attacked the MRT as unconstitutional, and contended that Congress had no power to enact the MRT under the Sixteenth Amendment.

If you didn’t understand the previous paragraph, don’t fear, and read on. The target of Moore is not some obscure provision of the 2017 tax legislation. Instead, it was a preemptive challenge of potential federal taxes on wealth and unrealized gains. Decades of extraordinary capital accumulation have made our age one of record economic inequality. As a result, lawmakers like Elizabeth Warren have proposed taxes on the net worth of ultra-billionaires. Congress does not, in general, tax income until realized. For example, your holdings in Apple stocks are not taxed until you sell them.

This practice—aptly named the realization doctrine—has enabled the richest Americans to reduce their income-tax bills, often to zero. The strategy is elegant and easy. Buy assets that appreciate, borrow against them as collateral to receive funds to live on (borrowed funds are not income under the Tax Code), and die holding such appreciated assets (bequests upon death of appreciated assets are granted full income-tax forgiveness). Both academics and politicians (e.g., President Biden) have thus proposed taxing gains as they accrue rather than upon realization. Especially as to liquid assets like publicly traded stocks, accrual-tax regimes are quite sensible and would raise much-needed funds in a time of astonishing budget shortfalls.

But under the logic of the Moore petitioners, such taxes would be unconstitutional. The 1787 Constitution required Congress to apportion “direct taxes” in accordance with each state’s census population. Ratified in 1913, the Sixteenth Amendment made clear that “taxes on income” need not be apportioned. According to the Moore petitioners, the Sixteenth Amendment only granted Congress the power to tax realized income. In their view, if Congress could not tax accrued but unrealized income under the Sixteenth Amendment, it must apportion accrual taxes in accordance with state population. Apportionment is generally unfair and politically unfeasible. Congress has not attempted an apportioned tax since the 1860s. A constitutional realization requirement would thus doom most proposals of structural tax reform. It would also render unconstitutional swaths of the current Tax Code. Before oral argument, some commentators predicted that Moore could be the most important tax case in a century.

The court did not take the bait. Instead, it resolved the case on narrow grounds. Writing for the majority, Justice Kavanaugh held that the MRT does not tax unrealized income. That is, while the petitioners-shareholders did not realize any income, the corporation that earned the income (and in which petitioners held shares) did. The proper inquiry is thus whether Congress has the power to attribute the income—realized by the corporation but undistributed to the shareholders—to the petitioners. The majority said yes.

Along with the Chief, Justices Sotomayor, Kagan, and Jackson joined the majority opinion. Justice Jackson also penned a concurrence. Citing academic perspectives, mine included, Justice Jackson emphasized that there was no constitutional realization requirement. After all, the text of the Constitution states no such limit. Joined by Justice Alito, Justice Barrett concurred in the judgment, and grounded her decision in a concession made by the Petitioners. Joined by Justice Gorsuch, Justice Thomas dissented.

Moore was not the bombshell most feared it would be. It also gave no stamp of approval on proposed federal taxes on unrealized gains or wealth. Instead, the court’s narrow decision leaves the important constitutional questions for another day. But the opinions are revealing. There are clearly four votes at the Supreme Court in favor of a constitutional realization requirement. With persuasion and changes in judicial personnel, a fifth vote may not be hard to find. Will the Supreme Court become a key player in crafting federal tax policy? Time will tell.

Zhang is an assistant professor of law whose areas of expertise are Tax Law and Policy, Tax-Exempt Organizations, and Administrative Law.