Supreme Court weighs whether 'income' under the 16th Amendment requires realization in Moore v. United States

The Supreme Court on oral argument considered whether the Sixteenth Amendment’s reference to “income” requires a realization event and whether Congress may attribute realized corporate earnings to shareholders under the MRT. Petitioners’ counsel, arguing for a realization requirement, told the bench that “the word income is not an inkblot,” and pressed that unrealized appreciation and mere ownership are not income subject to an unapportioned tax.

Government counsel defended the MRT as rooted in text and historical practice, saying the statute operates as a pass‑through tax on earnings the foreign corporation realized and that Congress has long attributed such corporate income to shareholders under statutes like subpart F. General Prelogar urged the Court that the MRT aligns with historical congressional practice beginning in the 19th century and with other longstanding tax regimes.

Justices pressed both sides on several recurring themes: how to define “realization,” whether realization at the entity level suffices if shareholders did not personally receive distributions, how attribution doctrines (for partnerships, S corporations, and subpart F) fit with any realization rule, and whether affirming petitioners would unsettle other portions of the tax code. Several justices asked whether the Court could decide narrowly — for example, by assuming realization exists on the facts here and resolving only whether Congress permissibly attributed that entity‑level realization to shareholders.

Petitioners warned that abandoning a realization requirement could allow Congress to reach broad forms of wealth appreciation and would lack principled limiting rules. The government replied that history and precedent sustain pass‑through taxes and that the MRT could be affirmed on the narrower ground that the taxed earnings were in fact realized at the corporate level and were permissibly attributed to U.S. shareholders.

Justices repeatedly returned to practical and doctrinal line‑drawing: whether a 30‑year lookback or taxing prior retained earnings is a due‑process/retroactivity problem, whether “constructive realization” is a workable standard, and what role control or a taxpayer’s relationship to the income should play. Government counsel urged the Court to avoid announcing a universal definition of income that would govern all future cases and suggested the Court could resolve the case by applying established attribution and historical practice principles.

The argument concluded with a rebuttal from petitioners emphasizing the potentially sweeping consequences of the government’s view and a request the Court adhere to the traditional realization framework. The case was submitted at the close of argument.