Notice & Comment

What Issues are Fair Game in Moore v. United States?, by Conor Clarke

On December 5th, the Supreme Court heard oral argument in Moore v. United States, a constitutional challenge to the mandatory repatriation tax (“MRT”) in the 2017 Tax Cuts and Jobs Act.  The case raises basic questions about the scope of Congress’s taxing power, and has the potential to reshape and limit federal taxation.  (Ben Silver had a nice summary of the complicated constitutional and statutory background last week, and I’ve also written about the case elsewhere.[1]  Rather than rehash those details, I will assume some basic familiarity with the case in what I say below.  

I came away from the argument with the feeling that the government was going to win:  The swing justices seemed to have little interest in a decision that might upset longstanding aspects of the Internal Revenue Code, and seemed unpersuaded by the petitioner’s efforts to distinguish the MRT from existing federal taxes that attribute entity-level earnings to the entity’s owners.  But I was also struck by the confusion and controversy over what theory might uphold the MRT—and, indeed, what theories were even properly before the Court.  Several Justices expressed view that two seemingly appealing theories had been forfeited, insufficiently briefed, or not included in the question presented.  So it’s worth asking:  What issues are actually fair game?  My answer is that the two ‘compromise’ theories in question are properly before the Court, and the Court can address them as needed.  

The first issue is whether the MRT can be construed as a “duty” or “excise” under Article I Section 8—sometimes referred to as an “indirect tax”—and therefore not subject to the constitutional apportionment requirement that applies to “direct taxes.”  I’ve written about the excise argument elsewhere, and I consider it the best frame for the MRT:  The Article I power to impose duties and excises has always been the natural framework for taxing business activities, including foreign-affiliated business activities.  But, at oral argument, Justice Alito seemed skeptical that the issue could be reached at all, as noted in his exchange with Andrew Grossman, counsel for the Moores:

JUSTICE ALITO: Is that argument [that the MRT is an “excise”] within the question presented?

MR. GROSSMAN: No, Your Honor.

JUSTICE ALITO: Was it preserved?

MR. GROSSMAN: No, Your Honor. It was raised for the first time before this Court.[2]

But I think this is wrong on both counts—gently wrong on the scope of the question presented and more emphatically wrong on the question of forfeiture.  The question presented by the granted petition was this: “Whether the Sixteenth Amendment authorizes Congress to tax unrealized sums without apportionment among the states.”[3]  And sure—the surface of that question makes no mention of Article I.  But a leading interpretation of the Sixteenth Amendment—and certainly the Solicitor General’s interpretation in Moore—is that the whole point of the Amendment was to sweep away Pollock v. Farmers Loan and Trust Company (which had declared the 1894 income tax unconstitutional) and restore the preexisting scope of Congress’s Article I taxing authority.[4]  The Supreme Court’s own rules note that a question presented is “deemed to comprise every subsidiary question fairly included therein.”  If the Court agrees with the government’s view of the Sixteenth Amendment, then the scope of the Article I taxing authority is certainly “fairly included” in the underlying question.    

Nor was that argument raised for the first time at the Supreme Court.  It’s true, as Ben Silver noted a couple of weeks ago, that the Government’s Ninth Circuit brief “drifts toward an indirect-tax argument in only one place.”  But the brief both drifts and firmly lands.  It makes an unequivocal argument in the alternative that the MRT is “not a direct tax and thus is not subject to the apportionment requirement.”[5]  Two pages later, it spells out the point as follows:  “[E]ven if the Sixteenth Amendment somehow excluded income used for capital investment from its definition of income, that would not impact Congress’s authority under Article I of the Constitution to tax business gains.”[6]  For that proposition, the brief cites Spreckels Sugar v. McClain, a case in which the Court upheld a tax on gross receipts of refining sugar as an Article I “excise.”[7]  Not forfeited.    

The second issue concerns whether there was “realization” in this case or not.  In its brief at the Supreme Court, the government’s primary submission is that it doesn’t matter, because the Sixteenth Amendment doesn’t require “realization” at all.  But in her oral argument the solicitor general made the pitch that “the Court doesn’t actually need to resolve any fundamental questions in this case about whether the Sixteenth Amendment requires realization,” because “[t]he MRT taxes income that was actually realized by the foreign corporations, and Congress permissibly attributed the tax on that realized income to U.S. shareholders.”[8]  The Court, she continued, “could say only that and affirm.” 

It seemed apparent from the oral argument that some justices were more than a little interested in this theory, especially Justice Kavanaugh.[9]  But Justice Gorsuch seemed concerned that he couldn’t find it in the briefs, and pressed the solicitor general on that point: “you haven’t made an argument that there was realization to this taxpayer, though, have you?”  After a somewhat halting exchange, he summarized the government’s answer: “I’ll take that as a yes.”[10]  

But Justice Gorsuch should not take it as a yes!  A big chunk of the government’s brief is devoted to “[p]ost-ratification practice show[ing] that Congress may tax individuals on their pro rata shares of undistributed business earnings.”[11]  As the solicitor general pointed out, there are several ways to theorize this legislative practice—one is that there isn’t realization; another is that there is realization at the corporate level, and Congress has some flexibility in how to assign that realized income.  The brief certainly didn’t foreclose that latter interpretation, and fleshing out that theory seems to take the Court’s rules at face value: “Oral argument should emphasize and clarify the written arguments in the briefs.”  

Even if you’re unpersuaded on the specifics above, it’s worth noting that the Court has discretion here.  Ordinarily, the Court does not decide questions not raised or argued.  But refusing to consider arguments not waived is prudential and not mandatory—and, as Justice Scalia once put it, “there are times when prudence dictates the contrary.”[12]   It would be imprudent for the Court to pass judgment on the constitutionality of an important federal law while holding up blinders to some of the most important constitutional arguments.

Conor Clarke is an associate professor of law at Washington University in St. Louis.

[1] Conor Clarke, Moore: The Overlooked Excise Power, 181 Tax Notes 1759 (2023). 

[2] Transcript of Oral Argument at 28, Moore v. United States, No. 22-800

(U.S. argued Dec. 5, 2023).

[3] Petition for Writ of Certiorari at iMoore, No. 22-800 (U.S. Feb. 21, 2023).

[4] See John R. Brooks and David Gamage, “From Whatever Source

Derived”: The Sixteenth Amendment and Congress’s Income Tax Power,

Fordham Law legal studies research paper no. 4595884 (Oct. 24, 2023). 

[5] Brief for the Appellee at 45, Moore, No. 22-800 (9th Cir. July 22, 2021).

[6] Id. at 47.

[7] See Spreckels Sugar Ref. Co. v. McClain, 192 U.S. 397, 412–13 (1904).

[8] Transcript at 57, Moore.

[9] See id. at 22 (“[W]e have realization in this case.  The entity realized income. The question then is attribution, and we’ve long held that Congress may attribute the income of the company to the shareholders[.]”).

[10] Id. at 76.

[11] Brief for the Respondent at 22, Moore, No. 22-800 (U.S. Oct. 16, 2023).

[12] Davis v. United States, 512 U.S. 452, 464 (1994) (Scalia, J., concurring).

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