Oral Argument Legal Case Summary

Oral Audio Transcript(Beta version)

. So under your theory, subpart F, subpart S, these are longstanding taxing mechanisms by the government. Your theory would undermine those as well, wouldn't it? I don't think that's right. Subpart F, again, works on simply categories of income on a current basis where those categories of income are properly viewed as being, or in Congress determined, are properly viewed as being earned by the shareholders due to the nature of the categories of income that are addressed. Well, I'm sorry. Go ahead. So you can see that subpart F is constitutional. I just want to be sure that I understand your answer. We think that the defect with the MRT doesn't really apply to subpart F. The court has never considered the constitutional of subpart F. But as we take it, we don't think that there's a constitutional. So what is the distinction? Is it just that other parts of subpart F to the extent that they tax income, do it on an annual basis and the MRT was a one shot that went backwards? I think that's part of it. But again, I think what it really is is that the MRT is, I'm sorry, is that subpart F addresses this fundamental income shifting concept, whereas the MRT doesn't, and that's so in two respects. First of all, subpart F operates on a current basis while the corporation is subject to the control of the controlling shareholders. And whereas the MRT takes no account of that. I'm sorry. There's no question that you meet the definition of subpart F. You need in subpart Fs, at least 10 percent of the company's share, and the company has to be owned more than 50 percent by U.S. owners. So it's identical in terms of the percentage of ownership or the percentage of shares. That's right. But subpart F, unlike the MRT, aligns the control and the ability to redirect income with the year that it is applicable to. The MRT takes a change. It comes to me that what you're attacking is only a due process issue of how long the taxes for, not the ability to tax. I don't think that's right for the reason that I think whether you owned a particular piece of property on a given date, which is the question that the MRT asks, is sort of the synchronic plan on of the tax on property. Whereas subpart F looks at income as it comes in while the controlling shareholder has the ability to redirect that stream of income. It isn't that then just a question of whether it's fair to attribute, fair from a due process point of view, it's just a sort of my order saying whether it's fair to attribute the income generated by chisened craft to the morse, which is a distinct question of whether there was income within the meaning of the 16th amendment, right? Well, I think it ultimately comes down to a 16th amendment question for the same reason that the court thought so in Macombra, which is that a shareholder's interest in a corporation including in its income is a capital interest in therefore a property interest. So if there is some reason to look beyond that and attribute income to the shareholder, that would necessarily raise a question of income and why it is that the shareholder isn't being taxed and what would otherwise be a property interest. So I think the court has always addressed this sort of question as a question of income as a, and that includes, for example, all of the assignment of income cases that the court has decided over the years. Can I go back to square to first principles? The concept of realization was very well established at the time that the 16th amendment was adopted. But the amendment does not reference realization. All that the drafters had to do was add the word realize after income to lay and collect taxes on income realized, but they never use the word realize. And then I look at the history both before and after the ratification as far back as 1864, not so far back. Congress tax from the ratification. Congress tax quote gains and profits of all companies, whether incorporated or partnerships, in estimating the annual gains, profits or income of any person entitled to the same, whether divided or undivided. In 1913, just eight months after the ratification of the 16th amendment, Congress included undistributed corporate earnings to certain shareholders. Your brief tries to distinguish all these things. But I come back to the main point. Both sides can point to congressional actions that tax some realized income, some or didn't tax unrealized income, but we have examples of Congress taxing unrealized income. Why don't I take it that the plain checks of the amendment doesn't make reference to realization? I think there are two central features of the text of the amendment that reflect that it does apply only to realized gains. The first is simply the use of the word income. I would particularly commend to the Court's attention that the Amicus brief filed by the professors of law and linguistics, which analyzes the use of the word income in period texts. As I go back, all of this goes back and forth because the government has other definitions. We're back in square one if what we're doing is weighing historical definitions. The weighing in this case, your honor is quite lopsided. The government relies principally on two definitions that were put forward by economists in the years following the amendment's adoption, and neither of which reflects the common understanding at the time. One of the economists recognized that he was simply espousing his own economic views, divorced from any question of law or common understanding. And the second economist recognized the common understanding of income is what we say that it was, a realized gain. So far as the common understanding of the term was concerned, the only indication that the Court has before, it aside from dictionaries which, again, lopsidedly favor our position, is the corpus linguistics analysis of the professors of law and linguistics, which looks at how the word was used in everyday language at that time

. And it concludes that unanimously, where it's possible to distinguish income-ment realized gains. There's also in the amendment the language from whatever source derived. As we pointed out, derived was generally meant to refer to concepts like receipts. And indeed, again, the amicus brief of the professors of law and linguistics recognize that when income was described as being derived, it was always used in that fashion. I thought that that was just a response to Pollock, which had distinguished between income on personal property and other forms of income. And all that the 16th Amendment authors were doing is to say that distinction that Pollock drew, we don't approve of that distinction. Right. I think that what the 16th Amendment did was remove the necessity to consider whether income came from one source, specifically property, versus other types of sources. But in so doing, it necessarily required as a precedent that the amounts that what was being taxed, in fact, be income and not something else. But why should we take the common meaning of income rather than the legal meaning given the context that Justice Kagan points out? I mean, if the 16th Amendment was specifically responding to this Court's legal precedent related to the meaning of income, I guess I'm curious as to why you think that the common meaning of income is what we should be focused on when we try to understand what the 16th Amendment meant when it used that term. Well, that's certainly the approach that Court typically takes in addressing questions of original meaning. But that aside, that's what the Court's cases have said for merchants, bank, and Macombaer again and again that the 16th Amendment is to be construed according to its ordinary meaning. And I would note that if the Court were to depart from that and say, for example, that personal property was not subject to a portionment, which I take it to be the thrust of the questions in this direction, and taxes on personal property that is, that would more, that would up end pretty much the entire line of the Court's 16th Amendment jurisprudence over the past century. But why? I'm sorry. Go ahead. Okay. But why? If what we do is to think about a particular tax, which seems to be what we've been doing for over 100 years, to see whether that tax is income as understood by attribution or as an excise tax or by other principles, we wouldn't have to give, we would consider each tax on its own form. You're asking us to just announce what realization is out of context. And for the last 100 years, we've been studiously avoiding doing that because we recognize that it's dangerous to do that. To state a word like realization, we then have to come up with a working definition that applies to every piece of property and every way in which people gain wealth. It doesn't seem logical to me. Why don't you just concentrate on why Congress can't say that in certain situations it's going to ignore the corporate form and attribute to the individual shareholder certain income. That's what it's been doing all along. And here it doesn't need realization because Congress has attributed this to the individual owners of the corporation. Respectfully, the Court has already said in multiple occasions that realization is in fact required for there to be income under the 16th Amendment. It's not only McCommer, it's also McLaughlin versus Alliance Insurance. It's the safety car heating. Yes. On certain types of property, but not all. It's Ivan Allen. But we also said that taxes can, that partnerships can be taxed individually, even when the partners are not receiving the property. We have Subtactor F and S. We have had all sorts of different forms of wealth that we have attributed to individuals rather than to the legal forms of ownership. And all of those taxes rely on the principle that the Court expressed in cases like forced in banks, which is that income should be taxed to he who earns it and enjoys its benefits. In putting the side, Mr. Grossman, whether there is any realization requirement at all, I mean, there is quite the history in this country of Congress taxing American shareholders on their gains from foreign corporations. And you can see why, right? Congress, the U.S. government can't tax those foreign corporations directly. And they wanted to make sure that Americans that didn't kind of stash their money in the foreign corporations watch their money grow and never pay taxes on them. So, you know, there's a long century old history of these kinds of taxes on gains from your holdings in a foreign corporation. Why is this any different? And why shouldn't we understand that to be quite well subtle that Congress can implement those taxes and enforce those taxes for those purposes? The taxes in that area have followed the pattern that I described that simply a taxpayer interposing a corporation between themselves and income that would otherwise be theirs. And those provisions from the beginning, it isn't. Those provisions from the beginning, if they're particularly- These are the same shareholders as in subpart F. The difference is that those provisions have typically addressed things like passive income and related party transactions that are properly attributable to, say, apparent corporation. In other words, apparent corporation could own an income generating asset itself or it can simply shift that into a corporation into a foreign corporation and thereby avoid the income. And what the law is recognized is that just as in cases like horse and banks, that's effectively an assignment of income and that it can be attributed to the person who- The parent corporation for that reason because the parent corporation is the one that controls the flow of the income as it's coming in. The MRT by contrast operates its attacks on property. It doesn't take account of any power that the shareholder had over the income as it was coming in the door to the corporation or only takes account of ownership in 20 years

. That seems to be an argument about timing. In other words, we 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 shareholder. So the shareholders or the partnership to the partners and the only real wrinkle I think here is that it goes back and captures prior years income. I think there are two wrinkles. One is that with respect to those prior years, the statute doesn't require that the shareholder is being taxed had any ability to control the disposition of the income in those years. That's a fundamental distinction. The second is that subpartial- The fact of this case, so correct. It is not true for the fact of this case, but you're saying generally. Well, I think it just demonstrates that this is a tax on property. In other words, do you own something on a particular date as opposed to what do you do at the past? Did you have that power in the past? But second, provisions. It's been taxed year by year with that have been permissible? No, and that's the second wrinkle, so to speak. The MRT is the inverse of its predecessors in the statutes. All of the predecessors, like the foreign personal holding company provisions, as well as subpart F, focus on categories of income. There is susceptible to being reassigned into the corporate form. Congress has never reached so far as to tax shareholders of foreign corporations on the active business income of those corporations. Why is that different analytically? I mean, this was all part of a big change from a worldwide tax system to a territorial tax system, and this is one piece of that. But I guess I'm not sure why which kind of income is that issue matters for the ultimate analysis of whether the attribution is permissible. Because all of these attribution schemes, going back to the very beginning, have focused on effectively the fraudulent or improper available of the corporate form to avoid income. And they've always done that historically by focusing on particular categories of income that are susceptible to that type of abuse. Congress took that to the max as it amended subpart F over the years to capture more and more types of that sort of income avoidance. What's interesting is that subpart F says you've captured the field, now let's get everything else, and that everything else is the active business income that's attributable solely to the foreign corporations, only legitimate business activities overseas. And so the shareholder in a foreign corporation stands in no different position with respect to that income than a shareholder and say Microsoft or any other corporation. This isn't the type of income that that shareholder would in the ordinary course of affairs or as a matter of reality, be able to shift around into a corporate form and thereby avoid receiving it themselves. I also want to address just the difficulties that the government's interpretation would raise with respect to the current tax code. As I noted, the tax code already reaches the full extent of Congress's authority under the 16th Amendment. And if the government is right there for that certain novel categories of income, certain novel categories of what a K24 has been regarded as unrealized income or unrealized appreciation were subject to taxation under the 16th Amendment, then those would already be subject to taxation under existing law. Well, I ask you a question about your argument before you go on with the governments. So if we agree with you that the 16th Amendment's use of income requires realization and that the MRT does not meet the realization requirement, those are two I think different steps of your analysis. It seems to me that all we've done is demonstrate that the 16th Amendment doesn't justify the MRT. Don't you still have to demonstrate that the MRT is a direct tax in order to establish that the Constitution has been violated? Well, if the MRT is not a tax on income, then I think it stands to reason that it would be a tax on the ownership of shares because otherwise the government makes another argument in their brief. For example, they offer that it could be an excise tax. So I guess my point is just any indirect tax I would think just has to be uniform under the Constitution. So it seems as though it's your burden regardless of this issue about realization to establish that this tax is a direct tax in order to sustain your constitutional argument. Am I wrong about that? We alleged below that it was a direct tax. The government filed a motion to dismiss. It argued that it was in fact a tax on income. It did not dispute. So I appreciate that people haven't argued this. Would we then send it back to the Ninth Circuit to determine this issue of whether or not it's a direct tax? Or is it your argument that we can sustain its constitutionality just because we haven't had briefing on this particular aspect of it? Well, I think what the Court could do is answer the question presented. As to whether or not there would be anything left for remand, I think it's at the Court's discretion as to whether it wishes to reach the government's excise tax argument. So far as that argument is concerned, again, the bear tax of the statute operates based solely on ownership of a particular piece of property on a particular date and takes no account of any type of business operations of the people whom it's taxing. That is the sort of tax that flint, which I think is the high water map mark of the Court's excise tax jurisprudence indicates is in fact a tax on property and cannot be sustained as an excise tax. So I think the Court could very easily make short work of that argument. Going to the government's position, is that argument within the question presented? No, Your Honor. Was it preserved? No, Your Honor. It was raised for the first time before this Court. So far as the government's position is concerned, I mean, just think about, for example, if someone has a contract to sell widgets to a third party in a future year. If the price of widgets goes down so that they're less expensive to manufacture or acquire, then necessarily that person has received an economic gain under the government's position that would be taxable

. Thank you. Thank you, Councilor Justice Thomas. Would your case be any different, or your argument be any stronger if you, we were talking about real estate rather than owning stocks and a corporation on interest and a corporation? No, Your Honor. Pretty much all of the Court's 16th Amendment cases over the course of the last century have concerned personal property in the form of investments. I think it's well established at this time that taxes on personal property. Well, actually, what I'm more interested in is not necessarily distinctions between real and personal property, but rather being having an investment in a corporate form or a partnership where you can actually, there is an argument that the income had been realized by the corporation or income had been realized as you've heard this morning by the partnership and whether or not that should then be attributed to those who invested in those, in those companies. Whereas in real estate, unless there is a transaction sale or lease or something, there's no taxable transaction. So would there be a difference between a stake in a corporation or partnership as opposed to real estate or personal other personal property? I don't think so. I mean, the Court has applied the same principles across the sweep of its 16th Amendment cases. Pretty much all of the early ones applying the principle that we put forward did involve corporate investments and different types of corporate reorganizations that the government argued resulted in income to the shareholders. But the Court applied the same principles in cases like, I'm sorry, Brun, for example, that involved real property and recognized that in that instance, there equally had to be realization. Likewise in Blatt, the Court reached the opposite results in Brun with, again, with respect to an improvement made to real properties. So we don't think the constitutional principles are any different. I think the only difference, perhaps, with respect to corporate shares is that the government might have an argument that there is some type of constructive realization under the statute that imposes the tax. But isn't that just based on the questions, this more than that seem to be a vulnerability that you would not have with real property? For instance, I don't think it's a vulnerability given the general principle that's required and given the nature of this tax. I think it would be a more difficult case if this tax were structured in an entirely different fashion that didn't operate in the way that it does, but that's obviously a hypothetical that's not before the Court. Justice Alito? One last question. Does your theory put at risk limited liability companies, closely health corporations, limited partnership corporations? I mean, there's all sorts of corporate forms that are there. Use your definition, I think, would affect the government's ability to tax those individual partners, no? Those individual shareholders? No, you're honor. Why not? We don't think that those provisions present any constitutional difficulty whatsoever. Again, a corporation is different. The Court's cases have recognized that. I don't know why, meaning whether it's limited liability or closely health, it's still a corporation. Well, first of all, I mean, you've got distinguishing a corporation from partnership. I mean, again, you have the doctrine of corporate personhood that the Court has long understood, does make a difference in these circumstances. But so far as other types of corporations, like S. Corporations, are concerned, there is an election that is made by all of the shareholders to those corporations to allow pass through taxation. If somebody wants to come to the government and say, I am earning income and that's how I've organized my business and I'm operating it, I think the government can accept that as a concession. We're going back to whether attribution is legal. Thank you. I don't think it's a question of attribution, Your Honor. I think it's a question of a concession by the shareholders. Well, no, that's exactly the point, which is why should they get to choose and not the government, where to attribute the income? Thank you, Council. Justice Kagan. So at the risk of a little bit repeating some of the discussion, it seems to me that there are four principles, there may be others, but there are four principle kinds of taxation that Congress has repeatedly counterenced and that this Court certainly has done nothing to get in the way of that you have to distinguish here. And I just want to make sure I understand your distinctions and whether there's a single distinction that sort of covers all of these or whether each one has a different explanation. So here on my four, it's sub part F, it's S corporations, it's partnerships, and it's taxing on a cruel basis. So give me why it is that you think we can decide for you without putting any of those kinds of very established taxation schemes at risk. At a 10,000 foot level, Your Honor, they all huge of the realization line as it's been developed in the Court's cases and by historical precedent. See, I would have thought that none of them huge of the realization line. I think that, I mean, that's why this is my question, I guess. Again, sub part F uses that familiar mechanism of simply attributing income to the person who earned it, even if they've directed it somewhere else, and taxes of that nature have long been justified on that basis. As corporations, again, are by election of the shareholders. If they can see that this is in fact their income and that's how they're operating their business, I don't think that the government would have any basis not to take them out their word. Should the government choose to do so. So far as partnerships are concerned, again, there's no separate person that sits above the shareholders of a, or I'm sorry, the partners of a partnership. And those have always been treated differently going back to, I mean, gosh, going back to the Dartmouth College case and where it wasn't even new at that point. But with respect to income, going back to Gibbons versus Mahan, which recognized it as well established principle at that point, that corporations are different in that respect from partnerships. Indeed, that was the basis on which McCommer rejected the same argument

. And then finally, with respect to a cruel, the court already addressed that issue in the safety car heating and lighting case where it held that standard 16th Amendment realization principles, and it cited among others McCommer, applied to the accrual method of counting. So whatever question there might be about that methodology and its constitutional status, I think at this point that's been long established and is water under the bridge. And can I go back to Justice Thomas' question, which is your own definition of realization? And I'm just going to give you Macombers and tell me if you agree with it or disagree with it, or think it needs to be modified. Macombers said that which proceeds from the property is severed from the capital is received or drawn by the recipient that is the taxpayer for his separate use. Is that your definition, too? I think subsequent case law has recognized that the separation concept may be, doesn't necessarily apply in every circumstance, although it does apply in the circumstance of distinguishing shareholders versus corporations. Yeah, so for example, in Brune, we've basically ignored this separation requirement, correct? The Court said that it was applicable in the corporate context, but not necessarily in other contexts. In that example, for example, an improvement that was made to land that was not severable from the land. And that definition really wouldn't be very good to explain subpart F, is that correct, too? Well, I think what the Court has recognized in subsequent cases is that it's really the concept of realization as opposed to, say, actual receipt that is important. I mean, look, it's good. What you're saying is basically we've left Macomber behind. No. I think the Court's case is through Gwenshaugh Glass, you know, up through, as recently as, say, Indianapolis Power and Lighter Banks, recognized that there is something more that is needed that is needed that a mere economic gain. No, no, no, I wasn't suggesting that we've left entirely behind any concept of realization. I mean, that's a different question. But that we've left the Macomber definition of realization behind. I don't think, I think that Macomber's holding in that respect remains good law. I don't think that it's been left behind. Macomber goes on to recognize, for example, regarding corporations, that there may be appropriate circumstances for the law to look behind the corporate form to ascertain the true right in actions of the shareholder with respect to income. And so I think, I think, Macomber taking as a whole does recognize this principle, and it uses the best language that occurred to the judges in the context of the case to express that, look, in most cases it's going to be receipt, but in other cases something else may well qualify. Justice Gorsuch? I think the argument we've kind of heard from the other side involves, okay, if there is a realization requirement it's met here because the corporation realized the income. And then it just becomes a question of attribution of that realized income. And Congress has a free hand there, and the 16th Amendment says nothing, your response. My response is that income is, I mean the court has always looked at questions of income from the point of view of the shareholder. If you point to a 16th Amendment case, or a case involving gross income under the tax code, the court has always looked at the individual circumstances of the shareholder to ascertain whether or not that shareholder has actually realized again. And so for example, Indianapolis power in late 1990 case, the court looked specifically at the facts regarding certain types of customer security deposits. It didn't look at it as some sort of abstract inquiry where things might be assigned and so forth. It sought to address the question as to whether or not that shareholder income. The Comer did exactly the same thing with respect to shareholders of corporations. I think the court would certainly have to reverse the Comer, which the government has not asked it to do, to get beyond the idea that, you know, just some free floating notion of income is sufficient for the government to point at something in tax it to a particular individual as their income. You're saying, if I can put a fine point on it, if I understand it, the question is whether it's income to the taxpayer who's being taxed. Yes, Your Honor. And then I'd like you to go back to the discussion you had with Justice Jackson, and I understand your point that the excise argument has been forfitted or perhaps even waved in this case. Just watch your thoughts on it generally as an original matter. You know, we have a Hilton case from quite a long time ago. Carriages were thought perhaps not to be a direct tax. Could the government as an original matter call this an excise tax? I think the answer resoundingly would be no. The whole point of the direct tax clauses was to make it difficult for Congress to levy these types of taxes while still leaving that authority available at, you know, in times of emergency. And so far as taxes on personal property and things like investments were concerned, that was addressed extensively during the ratification debates for the Constitution. And it was really one of the primary arguments of the anti-federalist against ratification of the Constitution was that permitting Congress to levy direct taxes would simply be a step too far and would allow Congress to destroy the states and reach all the property that was known to all families across the country. So I mean that was one of the foremost concerns and the way that the framers address that was to render these types of taxes specifically subject to apportionment. I mean this was addressed and discussed at the Connecticut, the Pennsylvania and the Virginia ratifying convention by James Madison, by Chief Justice Marshall. It was a central concern at the time and as a matter of original meaning this sort of investment, this sort of property is something that necessarily was subject taxes on it was subject to apportionment. Sorry, one last question returning to my first one apologies to shift you about. If the court were to hold that the only realization requirement is some realization somewhere along the chain by a corporation and a seat to the taxpayer will be the consequences of a holding like that. The consequences would be to open the door to taxation of practically everything. I mean all property that a person owns is the fruit of income at some point in time whether it might be income that they've received long in the past. I mean ultimately all property that we have is made up of flows of income that have then been invested. And so if all that was necessary was some level of income then Congress could simply point at anything and say well at some point this was income. At some person at some level and therefore can be subject to taxation without apportionment

. I suppose we could and maybe would have to draw lines as to how far back in time one can go in assessing that chain of realization. That's right and I don't really understand how the court would do that based on the constitutional text. The government's definition of income is simply the increase in a person's wealth between two points in time. Well if the time is set at persons birth or many decades in the past that could reach some are potentially all of their property and I don't really understand what the limiting principle would be. Thank you. Justice Cavill? In your brief to distinguish subpart F and S-corps and partnerships use the phrase constructive realization and I would ask if you could define what you mean by constructive realization. Sure. We use constructive realization as a blanket term to encompass such concepts as constructive realization and assignment of income. It refers to the general principle espoused in cases like banks and like horse that income should be taxed to the person who earns it and enjoys its benefits. And Congress when it has enacted cases relying on that sort of doctrine has approached it in that nature. In other words assessing whether the in-cubbid issue is something that in the ordinary course of affairs could be attributed to the person to the particular taxpayer issue regarding say categories of income or abuse of the corporate form and so forth. Okay. Thank you. Justice Barrett? Except there are situations you know there are cases in which state law said that partners couldn't have control over the property or pull it out unilaterally in which we've said it's okay for that income to be attributed to the partner. And I understand that partnerships are a different kind of form because as an ownership matter the partners would own it equally. But I guess I don't think our cases have established control as the linchpin. Can you kind of point me in the right direction if you disagree? With respect to partnerships if you accept the view that simply a partnership's income is directly the income of its partners then restrictions on the use to which partnerships may put their income such as distribution, distributing it in certain circumstances is no different from a state law preventing an individual from using their own income in some particular fashion spending it on a particular item that they might wish to purchase. But I guess I just mean that control you know when we're thinking about how to define income I'm just questioning whether control can really be the word to use as opposed to just some sort of distinction between capital and income you know the you know seed and its fruit. Right I mean it seems to me that control might go a little bit too far. I don't well I control has always been an essential element of income attribution statutes because the general idea has to be that the taxpayer issue has the ability to redirect that stream of income somewhere else and thereby avoided and avoid taxes on it. Why isn't that a due process issue I guess this goes back to just a score such as point about what would the consequences be and we would have to draw lines you said that means that something that was earned income anywhere along the line ultimately lands in you know my bank account. And then it can be considered income to me but is that a 16th amendment problem or is that a due process problem where we have to draw lines about when it's fair to attribute one person's income to someone else. I think it can raise issues under both but the court has traditionally considered it to be a 16th amendment issue not only in McCommer but in trust cases like Corlis where again the court considered a question of did the taxpayer have control over the over the extreme of income that he had in that case redirected into a trust for the benefit of his close family members and I mean that's the way the court has always analyzed it from the point of view of the taxpayer and whether that taxpayer has actually received income or not. And last question is about sub part F I just want to be sure that I understand your position you say that income is about whether the person has the ability to direct the income stream am I accurately repeating what you said when it's about attribution. I think that is a necessary part of it yes. It's a necessary part of it and you've also said that sub part F corporations in general of which you know Chris and craft meets the definition sub part F corporations and sub part F do not pose the same 16th amendment problem that you see here right. We think that we do you mean with respect to the application of sub part F aside from the MRT yes yes. Okay and is that because kind of going back to your point about control is the distinction then between MRT and the rest of sub part F this idea that in the other context the shareholders have some more ability to direct the stream. Well I think it's two things it's not that they have more ability it's that they have any ability because again under the terms of the statute the MRT doesn't take account as to whether or not a shareholder exercise control while that stream of income was coming in the door. It only focuses on ownership in 2017 but also that degree of control has also been has also been combined historically with a question of whether or not the types of income being tax are those that are susceptible to that sort of abuse such that attribution is appropriate. You mean so there's some sort of like fraud overlay to this like is this really functioning as a tax shelter as Justice Kagan was pointing out. That's how Congress addressed it in the very first that's a constitutional requirement. I think Congress certainly viewed it that way in the very first income tax statute that provision regarding fraudulent available of corporations to avoid income was specifically limited specifically by many of the chief proponents of the 16th amendment to avoid the precise question that we're addressing to the precise defect that we're addressing today. Their view is that you could not ordinarily attribute corporate income to shareholders but could do so only in the in sense where there was some sort of fraudulent abuse of a corporation to avoid income and that's Justice Jackson. Yes. I'm interested in your conversation with Justice Gorsuch about the sort of original meaning of the direct tax clause and I'm trying to understand whether it's your position that as an original matter the data is not a legal term. The direct tax clause was interpreted to include income and all sorts of things or was it narrow. I had thought originally as we said in the Hilton case that it was pretty narrowly focused on capitations and taxes on land. Am I wrong about that? The Hilton case had three serial and opinions two of them viewed it as a consumption tax regarding conveyance of persons. The third of them by Justice Eridel adopted the view that well if it's difficult to apportion something then it should not be subject to apportion. What about Justice Patterson's explanation that this was a pretty narrow clause and that it was designed to protect southern states and slavery from federal interference that that was really what was going on here and therefore when you're looking at direct taxes you're talking about direct taxes as opposed to indirect you're talking about certain kinds of things and that it's not necessarily others income and that sort of thing. I think as a matter of original meeting that's incorrect but I would note in the context of that opinion it was dicta certainly didn't stand for the position of the court. Did the court until McComber held that income was direct? Not with respect so much to income. Sorry Pollock is what I'm saying. Pollock. I mean I think the case that addressed this issue prior to Pollock was springer which did adopt the narrower interpretation of the direct tax clauses. So up until Pollock which was addressed by the 16th amendment we had a very narrow conception of direct tax. For a 20 year period there was subsequent to that as I said pretty much all of the court's 16th amendment cases over the past century have concerned taxes on personal property in the form of investment. So I think the court would really have to up and it's jurisprudence if it were decided this late date that the direct tax clauses ought to be given some other interpretation

. All right let me ask you about realization going back to Justice Thomas Thomas's very first question and what the definition is. I guess I'm trying to understand whether you think Congress has the authority to define what constitutes realization or not. Is that something you are giving to the court through constitutional interpretation or who gets to decide what the realization line is? Well I think it's an initial matter yes I mean Congress does get deference on that but it actually has to try to do that which is not what it did in this case. I mean again the tax here on its face turns on ownership of property on a particular date and it doesn't take into account. No I guess I don't understand your answer if Congress could we find that there is realization in this case that there is realization like who makes the definition of realization. Could the court determine that there's realization here under a definition that we are appreciating. I mean the government has never argued that there is realization in this case the government has simply presented its alternate argument that realization is not required. So I think it would be unusual for the court to reach out and decide a question of that import without the government actually having the question. Are you asking us to maybe I'm let me put it this way you're asking us to adopt a particular definition of realization under which your client wins in this case. If we disagree with you about what realization means do you lose. We're simply asking the court to adopt to reaffirm the definition that it's applied since nearly the dawn of the 16th Amendment. So I don't think we're asking. Even though the 16th Amendment doesn't have realization in it you're saying that the implied realization requirement has a definition that you're asking the court to adopt. We're simply asking the court to say that realization is necessary as that concept has been espoused in the court's decisions over the course of a century. Thank you. Thank you council. General Prielagar. Mr. Chief Justice and may it please the court. The MRT is firmly grounded in the 16th Amendment's text and history. The amendment allows Congress to impose taxes on incomes. That phrase had a well established meaning drawn from numerous pre ratification income taxes that Congress enacted before this court's decision in public. Several of those taxes were like the MRT in that they taxed shareholders on undistributed corporate earnings including the income taxes in 1864, 1865, 1867 and 1870. And this court upheld Congress's power to impose those taxes in Hubbard. The 16th Amendment's drafters therefore would have understood taxes on incomes to include taxes like the MRT. That's confirmed by the very first income tax Congress enacted under the 16th Amendment. That 1913 law taxed certain shareholders on their pro-Rotta shares of undistributed corporate earnings. And the trend of pass-through taxation has continued throughout the next century from taxes on partners to S corporation shareholders to foreign corporation shareholders under subpart F. Against all that history petitioners stake their case on McComber. But the court has limited McComber to taxes on particular stock dividends that are not an issue here. If the court now extended McComber's discussion to invalidate all taxes on undistributed business earnings, it would cause a sea change in the operation of the tax code and cost several trillions of dollars in lost tax revenue. Petitioners say that every other provision of the tax code could be saved under a theory of constructive realization, but they don't provide a comprehensive definition of that term or explain why it would rescue every provision except the MRT. My friend today said it's a blanket term that's defined by the circumstances where you can say that constructive realization occurred, but that's simply circular. And by conceding constructive realization, they've acknowledged Congress's power to draw reasonable lines about what counts as income and who can be taxed on it, which is exactly what Congress did in the MRT. Finally, the court doesn't actually need to resolve any fundamental questions in this case about whether the 16th Amendment requires realization. The 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 just as it has done in any number of pass-through taxes throughout our nation's history. The court could say only that and affirm. I welcome the court's questions. When you say realized, it has been realized. What do you mean by that? I think that this is a paradigmatic case of realization, Justice Thomas, insofar as the thing that's being taxed, the underlying tax space for the MRT are the earnings that actually were came into the corporation, the foreign corporations coffers. So the tax space here was the substantial ordinary business income that the foreign corporation generated through its operations in the foreign country and that has to date been subject to tax deferral. That income has never been taxed at the corporate or entity level. Instead, what Congress did in the MRT is enact a pass-through tax that attributed the liability on that actual income that was realized to the U.S. shareholders. Outside of that context of the MRT, do you think that the just the increase in value of real property could be a taxable event? So I think that that raises a more difficult question. This presses on the idea of whether you can characterize gains in the form of appreciation as income that's taxable

. I think that there's a strong argument that that falls within a definition of income that looks to whether there have been economic gains over time. And it's important to note that Congress has at various time imposed taxes on that kind of appreciation. Some of the Civil War era income tax laws that I pointed to at the beginning of my introduction had appreciation based taxation for certain property like livestock. And still today there are really important provisions of the tax code that effectively tax individuals on appreciation. For example, the market to market taxes that my friend has conceded are constitutional. Treat a taxpayer as though there was a realizable event at the end of the tax year for certain futures contracts, for certain life insurance holding securities dealers holding that mark the amount of the value to the market price even in the absence of any kind of sale. So I think that there is strong support for the idea that you can tax at least certain forms of appreciation. Well, if you're there's strong support. I mean, you've buried Macomber. I mean, and that takes away a lot of the strong support for a pretty basic proposition that the government can't tax as income to the property owner, the appreciation and value of the property. So, I mean, what is left to defend that proposition without Macomber? Well, Mr. Chief Justice, I disagree with the suggestion that Macomber involved the tax on appreciation, the court there instead of the government. Well, I mean, I know your argument that it's limited to stock dividends, but it also has been recognized as the, at least in the beginning before certainly narrowed over time, as standing for the proposition that the government cannot tax the appreciation in property. And you've taken that off the board in your presentation today. So I wonder if you can give us a little more view or assurance on what's left to defend that proposition once you've stabbed Macomber. Well, Mr. Chief Justice, I want to say that we're invoking this court's own precedent about Macomber's scope and reach. It's the court itself that said that Macomber is limited to the particular type of stock dividend at issue there. And that type of stock dividend didn't actually represent any kind of economic gain to the taxpayer. In other words, in Macomber, the taxpayer received additional shares in the company, but it was a stock split, and her shares were diluted in a commensored amount so that the court said that from the taxpayer's perspective, there was no difference in her ownership stake in the company both before and after the stock split. If you wanted to, if you wanted to defend the proposition that the government cannot tax the appreciation in property without any other event of realization, what would you cite given the fact that Macomber is not on the table? Well, the thing that I would cite if the court were looking for a limiting principle that takes appreciation off the table, at least in certain circumstances, would be history. I do think that there is a different historical foundation for that type of tax compared to what we have here, which is a pass-through tax on actually realized corporate income. So I think that the court could reserve judgment on whether there might be principled lines based on the history of that type of tax scheme to suggest that it wouldn't be what the framers of the 16th Amendment had in mind. But again, I do want to emphasize the fundamental distinction between a tax base that focuses on actually realized income and then attributes it to a different taxpayer, which is a prevalent feature of the tax code, and which involves many of the provisions my friend who may have been receiving our constitutional. One of your arguments that you press most strongly, and certainly it has resonated a lot in the coverage of this case, is that the adoption of the petitioners' arguments would have far-reaching consequences, isn't that correct? That's correct. So do you think it is fair then to explore what the consequences of your argument would be? I am happy to talk about the consequences of our argument, although I want to say at the outset, I think that the court could resolve this case quite narrowly. Now, the Ninth Circuit held that the Supreme Court has made clear that realization of income is not a constitutional requirement, but is instead founded on administrative convenience. Is that correct? The Ninth Circuit was referring to this Court's decision and cottage savings, where the court did say that realization requirements are founded on administrative. Well, not the question whether that's a correct interpretation of our prior precedence. Is it your position, as I understand you, to argue in your brief that realization is not required? The 16th Amendment simply permits the taxation of income, whether realized or not. We certainly think that there is no bright-line realization rule or requirement under the 16th Amendment, and that Congress is permitted to tax certain forms of unrealized gains. I don't want to suggest that the Court here needs to set out to define income for all purposes, or to announce any bright-line rules about realization. I think it's sufficient here for the Court to say that you have before you a particular type of tax on undistributed corporate earnings that were actually realized, and to look at the history and tradition that demonstrates that that fits well within Congress. Well, what I'm trying to do is to understand the breadth of your argument, just as we need to understand the consequences of petitioner's argument. So I take it what you've said is that realization is not a requirement. You say that explicitly in your brief. We think there long to say it always is a requirement. We don't have to agree with you on that for you to prevail. I think you've said in your opening as well, because even assuming or leading open whether realization is a constitutional requirement, there was realized income here to the entity, and then it's attributed to the shareholders in a manner consistent with how Congress has done that, and this Court has allowed. That's correct Justice Kavanaugh. We think that here the constitutional question is actually quite easy, and it doesn't require the Court to consider some of the foundational questions about the meaning of the 16th Amendment in other contexts, because here we have paradigmatic realized income at the entity level, and this functions just like the past through taxes on partnerships, the taxes on other types of corporate shareholders as corporation shareholders, and particularly in the context of foreign corporations, the tax under subpart F of which the MRT is just a part. So the answer is that there need not be realization by the taxpayer. It's sufficient if there's realization by some other entity. Correct? Under the 16th Amendment, that's correct, although there is a due process question in that context about the limits on Congress's ability to attribute income that was realized by one taxpayer to another taxpayer. All right. That the due process question, and that's a question of substantive due process. That's how this Court has analyzed it in cases like Burnett versus Wells, where it was looking at the limits on Congress's ability to make that kind of attribution decision. And anything under substantive due process involving an economic regulation like this, the only thing that would need to be shown is that it was rational for Congress to do what it did. Yes, the Court has looked at whether Congress has made an arbitrary choice, whether it's acted unresonably, but I think that the Court's precedence revealed that the Court really has looked at whether the taxpayer who owes the tax liability has a relationship to the underlying

. Well, if it's a rational basis review, then that's not much, right? So we could say the 30-year requirement here is a substantive due process issue, so we don't have to grapple with it here. But to be honest, we would be saying unless you can show it was irrational, that would be sufficient. Well, I want to be precise about the doctrine here. You mentioned the 30-year look back period. I think that that actually has to do with retroactivity principles under the due process clause, and I think that that's somewhat different than the attribution question that we had been discussing about whether Congress can fairly attribute tax liability to one person for income that was earned at the entity level. I recognize that maybe there are some complicated questions out there that could exist in this space, but the important point is that here we have an enormous amount of history and tradition on our side to support the idea that this particular attribution decision falls well with the constitutional balance. I'm going to talk about this case, and ultimately we have to talk about this case, but I just want to understand how far your argument goes. How far does it logically go? So under your argument, does this 16th amendment allow the taxation? It allows the taxation of income, and you define income as an increase in an economic gain between two points in time. So let's say that somebody graduates from school and starts up a little business in his garage, and 20 years later, 30 years later, the person is a billionaire. Can Congress, under your argument, can Congress tax all of that on the ground that is income? So if that has already been taxed as I imagine it would through annual income taxes, then it sounds to me like the hypothetical is actually functioning as a property tax insofar as looking at the total value of the asset. The appreciation in stock value over 20 or 30 years could Congress say we want to reach back and tax all of that. So I think that's a hard between two periods of time. Yes, I think that's a harder question, and here's why. I do think that that would fit within an ordinary conception of income as covering economic gain between two points of time and focusing on the increment of gain, but we don't have the same tradition to support Congress levying income taxes in that manner. Now the court might conclude, if the court. So I'm starting to interrupt, but on this point in your brief at least, and I understand your argument is a little bit different here today, but in your brief at least, you confronted the question whether Congress could tax millions of Americans who hold small amounts of stock in their retirement investment accounts. And you say yes, and you point to the 1864 Civil War laws. And then you say, but that would be administratively unwarkable. So as I understood, at least in your brief, the answer to Justice Alito's question I think is yes, that could happen. So I think this is a really important point, Justice Gorsuch, and let me clarify that that statement in the brief was referring to the idea of pass-through taxation on all large or all corporate shareholders. That would function like the MRT, the basis for the tax would be the corporations earnings, and then the shareholders would be responsible for a pro-rata share of the corporations earnings. That's a different time. I'm not sure that's clear. It seemed to me at least that the argument was that you were dealing with was the change in value over time. And stock prices increase. Could you tax that unreal, otherwise we consider unrealized gain treat that as a realized gain. And the answer is yes, because they did that in 1864, and because if there's any limitation it has to do with administrative for capability. In 1864, they were doing a pass-through tax on the corporate earnings, and so the calculation of the tax was not based on the appreciation in the shares, but rather was based on what the corporation had actually earned as its income. And I don't want to suggest that a tax on appreciation in stock would necessarily be invalid, as I had mentioned to Justice Thomas. There are provisions on the books today that my friends can see it are constitutional. But let me say that to the extent that this question and Justice Alito's question is pressing on the idea that maybe this kind of appreciation should just be beyond the reach of Congress's taxing pattern. No, I'm just asking what the limits of your argument are, and it seems to me there are none. Well, I certainly think that Congress has broad taxing power, and what I was about to say is that here the relevant question is not whether Congress has the power to tax in the first place, the court has said Congress has plenary power. It can tax people just for existing. The question is whether that's a direct tax that has to be a portion, or whether it's subject to the rule of uniformity as an indirect tax. And if I might address what I now perceive to be kind of a backup argument, so the first argument, brief argument is no realization requirement. Today I'm hearing, well, even if there is realization, there was somewhere in the chain realization, and then Congress can attribute it freely as it wishes. And I understand that argument, but I'm not sure how we fit it with our precedent. If we ditch McComber, I understand your argument. But let's assume McComber isn't completely misguided. Okay, and I think those were your words, misguided. I look at Phallus, I look at Brune, I look at Hearst, and it seems to me at least as I read them that they're all trying to work within McComber's framework. And talking about, is it fair to say that there was realization to the taxpayer, not realization somewhere back in the chain of history, an income realized by the corporation or a parent or a subsidiary or whomever. And just as a matter of precedent now I'm talking. What's mistaken about that? So in those subsequent cases, I wouldn't say that the court was mistaken there, it did happen to find realization on the facts of those particular cases. For the taxpayer, right? For the taxpayer, of course they involved different types of tax, none of those cases involved a pass-through tax. And so I think looking at what is maybe the closest precedent to the situation that we have here, I point to the court's decision in Hiner versus Mellon, which considered the propriety of attacks on partners, even in a circumstance where they couldn't actually access the partnership income to the state law prohibited a distribution to them. And of course that was perfectly fine. You haven't made an argument that there was realization to this taxpayer though, have you? But the whole premise of the property tax

. Just answer that, before you launch off, you haven't made that argument, right? We don't think that the tax's constitutionality depends on whether these taxpayers get a distribution because this is a pass-through tax, just like the other context I've been mentioning. And I think that there are kind of ways to think that out. I'll take that as a yes. Well, I was about to say there are two ways to think about it. One is to say that there was realized income at the entity level and Congress can permissibly attribute that to the taxpayer. Another way to look at it would be to say that the taxpayer has a close enough relationship to that underlying income for Congress to permissibly treat it as income to the taxpayer. But we don't have that argument before us. What do we do about that? That argument hasn't been made. Well, we certainly intended to make that argument and I understand our briefing to focus on both aspects of this issue. We have of course joined issue with petitioners on whether the 16th Amendment requires realization because that is a- maybe it requires realization, but not to the taxpayer. The one argument that I'm missing is that there was realization here to the taxpayer. That's just not even in the briefs. It's not an argument today. What do I do about that? Well, I think we did. If you think there is realization to this taxpayer, why didn't- why didn't- why didn't she make that argument? We are not suggesting that there's anything like strict realization in the sense of the taxpayer having received something in hand. But I don't even understand petitioners now to be saying that's what's required because they conceived that they need not- Oh, of course not. In our cases in in in in brune and horse to say that there can be something like a constructive realization of a partnership situation or a fraud situation or an S corporation situation. We've been clear about that that that there's some enjoyment that the taxpayer has over that money, some control. He may have signed it elsewhere. He may choose to keep it in the escort whatever, but he controls it. And so there's some realization under McComber's framework that's enough. But that argument that this taxpayer had that kind of enjoyment isn't in the briefs before us. And I just wonder what do I do about that? Well, I think we did make that argument because we made the point that to the extent the court goes down the road of recognizing some theory of constructive realization, then the MRT would fit within that same framework because petitioners haven't identified any actual distinction between how those other tax contacts operate and how the MRT operates. Let's let's just say I don't see that argument. Then what do you want me to do? Am I supposed to vacate and remand if they for consideration of that question? Is it waived? What would you have me do? I certainly think that in our brief we argued that here the taxpayer can properly be held accountable for the corporations income and that the court can say that. I got that argument general. I got the argument that either there's no realization or as a backup there's realization and fair attribution. But if I'm working within this court's precedence, if I don't consider them wholly misguided, if I'm not willing to overturn 100 years or the precedent what you're asking us to do. And the question is is it fair to say this this taxpayer constructively or actually realize this income? Should I vacate and remand? No, you should affirm because here we made the argument that there is the same level of control and exactly the same relationship as in subpart F. So we did make this argument just a score such we made the point that if the court is focused on things like control or influence that there is no relevant distinction with subpart F because this is taxing and precisely the same way as subpart F operate. And general, what do you think is the significance of petitioner's concession that subpart F is constitutional to your point? I think that that is an incredibly significant concession here because it demonstrates that even if the court were to apply a lens of control or influence, I think the right word to use would be relationship to the income, petitioners have acknowledged that 10% US shareholders have the requisite level of relationship in order to properly have income attributed to them. Now my friend suggested that there is some fundamental difference with subpart F because it taxes different types of income. I think he said it's income where you can interpose the corporate form. I don't understand that distinction because of course the 16th Amendment says that Congress contacts all income from whatever source derived. So the 16th Amendment's text by its own terms makes clear that the different forms of income being taxed don't make a relevant constitutional difference. And even if you look at it as a factual matter, my friend's argument doesn't withstand scrutiny because he suggested that for example, all of this income could have been earned by the taxpayer himself, but that doesn't explain many important features of subpart F like ensuring risks outside the country of incorporation for the CFC or doing business in countries that are subject to US sanctions. Those are parts of subpart F income and I don't think that there is a relevant distinction with respect to whether it could be properly attributed to the taxpayer. Just a score such said you were asking us to overrule 100 years of our precedent. Sounds bad, are you? I am not asking the court to overrule any precedent in this case. I'm asking the court to follow its precedent that postates Macommer and makes clear that the discussion in that case was limited to the particular type of stock dividend issue there. I recognize that there is language in Macommer that seemed to have broader sweep, but this court itself has already recognized that that is not the right way to read the language. General, if I might, though, I mean, in Macommer it said realization, you say that's misguided. In Fellas, we said that we were following, applying the test laid down in Macommer. In Brune, we said that it was following Macommer's understanding of income. And in horse, it said that we direct, it said much the same thing. I'm not going to bother with the quote. But in each of those cases at least, it purported to be faithfully following Macommer. Justice, what is such an excuse? You just disagree with that, I guess. I disagree with that reading of those cases because I think if you look at each of the cases you mentioned, the court defined realization on the particular facts there, but using different standards than Macommer itself had articulated. Take, for example, Brune. That was a case where I think you said the court was said it was faithfully applying its interpretation of income, but the court in Brune specifically disavowed the aspect of Macommer that said you have to be able to separate the economic gain from the underlying property. Certainly, it talked about control, but it spoke of applying Macommer. Now, maybe you think it was deluding itself, but that's how the court perceived what it was doing. Shouldn't that count for something? But look at the Court statements in Griffiths. There, the court said that Macommer's theoretical bases had been undermined, that it had, quote, in effect, been limited to the particular type of stock dividend at issue there, and that it didn't have controlling weight even with respect to other types of stock dividends, let alone other types of economic gain. So what do you understand to be the current state of our precedent? I mean, at a certain point you said, well, Macommer was confronting something that stock dividend had no economic consequence whatsoever. And that was true, and that could have been, I mean, Macommer could have been decided in a paragraph, saying that, but that's not what the court did. Then, as you say, there are many cases following Macommer, which basically leave Macommer's own theory of realization in the dust. But what do you, what do you take to be the current state of our precedent that we need to pay attention to? I think that if this Court had before it another stock dividend case that involved an economically substanceless split, then Macommer would control, that's what Griffiths said, Macommer's limited to that particular type of stock dividend. But the court itself in any number of follow-on cases had said that Macommer doesn't have controlling weight outside that context. The court said in Glenshaugh Glass, the statements in Macommer were not intended to provide a touchstone for resolving all future gross income questions that could arise. So I think to the extent that that leaves Macommer is a bit of an island unto itself, that is just the natural effect of this Court subsequent precedent. And we're asking the court to follow that precedent. The precedent most on point for you, I think you said, is a hiner, right, the partnership case. That's right, I think it involved the most analogous tax to the MRC. Explain why that dictates the result here, or strongly supports the result here from your perspective, since that's the one you're relying on most. It strongly supports the result in this case, because in hiner the court confronted a situation where partners claimed they could not lawfully be taxed on partnership income on a pass-through basis, because state law operated to preclude any distributions of that partnership income to them. So by definition, under state law, the partners were not going to personally realize that income, state law prohibited the distribution. And the court rejected the claim from the partners and said that it didn't make a difference with respect to the permissibility of that pass-through tax from the partnership entity level to the partners themselves. Now, petitioners have suggested that partnerships can just be distinguished down the line, because they say that partnerships have a different legal status than corporations. But it's not like partnerships have an innate legal status. Instead, they're creatures of state law. And there are any number of states out there that define a partnership as distinct from the underlying partners themselves. We also have good case law that governs subpart F in the lower courts. This has been applied in numerous additional contacts involving pass-through taxation and corporations in particular. And it's not just the modern laws, just as Kavanaugh, it is all of the history here. For virtually the entirety of this nation's experience with an income tax, there have been laws on the book other than the brief period when Paulic governed, where Congress has taxed corporate income at the shareholder level. That is a classic pass-through tax, and it's how the MRT operates. I agree with that history. In your description of I was just isolating the case that's really kind of closest, I think, is Hiner. I just wanted you to spell that out. What about the fact? I'm sorry. Go ahead. I was just going to ask you, Hiner is closest on this pass-through point. What's your best federal case upholding a federal tax on appreciation? Or do you have one? So I don't have a case from this court that upholds a tax on appreciation. I think there are some lower court cases that have considered things like a cruel accounting or other situations. There are fewer taxes that reach appreciation. I think the pass-through mechanism is the more common one when we're thinking about gains that aren't realized to the taxpayer himself. But there are, I think, a variety of taxes out there and have been through history. It's a market to market when you are very high. Exactly. And it's really important to recognize the importance of being able to tax in that context. The situation that Congress confronted that prompted it to enact these market to market taxes is the fact that taxpayers can often manipulate realization events. So for example, they can enter into offsetting futures contracts that don't really have any economic substance to them, but allow the taxpayer to hold on to the one that has a gain, to defer taxation, maybe get favorable capital gains rates, and to sell the one that's a loss and thereby immediately have a taxable event. And Congress recognized that that was a loophole in the tax code that could enable this kind of abuse. So there are taxes like the market market one that tax based on appreciation, but it's fair to say that we would be doing something new if we accepted your argument that income is any kind of economic gain appreciation included. I appreciate the opportunity to clarify because we are not actually asking the court to define income that way. I think if there is a lesson to be drawn from a coma, it's that there's a real danger in trying to, as an abstract matter, define income for all purposes or to, you know, as Glenshaugh Glass said, to provide a touchstone for all future cases

. Take, for example, Brune. That was a case where I think you said the court was said it was faithfully applying its interpretation of income, but the court in Brune specifically disavowed the aspect of Macommer that said you have to be able to separate the economic gain from the underlying property. Certainly, it talked about control, but it spoke of applying Macommer. Now, maybe you think it was deluding itself, but that's how the court perceived what it was doing. Shouldn't that count for something? But look at the Court statements in Griffiths. There, the court said that Macommer's theoretical bases had been undermined, that it had, quote, in effect, been limited to the particular type of stock dividend at issue there, and that it didn't have controlling weight even with respect to other types of stock dividends, let alone other types of economic gain. So what do you understand to be the current state of our precedent? I mean, at a certain point you said, well, Macommer was confronting something that stock dividend had no economic consequence whatsoever. And that was true, and that could have been, I mean, Macommer could have been decided in a paragraph, saying that, but that's not what the court did. Then, as you say, there are many cases following Macommer, which basically leave Macommer's own theory of realization in the dust. But what do you, what do you take to be the current state of our precedent that we need to pay attention to? I think that if this Court had before it another stock dividend case that involved an economically substanceless split, then Macommer would control, that's what Griffiths said, Macommer's limited to that particular type of stock dividend. But the court itself in any number of follow-on cases had said that Macommer doesn't have controlling weight outside that context. The court said in Glenshaugh Glass, the statements in Macommer were not intended to provide a touchstone for resolving all future gross income questions that could arise. So I think to the extent that that leaves Macommer is a bit of an island unto itself, that is just the natural effect of this Court subsequent precedent. And we're asking the court to follow that precedent. The precedent most on point for you, I think you said, is a hiner, right, the partnership case. That's right, I think it involved the most analogous tax to the MRC. Explain why that dictates the result here, or strongly supports the result here from your perspective, since that's the one you're relying on most. It strongly supports the result in this case, because in hiner the court confronted a situation where partners claimed they could not lawfully be taxed on partnership income on a pass-through basis, because state law operated to preclude any distributions of that partnership income to them. So by definition, under state law, the partners were not going to personally realize that income, state law prohibited the distribution. And the court rejected the claim from the partners and said that it didn't make a difference with respect to the permissibility of that pass-through tax from the partnership entity level to the partners themselves. Now, petitioners have suggested that partnerships can just be distinguished down the line, because they say that partnerships have a different legal status than corporations. But it's not like partnerships have an innate legal status. Instead, they're creatures of state law. And there are any number of states out there that define a partnership as distinct from the underlying partners themselves. We also have good case law that governs subpart F in the lower courts. This has been applied in numerous additional contacts involving pass-through taxation and corporations in particular. And it's not just the modern laws, just as Kavanaugh, it is all of the history here. For virtually the entirety of this nation's experience with an income tax, there have been laws on the book other than the brief period when Paulic governed, where Congress has taxed corporate income at the shareholder level. That is a classic pass-through tax, and it's how the MRT operates. I agree with that history. In your description of I was just isolating the case that's really kind of closest, I think, is Hiner. I just wanted you to spell that out. What about the fact? I'm sorry. Go ahead. I was just going to ask you, Hiner is closest on this pass-through point. What's your best federal case upholding a federal tax on appreciation? Or do you have one? So I don't have a case from this court that upholds a tax on appreciation. I think there are some lower court cases that have considered things like a cruel accounting or other situations. There are fewer taxes that reach appreciation. I think the pass-through mechanism is the more common one when we're thinking about gains that aren't realized to the taxpayer himself. But there are, I think, a variety of taxes out there and have been through history. It's a market to market when you are very high. Exactly. And it's really important to recognize the importance of being able to tax in that context. The situation that Congress confronted that prompted it to enact these market to market taxes is the fact that taxpayers can often manipulate realization events. So for example, they can enter into offsetting futures contracts that don't really have any economic substance to them, but allow the taxpayer to hold on to the one that has a gain, to defer taxation, maybe get favorable capital gains rates, and to sell the one that's a loss and thereby immediately have a taxable event. And Congress recognized that that was a loophole in the tax code that could enable this kind of abuse. So there are taxes like the market market one that tax based on appreciation, but it's fair to say that we would be doing something new if we accepted your argument that income is any kind of economic gain appreciation included. I appreciate the opportunity to clarify because we are not actually asking the court to define income that way. I think if there is a lesson to be drawn from a coma, it's that there's a real danger in trying to, as an abstract matter, define income for all purposes or to, you know, as Glenshaugh Glass said, to provide a touchstone for all future cases. In part, because our experience with the tax code is that taxpayers often latch onto those statements and use it as a basis to try to avoid taxation going forward. So I don't think that the court needs to approach this issue by adopting some global or universal definition of income. The internal revenue code itself doesn't define income, instead it says that income is all income from whatever sources realized and then gives some illustrative examples. I don't think my friends are offering the court a definition of income because they say income is realized gains or maybe some category of unrealized gains that you can say are constructively realized. I don't think it's necessary for the court to actually try to comprehensively define it here. Thank you, Council. I understood your answer to Justice Barrett to be the same as the answer that you gave me with respect to unrealized increase in value from one time to another time in real property that you didn't have any authority to support that. That's right. I'm not pointing to a case from this Court that I think would find that that's taxable. There's also nothing from this Court other than reading Macomber for all its worth that I think would necessarily rule that out. And when you just said that's the lesson of Macomber, you mean that's the lesson of Macomber's demise? Yes, exactly. Ultimately, that ultimately I think the Court recognized that those statements which were rendered as an abstract matter and opined on taxes that weren't directly presented there had untenable consequences and were also profoundly a historical. So I think there's a lot of wisdom in following the approach the Court articulated in Griffiths where the Court said we don't rule on the constitutionality of attacks until we find that Congress has actually laid that tax. I think the Court should take each tax as it comes for purposes of resolving these questions. Thank you. Justice Tomics. Justice Alito? General, I still want to understand the limits of your argument. I am quite concerned by the potential implications of petitioners' argument and you stress that in your brief. You say that if we rule in petitioners' favor, then large, important pieces of the tax code will also logically fall. And I think that's a fair argument. But I think it's also a fair argument to do the same thing with your position. And I want to understand the limits of your position. Now, coming in, I understood your position to be that realization is not required and that the 16th Amendment realization to the taxpayer is not required. And therefore, the 16th Amendment allows the taxation of income. And you seem to define income in your brief as economic gain between two points in time. You say it is that those well-established principles that distinguish income taxes from property taxes. So if that is correct, then what about the appreciation of holdings in securities by millions and millions of Americans, holdings in mutual funds over a period of time, without selling the shares in those mutual funds? Can those be taxed under the 16th Amendment? I think of Congress actually enacted a tax like that and it never has that we would likely defend it as an income tax. But you don't have to agree that that tax would be valid in order to uphold the MRT. So whether you think that- Well, I understand that. And in order to rule for petitioners, we don't have to say anything about subpart F or S corporations or partnerships or the accrual method of taxation. But your answer is that would probably, you at least go that far. That would probably be permissible under your interpretation of the 16th Amendment. I think it probably would, but I think the court could draw lines based on history. And if there truly were a widespread tax on all amount of appreciation for every taxpayer, that wouldn't look like anything Congress has done before. The court has sometimes used history like that to draw principled lines. Here we have exactly the opposite situation where Congress has enacted a tax that looks exactly like any number of pass-through taxes through history. So here I think history functions as a rule of inclusion with respect to the propriety of this tax. Now, as to the Chief Justice's question, how about the appreciation and value of real property? I think it would be subject to the same analysis that would fit within a conception of income as economic gain between two points in time, but Congress hasn't traditionally taxed that. And so perhaps the court if it were confronted with that situation would conclude that there's a historical line or limiting principle here. So unless history rules that out, I'm not quite sure how Congress is failure to enact a tax in the past. It brings that outside the 16th Amendment if the tax would otherwise fall within the 16th Amendment. But you say that that potentially is also taxable as income under your theory. Yes, and I think it's clearly taxable under the Constitution. Again, this is not a question about Congress's power. It's about the mode of taxation and whether to apportion that tax or not. Now, if some sort of constructive realization were some test for attribution is required, what is your test? How far may Congress go in attributing income to someone who has not realized that income in the standard understanding of that term? I would apply the test to the court used in Burnett versus Wells, which presents the most closely analogous situation. Tax payer argued that because he had been the granteur of a trust, he couldn't be held liable for the gains in the trust it couldn't properly be attributed to him because he had no continuing control and wouldn't personally enjoy those gains, which instead went to the beneficiaries. This court rejected that claim and what it said is that Congress had not acted arbitrarily in making that attribution decision. It looked at the taxpayer's relationship to the underlying income and concluded that there was good reason to tax the granteur in that circumstance, including to avoid shifting income to lower income taxpayers

. In part, because our experience with the tax code is that taxpayers often latch onto those statements and use it as a basis to try to avoid taxation going forward. So I don't think that the court needs to approach this issue by adopting some global or universal definition of income. The internal revenue code itself doesn't define income, instead it says that income is all income from whatever sources realized and then gives some illustrative examples. I don't think my friends are offering the court a definition of income because they say income is realized gains or maybe some category of unrealized gains that you can say are constructively realized. I don't think it's necessary for the court to actually try to comprehensively define it here. Thank you, Council. I understood your answer to Justice Barrett to be the same as the answer that you gave me with respect to unrealized increase in value from one time to another time in real property that you didn't have any authority to support that. That's right. I'm not pointing to a case from this Court that I think would find that that's taxable. There's also nothing from this Court other than reading Macomber for all its worth that I think would necessarily rule that out. And when you just said that's the lesson of Macomber, you mean that's the lesson of Macomber's demise? Yes, exactly. Ultimately, that ultimately I think the Court recognized that those statements which were rendered as an abstract matter and opined on taxes that weren't directly presented there had untenable consequences and were also profoundly a historical. So I think there's a lot of wisdom in following the approach the Court articulated in Griffiths where the Court said we don't rule on the constitutionality of attacks until we find that Congress has actually laid that tax. I think the Court should take each tax as it comes for purposes of resolving these questions. Thank you. Justice Tomics. Justice Alito? General, I still want to understand the limits of your argument. I am quite concerned by the potential implications of petitioners' argument and you stress that in your brief. You say that if we rule in petitioners' favor, then large, important pieces of the tax code will also logically fall. And I think that's a fair argument. But I think it's also a fair argument to do the same thing with your position. And I want to understand the limits of your position. Now, coming in, I understood your position to be that realization is not required and that the 16th Amendment realization to the taxpayer is not required. And therefore, the 16th Amendment allows the taxation of income. And you seem to define income in your brief as economic gain between two points in time. You say it is that those well-established principles that distinguish income taxes from property taxes. So if that is correct, then what about the appreciation of holdings in securities by millions and millions of Americans, holdings in mutual funds over a period of time, without selling the shares in those mutual funds? Can those be taxed under the 16th Amendment? I think of Congress actually enacted a tax like that and it never has that we would likely defend it as an income tax. But you don't have to agree that that tax would be valid in order to uphold the MRT. So whether you think that- Well, I understand that. And in order to rule for petitioners, we don't have to say anything about subpart F or S corporations or partnerships or the accrual method of taxation. But your answer is that would probably, you at least go that far. That would probably be permissible under your interpretation of the 16th Amendment. I think it probably would, but I think the court could draw lines based on history. And if there truly were a widespread tax on all amount of appreciation for every taxpayer, that wouldn't look like anything Congress has done before. The court has sometimes used history like that to draw principled lines. Here we have exactly the opposite situation where Congress has enacted a tax that looks exactly like any number of pass-through taxes through history. So here I think history functions as a rule of inclusion with respect to the propriety of this tax. Now, as to the Chief Justice's question, how about the appreciation and value of real property? I think it would be subject to the same analysis that would fit within a conception of income as economic gain between two points in time, but Congress hasn't traditionally taxed that. And so perhaps the court if it were confronted with that situation would conclude that there's a historical line or limiting principle here. So unless history rules that out, I'm not quite sure how Congress is failure to enact a tax in the past. It brings that outside the 16th Amendment if the tax would otherwise fall within the 16th Amendment. But you say that that potentially is also taxable as income under your theory. Yes, and I think it's clearly taxable under the Constitution. Again, this is not a question about Congress's power. It's about the mode of taxation and whether to apportion that tax or not. Now, if some sort of constructive realization were some test for attribution is required, what is your test? How far may Congress go in attributing income to someone who has not realized that income in the standard understanding of that term? I would apply the test to the court used in Burnett versus Wells, which presents the most closely analogous situation. Tax payer argued that because he had been the granteur of a trust, he couldn't be held liable for the gains in the trust it couldn't properly be attributed to him because he had no continuing control and wouldn't personally enjoy those gains, which instead went to the beneficiaries. This court rejected that claim and what it said is that Congress had not acted arbitrarily in making that attribution decision. It looked at the taxpayer's relationship to the underlying income and concluded that there was good reason to tax the granteur in that circumstance, including to avoid shifting income to lower income taxpayers. But if the court were applying that kind of attribution analysis here, I think the MRT, like many pass-through taxes, is equally constitutional. Here, the income has never been taxed at the entity level and there are real complications with trying to tax foreign corporations directly. So in many respects, these large U.S. shareholders, who by definition together collectively have a majority stake in a closely held corporation, are in many senses the most suitable person or entity to tax. Well, have we ever said, and maybe we should, in this case, say that the 16th Amendment applies differently to income or property that is obtained abroad than it does to income or property possessed within the United States. The court hasn't previously said to that, but my friend himself suggests that in thinking about these issues, the court should focus on the potential for tax avoidance or tax abuse. And I think that that concession just underscores the point that when you are using a foreign corporation, it provides a ready vehicle to shelter funds offshore, keep them out of the reach of U.S. taxing authorities and thus complicate efforts to access those funds, even when they have a really significant connection as they do here, because these companies are majority owned by U.S. taxpayers. And it's important to recognize, too, that this case is not the paradigmatic case of how the MRT applies. The overwhelming majority of taxpayers subject to this are domestic corporations, often parent companies of wholly owned foreign subsidiaries who have arranged their affairs to be able to keep this money offshore to a period of long tax deferral. But I think that it would be anomalous to suggest that the money is forever out of the reach of U.S. taxing authorities. The petitioners were in on the ground floor with this corporation, but what if they had simply bought into the company the day before the MRT made taxes to do? Wouldn't that look an awful lot like a tax on capital rather than a tax on income in any sense of the word? So I have three reactions to that. I think that the underlying nature of what's being taxed, which are the realized earnings of the corporation, wouldn't change. I do think that raises a harder attribution question, because that taxpayer would have less of a direct relationship to the thing that's being taxed. And so maybe someone in that situation would have a better as applied due process claim, as you mentioned, the more is themselves, aren't in that position. The second thing I would say is that if the court is interested in exploring this as applied due process issue, it's important to know that the MRT is not unique in this regard. There are other taxes and other contexts where the court has recognized that someone can be taxed on gain and property that happened before the ownership stake was obtained. That was the holding and tax versus vours where the court considered this issue with respect to the gift tax. It's also how subpart of itself can operate. You can buy shares in the controlled foreign corporation and be taxed under subpart F with respect to earnings that happened before you bought your stake. The third point I would make is that as a factual matter, this situation is unlikely to arise. And that's because Congress has enacted other provisions of the code that largely tie the gains to the person who owned the shares at the relevant time. This is 26 USC section 1248 and it taxes gains at the time of sale. So when you're hypothetical in 2017 when the person is buying the share in the company, it taxes gains to the seller as though they were paid out of the retained corporate earnings. And then there's a parallel provision for the buyer under the MRT, 26 USC 965 D2B that ensures that the buyer doesn't have to include that in his income through a cross reference to section 959. So in those ways, I think that Congress was trying to attribute the income to the person who owned the shares at the relevant time. Thank you. One last subject. I'm sorry to go on so long on this. Your brief makes an awful lot out of collector versus Hubbard decided in 1871 to what degree does your argument depend on that? Our argument doesn't depend on Hubbard. Ultimately, we think that what carries the day here is the overwhelming history that demonstrates that Congress has long tax income. At the corporate level, two shareholders Hubbard upheld that exercise of authority. And so I think if you're looking at the tax of the 16th Amendment and what those who drafted it would have in mind, they would have been well aware of this past through taxation and of the Hubbard precedent itself. Do you think that I'm sorry to interrupt? Do you think that Hubbard decided that the tax that was an issue in Hubbard satisfied Article 1 section 2 and Article 1 section 9. It draws the distinction between direct and indirect taxes. Do you think that the court decided that question in Hubbard? So Hubbard's discussion of this issue is brief. I don't think that it parsed to the constitutional text that way, although it did say that this was within Congress's power to enact. So I understand that to be a constitutional holding, but I acknowledge that it didn't get into the specific provisions of the Constitution or their integrity. Do you think it was overruled in Pollock? So I think that I don't think it would be right to say that Pollock was the last word on it, of course, because even if it was overruled in Pollock, the 16th Amendment came along and it self reversed Pollock. Do you think that Pollock court understood itself to be overruling Hubbard? I think it's possible that yes, the Pollock court understood itself to be overruling Hubbard. It was obviously adopting an understanding of what constitutes a direct tax that was a sharp departure from what had come before. I guess what I would say, Justice Alito, is that it seems to me implausible that the drafters of the 16th Amendment in seeking to overturn Pollock and fully revive Congress's pre-existing income tax authority would have meant to do so with respect to all the ways Congress had exercised that authority. Except for the type of pass-through tax that Hubbard specifically approved

. But if the court were applying that kind of attribution analysis here, I think the MRT, like many pass-through taxes, is equally constitutional. Here, the income has never been taxed at the entity level and there are real complications with trying to tax foreign corporations directly. So in many respects, these large U.S. shareholders, who by definition together collectively have a majority stake in a closely held corporation, are in many senses the most suitable person or entity to tax. Well, have we ever said, and maybe we should, in this case, say that the 16th Amendment applies differently to income or property that is obtained abroad than it does to income or property possessed within the United States. The court hasn't previously said to that, but my friend himself suggests that in thinking about these issues, the court should focus on the potential for tax avoidance or tax abuse. And I think that that concession just underscores the point that when you are using a foreign corporation, it provides a ready vehicle to shelter funds offshore, keep them out of the reach of U.S. taxing authorities and thus complicate efforts to access those funds, even when they have a really significant connection as they do here, because these companies are majority owned by U.S. taxpayers. And it's important to recognize, too, that this case is not the paradigmatic case of how the MRT applies. The overwhelming majority of taxpayers subject to this are domestic corporations, often parent companies of wholly owned foreign subsidiaries who have arranged their affairs to be able to keep this money offshore to a period of long tax deferral. But I think that it would be anomalous to suggest that the money is forever out of the reach of U.S. taxing authorities. The petitioners were in on the ground floor with this corporation, but what if they had simply bought into the company the day before the MRT made taxes to do? Wouldn't that look an awful lot like a tax on capital rather than a tax on income in any sense of the word? So I have three reactions to that. I think that the underlying nature of what's being taxed, which are the realized earnings of the corporation, wouldn't change. I do think that raises a harder attribution question, because that taxpayer would have less of a direct relationship to the thing that's being taxed. And so maybe someone in that situation would have a better as applied due process claim, as you mentioned, the more is themselves, aren't in that position. The second thing I would say is that if the court is interested in exploring this as applied due process issue, it's important to know that the MRT is not unique in this regard. There are other taxes and other contexts where the court has recognized that someone can be taxed on gain and property that happened before the ownership stake was obtained. That was the holding and tax versus vours where the court considered this issue with respect to the gift tax. It's also how subpart of itself can operate. You can buy shares in the controlled foreign corporation and be taxed under subpart F with respect to earnings that happened before you bought your stake. The third point I would make is that as a factual matter, this situation is unlikely to arise. And that's because Congress has enacted other provisions of the code that largely tie the gains to the person who owned the shares at the relevant time. This is 26 USC section 1248 and it taxes gains at the time of sale. So when you're hypothetical in 2017 when the person is buying the share in the company, it taxes gains to the seller as though they were paid out of the retained corporate earnings. And then there's a parallel provision for the buyer under the MRT, 26 USC 965 D2B that ensures that the buyer doesn't have to include that in his income through a cross reference to section 959. So in those ways, I think that Congress was trying to attribute the income to the person who owned the shares at the relevant time. Thank you. One last subject. I'm sorry to go on so long on this. Your brief makes an awful lot out of collector versus Hubbard decided in 1871 to what degree does your argument depend on that? Our argument doesn't depend on Hubbard. Ultimately, we think that what carries the day here is the overwhelming history that demonstrates that Congress has long tax income. At the corporate level, two shareholders Hubbard upheld that exercise of authority. And so I think if you're looking at the tax of the 16th Amendment and what those who drafted it would have in mind, they would have been well aware of this past through taxation and of the Hubbard precedent itself. Do you think that I'm sorry to interrupt? Do you think that Hubbard decided that the tax that was an issue in Hubbard satisfied Article 1 section 2 and Article 1 section 9. It draws the distinction between direct and indirect taxes. Do you think that the court decided that question in Hubbard? So Hubbard's discussion of this issue is brief. I don't think that it parsed to the constitutional text that way, although it did say that this was within Congress's power to enact. So I understand that to be a constitutional holding, but I acknowledge that it didn't get into the specific provisions of the Constitution or their integrity. Do you think it was overruled in Pollock? So I think that I don't think it would be right to say that Pollock was the last word on it, of course, because even if it was overruled in Pollock, the 16th Amendment came along and it self reversed Pollock. Do you think that Pollock court understood itself to be overruling Hubbard? I think it's possible that yes, the Pollock court understood itself to be overruling Hubbard. It was obviously adopting an understanding of what constitutes a direct tax that was a sharp departure from what had come before. I guess what I would say, Justice Alito, is that it seems to me implausible that the drafters of the 16th Amendment in seeking to overturn Pollock and fully revive Congress's pre-existing income tax authority would have meant to do so with respect to all the ways Congress had exercised that authority. Except for the type of pass-through tax that Hubbard specifically approved. If the court in Hubbard thought it was overruling Hubbard, I'm sorry, if the court in Pollock thought it was overruling Hubbard, what do you make of the fact that it doesn't even mention Hubbard? And as far as I can tell, Hubbard was never cited by the attorneys in that case. And I looked back at Professor Thiss's volume in the Alverwendell Holmes' device of the Supreme Court on what he has to say about Pollock. Pollock was a special ceremonial occasion for the court. The greatest lawyers of the day appeared for both sides. So the greatest lawyers for the day didn't understand that there was Hubbard, that had supported the attorney arguing for the government, just didn't realize that they had Hubbard on the book that supported their position. Well, the Court made it entirely missed it. Maybe they missed an opportunity to make a good argument in that case, but I think ultimately, the important point is that relying on Pollock and trying to parse Pollock versus Hubbard, ignores the effect of the 16th Amendment. This was an amendment to the Constitution that was specifically designed to restore a pre-existing power. And the right way to look at what that power means is to look at how it had actually been exercised before. Just to so to me, Orr? I don't fault the parties for shooting for the stars. But I guess the tenor of the questions is that nobody's happy with anybody's definition of anything. You started by suggesting a narrow ruling. I think there are two ways to narrowly rule. Tell me one is better than the other, if at all. Okay, but first we can say there is a realization requirement, and here it was realized, because the corporation realized that you have to deal with justice courses is concerned that you waive that argument. I may disagree with him, but that we can work out among ourselves, but the bottom line we could rule that way. Or we could do it the way Justice Kavanaugh started his question, which is we assume that there's a realization requirement. And it was met here. So which of the two ways should we do it? And why not? It would be critically important for the court to do it through Justice Kavanaugh's approach. That is, I don't think the court needs to resolve anything about whether the 16th Amendment requires realization. Here we happen to have it, and this kind of tax corresponds to pass-through taxes we've had through history, and that suffices to resolve this case. We have serious concerns on the court. Does that, the history is that Congress can attribute that realization? Correct. The Congress can attribute that realization by the corporation to the shareholders, and there are taxes that look like that at virtually all points in our nation's history. The reason why I would strongly caution the court away from adopting a realization requirement is not only that we think that it is inaccurate, profoundly a historical, inconsistent with the text of the 16th Amendment, but it would also wreak havoc on the proper operation of the tax code. I think that there are pass-through taxes that would withstand scrutiny if the court affirms the attribution holding. But as I had mentioned to Justice Barrett, there are a number of critically important provisions of the code that don't actually have that kind of pass-through mechanism and don't turn on realization at all. That includes the market to market taxes, original issue discount on bonds, that drives prices and bond markets, and avoids what could otherwise be sheltering of income that should be taxable. It includes the expatriation tax when people renounce their United States citizenship. So I think that there are various ways in which adopting any form of a realization requirement would have profound practical consequences, and it's unnecessary for the court to go down that road in light of the serious legal arguments against that reading. Thank you. Justice Kagan? And General Pre-Logger, just to take you back to the implications of Mr. Grossman's argument, he's made a number of statements in his brief and today as well about how he would distinguish this tax from many others, from subpart F, from S corporations, from partnerships, from a cruel, from you name it, there might be more. What do you worry about and why? I worry that none of those proposals actually hold up and provide a basis to distinguish the MRT. So at first he suggested has to do with control, but as I had explained to Justice Barrett before, the level of control here is exactly the same as under subpart F. These are 10% shareholders, US shareholders have closely held for in corporations, and so control cannot be the relevant difference. It's also not the difference with respect to partnerships and S corporations share holders who might have even a lower than 10% stake, and nevertheless can have income attributed to them. Then he says maybe the answer is consent, and he points to S corporations and says that turns on a theory of consent. But I don't think that that works either, because to the extent that there's any kind of realization requirement out there in the 16th Amendment, consent couldn't cure that difficulty or give taxpayers a basis to allow Congress to tax things that are outside its authority, and it doesn't even work as a descriptive matter, because the S corporation shareholders might buy their interest in the company and never personally consent to pass through taxation, or they might change their minds, and remove their consent and say I don't want to be taxed on it anymore, but if they have a minority stake in the company, they're stuck with it, and continue to have pass through taxation. So I don't think consent works. Then he says maybe it has something to do with the type of income under subpart F, but as I've explained before, we don't think that the type of income matters under the 16th Amendment, and here this is paradigmatic income. This is ordinary business income, substantial earnings realized by the company, and I think it would be a really anomalous result to say this type of income uniquely is exempt from pass through taxation. He also suggests that maybe it turns on the potential for abuse, and maybe that explains some of these other taxes, but there again, I think that the MRT itself responds to the concern that these domestic corporations in the main, also some individual shareholders, have been able to keep the money off shore and the closely held foreign corporations and thereby defer taxation on them. So with respect to every possible point of difference, we just don't think it holds up as a descriptive manner, and so there's a real concern we have that if the court goes down one of these roads, and nevertheless invalidates the MRT, it's not a principled distinction. And then with respect to the furthest, the implications of the furthest reaches of your argument that Justice Alito was asking about, and you said with respect to a number of taxes, which we'll probably never see in our lifetimes, but you said if we did see them, you would probably defend them. But when you say that, that's your job, right? Yes, so we generally defend the constitutionality of statutes. Yeah, so how should we think about that set of possibilities? So I think the important starting point is to recognize that those are hypotheticals, as you mentioned, that are unlikely to ever come to pass. There's a really good reason that Congress frequently chooses to tax based on realization, and it's the administrative practicalities of the situation, otherwise it's complicated to track fluctuations in value over time, or to engage in the valuation analysis for assets that might be hard to value. So in the main, Congress frequently does choose to rely on realization, and I think some of the hypotheticals about taxing all people who have shares or taxing all home appreciation are unlikely ever to come to pass

. If the court in Hubbard thought it was overruling Hubbard, I'm sorry, if the court in Pollock thought it was overruling Hubbard, what do you make of the fact that it doesn't even mention Hubbard? And as far as I can tell, Hubbard was never cited by the attorneys in that case. And I looked back at Professor Thiss's volume in the Alverwendell Holmes' device of the Supreme Court on what he has to say about Pollock. Pollock was a special ceremonial occasion for the court. The greatest lawyers of the day appeared for both sides. So the greatest lawyers for the day didn't understand that there was Hubbard, that had supported the attorney arguing for the government, just didn't realize that they had Hubbard on the book that supported their position. Well, the Court made it entirely missed it. Maybe they missed an opportunity to make a good argument in that case, but I think ultimately, the important point is that relying on Pollock and trying to parse Pollock versus Hubbard, ignores the effect of the 16th Amendment. This was an amendment to the Constitution that was specifically designed to restore a pre-existing power. And the right way to look at what that power means is to look at how it had actually been exercised before. Just to so to me, Orr? I don't fault the parties for shooting for the stars. But I guess the tenor of the questions is that nobody's happy with anybody's definition of anything. You started by suggesting a narrow ruling. I think there are two ways to narrowly rule. Tell me one is better than the other, if at all. Okay, but first we can say there is a realization requirement, and here it was realized, because the corporation realized that you have to deal with justice courses is concerned that you waive that argument. I may disagree with him, but that we can work out among ourselves, but the bottom line we could rule that way. Or we could do it the way Justice Kavanaugh started his question, which is we assume that there's a realization requirement. And it was met here. So which of the two ways should we do it? And why not? It would be critically important for the court to do it through Justice Kavanaugh's approach. That is, I don't think the court needs to resolve anything about whether the 16th Amendment requires realization. Here we happen to have it, and this kind of tax corresponds to pass-through taxes we've had through history, and that suffices to resolve this case. We have serious concerns on the court. Does that, the history is that Congress can attribute that realization? Correct. The Congress can attribute that realization by the corporation to the shareholders, and there are taxes that look like that at virtually all points in our nation's history. The reason why I would strongly caution the court away from adopting a realization requirement is not only that we think that it is inaccurate, profoundly a historical, inconsistent with the text of the 16th Amendment, but it would also wreak havoc on the proper operation of the tax code. I think that there are pass-through taxes that would withstand scrutiny if the court affirms the attribution holding. But as I had mentioned to Justice Barrett, there are a number of critically important provisions of the code that don't actually have that kind of pass-through mechanism and don't turn on realization at all. That includes the market to market taxes, original issue discount on bonds, that drives prices and bond markets, and avoids what could otherwise be sheltering of income that should be taxable. It includes the expatriation tax when people renounce their United States citizenship. So I think that there are various ways in which adopting any form of a realization requirement would have profound practical consequences, and it's unnecessary for the court to go down that road in light of the serious legal arguments against that reading. Thank you. Justice Kagan? And General Pre-Logger, just to take you back to the implications of Mr. Grossman's argument, he's made a number of statements in his brief and today as well about how he would distinguish this tax from many others, from subpart F, from S corporations, from partnerships, from a cruel, from you name it, there might be more. What do you worry about and why? I worry that none of those proposals actually hold up and provide a basis to distinguish the MRT. So at first he suggested has to do with control, but as I had explained to Justice Barrett before, the level of control here is exactly the same as under subpart F. These are 10% shareholders, US shareholders have closely held for in corporations, and so control cannot be the relevant difference. It's also not the difference with respect to partnerships and S corporations share holders who might have even a lower than 10% stake, and nevertheless can have income attributed to them. Then he says maybe the answer is consent, and he points to S corporations and says that turns on a theory of consent. But I don't think that that works either, because to the extent that there's any kind of realization requirement out there in the 16th Amendment, consent couldn't cure that difficulty or give taxpayers a basis to allow Congress to tax things that are outside its authority, and it doesn't even work as a descriptive matter, because the S corporation shareholders might buy their interest in the company and never personally consent to pass through taxation, or they might change their minds, and remove their consent and say I don't want to be taxed on it anymore, but if they have a minority stake in the company, they're stuck with it, and continue to have pass through taxation. So I don't think consent works. Then he says maybe it has something to do with the type of income under subpart F, but as I've explained before, we don't think that the type of income matters under the 16th Amendment, and here this is paradigmatic income. This is ordinary business income, substantial earnings realized by the company, and I think it would be a really anomalous result to say this type of income uniquely is exempt from pass through taxation. He also suggests that maybe it turns on the potential for abuse, and maybe that explains some of these other taxes, but there again, I think that the MRT itself responds to the concern that these domestic corporations in the main, also some individual shareholders, have been able to keep the money off shore and the closely held foreign corporations and thereby defer taxation on them. So with respect to every possible point of difference, we just don't think it holds up as a descriptive manner, and so there's a real concern we have that if the court goes down one of these roads, and nevertheless invalidates the MRT, it's not a principled distinction. And then with respect to the furthest, the implications of the furthest reaches of your argument that Justice Alito was asking about, and you said with respect to a number of taxes, which we'll probably never see in our lifetimes, but you said if we did see them, you would probably defend them. But when you say that, that's your job, right? Yes, so we generally defend the constitutionality of statutes. Yeah, so how should we think about that set of possibilities? So I think the important starting point is to recognize that those are hypotheticals, as you mentioned, that are unlikely to ever come to pass. There's a really good reason that Congress frequently chooses to tax based on realization, and it's the administrative practicalities of the situation, otherwise it's complicated to track fluctuations in value over time, or to engage in the valuation analysis for assets that might be hard to value. So in the main, Congress frequently does choose to rely on realization, and I think some of the hypotheticals about taxing all people who have shares or taxing all home appreciation are unlikely ever to come to pass. But I also think that it's important for the court to not rely on concerns about those types of far-fetched hypotheticals to announce bright line rules about what the 16th Amendment requires that could actually take down critically important provisions of the tax code, and that respond to real life concerns and very legitimate exercises of the taxing power. In particular, many of the times when Congress has chosen to tax in the absence of realization, it's because taxpayers can abuse the rules. They can manipulate realization events, or they can make use of certain structures or financial instruments to shield assets from taxation. And any coherent or proper administration of the tax code has to be able to respond to that kind of taxpayer abuse. Thank you. Justice Gorsuch. Would you agree, General, that when the court opens a door, Congress tends to walk through it? I don't want to over generalize on the back and forth between the court and Congress. But Justice Gorsuch, if I am anticipating correctly where you're going... I'm just... maybe you are, maybe you are, probably are. You usually are. But if the only bar to Congress from an acting at attacks on millions of Americans' retirement accounts and mutual funds is administrative ability, they're pretty clever over there, aren't they? Justice Gorsuch, I think that's not the point. Because they know how to get around administration concerns pretty well, don't they? I think that there would be good reasons for them to avoid the administrative complexities that would open up. Oh, sure as a policy matter, but isn't it the case that would open a big door? That door is already open. Congress can enact that tax. Right, you'll understand. It's been open forever. Yes, but the Constitution gives Congress the power to take that. And then in terms of your argument here as well about there's no difference between income and that kind of that unrealized capital gain, you're familiar with the 1918 tax cases obviously. The government's brief in that case, one of my industrious law clerks pulled it, and there the government does draw that distinction and says that that kind of capital gain is not income because the individual received the taxpayer received nothing. And that's not income, it's a mere gain of or loss of capital value. Are you familiar with that? I'm not sure exactly which brief you're talking about, do you happen to know that? Yes, the slister general is brief in the 1918 income tax cases and its pages 32 and 53. So I would have to look at the particular issue that was being considered there. There are a number of statutory realization requirements that could explain those statements. There have also been a lot of evolution in the thinking about these issues following Macomber. I recognize that the government has sometimes taken a broader view of Macomber itself, for example, but that was in an era when the court itself had been unclear about the reach of Macomber before the court had sharply limited it. And then I do think there is room for some narrow ground as just as sort of my or suggested. If one thinks that the question is attribution, you call it. I think your front on the other side would call it, is it realized by the taxpayer? You say is it fairly attributed to the taxpayer? Potato, potato, I sometimes wonder. I'm from Idaho, so I love it. You totally get that. You totally get what I'm saying. If we're talking about the same thing, you make a pretty persuasive argument that under the MRT, the moors do have constructive control. That it is fairly attributable to them because they're a 10% stakeholder and some other facts. Again, I may be missing it. I don't see that argument in the brief. Assume that argument hasn't yet been made. What do I do? I agree, Justice Gorsuch, that we haven't made the argument expressly in terms of control because we don't think that's the right standard. But we very clearly did make the argument that the MRT is constitutional for the very same reason. Yes. Petitioners say that the subpart F regime is constitutional. I understand that. But just to answer my question, you know, if we think that there's some constructive realization or attribution requirement required, but that hasn't been adjudicated yet. Hasn't been argued yet. What should I do? If you think it hasn't been argued yet, I of course disagree on the facts

. But I also think that it's important for the court to not rely on concerns about those types of far-fetched hypotheticals to announce bright line rules about what the 16th Amendment requires that could actually take down critically important provisions of the tax code, and that respond to real life concerns and very legitimate exercises of the taxing power. In particular, many of the times when Congress has chosen to tax in the absence of realization, it's because taxpayers can abuse the rules. They can manipulate realization events, or they can make use of certain structures or financial instruments to shield assets from taxation. And any coherent or proper administration of the tax code has to be able to respond to that kind of taxpayer abuse. Thank you. Justice Gorsuch. Would you agree, General, that when the court opens a door, Congress tends to walk through it? I don't want to over generalize on the back and forth between the court and Congress. But Justice Gorsuch, if I am anticipating correctly where you're going... I'm just... maybe you are, maybe you are, probably are. You usually are. But if the only bar to Congress from an acting at attacks on millions of Americans' retirement accounts and mutual funds is administrative ability, they're pretty clever over there, aren't they? Justice Gorsuch, I think that's not the point. Because they know how to get around administration concerns pretty well, don't they? I think that there would be good reasons for them to avoid the administrative complexities that would open up. Oh, sure as a policy matter, but isn't it the case that would open a big door? That door is already open. Congress can enact that tax. Right, you'll understand. It's been open forever. Yes, but the Constitution gives Congress the power to take that. And then in terms of your argument here as well about there's no difference between income and that kind of that unrealized capital gain, you're familiar with the 1918 tax cases obviously. The government's brief in that case, one of my industrious law clerks pulled it, and there the government does draw that distinction and says that that kind of capital gain is not income because the individual received the taxpayer received nothing. And that's not income, it's a mere gain of or loss of capital value. Are you familiar with that? I'm not sure exactly which brief you're talking about, do you happen to know that? Yes, the slister general is brief in the 1918 income tax cases and its pages 32 and 53. So I would have to look at the particular issue that was being considered there. There are a number of statutory realization requirements that could explain those statements. There have also been a lot of evolution in the thinking about these issues following Macomber. I recognize that the government has sometimes taken a broader view of Macomber itself, for example, but that was in an era when the court itself had been unclear about the reach of Macomber before the court had sharply limited it. And then I do think there is room for some narrow ground as just as sort of my or suggested. If one thinks that the question is attribution, you call it. I think your front on the other side would call it, is it realized by the taxpayer? You say is it fairly attributed to the taxpayer? Potato, potato, I sometimes wonder. I'm from Idaho, so I love it. You totally get that. You totally get what I'm saying. If we're talking about the same thing, you make a pretty persuasive argument that under the MRT, the moors do have constructive control. That it is fairly attributable to them because they're a 10% stakeholder and some other facts. Again, I may be missing it. I don't see that argument in the brief. Assume that argument hasn't yet been made. What do I do? I agree, Justice Gorsuch, that we haven't made the argument expressly in terms of control because we don't think that's the right standard. But we very clearly did make the argument that the MRT is constitutional for the very same reason. Yes. Petitioners say that the subpart F regime is constitutional. I understand that. But just to answer my question, you know, if we think that there's some constructive realization or attribution requirement required, but that hasn't been adjudicated yet. Hasn't been argued yet. What should I do? If you think it hasn't been argued yet, I of course disagree on the facts. No, I understand. The Court can affirm on an alternative round even one that the party didn't race. The Court said that in Dada versus United States, for example. So I think it would be open for the Court to affirm on that ground because we do think it's a very strong argument, and I would encourage the Court to do so. Okay. And then you've argued that attribution is a feature of due process rather than income under the 16th century. And so that's why we're talking about the Court's implementation of the amendment. But of all of our cases, whether we're talking about partnerships or you want to talk about S-Corp's or Schedule F, have treated it as whether it's a form of income to the taxpayer under the 16th amendment. That's how we've grounded our analysis so far. It would seem quite a change to move it over to due process. Can you react to that? Sure. So I think actually the Court's central case on attribution was a due process case. This is Burnett versus Wells and involved the grantor of trust and the Court there put it explicitly in the process. Well, you mentioned partnership earlier. And I went back and looked at that and due process those words don't... You said that's the best case for you. Those words just don't appear anywhere in the injustice brand, I says opinion. It's all about whether you can call it fairly attributable or realized by the partner. And I think that it's perfectly fine for the Court to look at this through the lens of the 16th amendment because you get to the same ultimate result, which is that ultimately the question then would be, can Congress fairly attribute this income to you, the taxpayer? And here we have overwhelming history and tradition going all the way back to the 1860s and 1870s demonstrating that yes, Congress can. And are some of those factors that you look at, whether they control the entity, whether there's some evidence of fraud and it's used to the entity, what else would you add to that list? I would look at the taxpayers' overall relationship to the income and the entity. You know, I hesitate to try to put the gloss of control on it for a couple of different reasons. One is that I think that would incentivize taxpayers to try to argue an individual case they don't have. I'm not suggesting that's necessary. I'm suggesting it might be sufficient. Yes, I would absolutely agree that might be sufficient to establish that Congress made a fair attribution decision in that case. I would just caution the Court away from constitutionalizing that or saying it's necessary in every case. Roger that. What other factors would you have us look at? The other kinds of factors the Court has looked at are the statement made in Burnett versus Wells was whether Congress has made an attribution decision that's unrelated to any privilege or benefit. I think using that standard, it works for us here as well because there are obvious benefits associated with doing business through a controlled foreign corporation which is closely held and could keep the money offshore for all of those years subject to tax deferral. So I think that... Let me pause you there. So the foreign aspect of it and the difficulty of otherwise obtaining some kind of tax on it should factor in our analysis, you think. Again, I think those are conditions that could be sufficient. I wouldn't want the Court to say they are absolutely necessary in every case. And of course we have things like partnerships where there's not necessarily any abuse. It's a convenient way to structure taxation with respect to certain types of entities. It's very helpful to me. Any other factors you'd have me consider? I think you have covered the waterfront of the things that have already emerged in the case law. I guess if I step back to a 30,000 foot level, the one thing I would say is that I would urge the Court not to try to set down an explicit set of principles. To govern all cases for the very reasons I was describing earlier that we have seen taxpayers latch onto that and then seek to avoid any action. Roger that too. Okay. And that would take care though. If we wrote that that way, it would take care of all of your concerns about S. Corporation's schedule, F for, you know, the market to market and potentially the MRT

. No, I understand. The Court can affirm on an alternative round even one that the party didn't race. The Court said that in Dada versus United States, for example. So I think it would be open for the Court to affirm on that ground because we do think it's a very strong argument, and I would encourage the Court to do so. Okay. And then you've argued that attribution is a feature of due process rather than income under the 16th century. And so that's why we're talking about the Court's implementation of the amendment. But of all of our cases, whether we're talking about partnerships or you want to talk about S-Corp's or Schedule F, have treated it as whether it's a form of income to the taxpayer under the 16th amendment. That's how we've grounded our analysis so far. It would seem quite a change to move it over to due process. Can you react to that? Sure. So I think actually the Court's central case on attribution was a due process case. This is Burnett versus Wells and involved the grantor of trust and the Court there put it explicitly in the process. Well, you mentioned partnership earlier. And I went back and looked at that and due process those words don't... You said that's the best case for you. Those words just don't appear anywhere in the injustice brand, I says opinion. It's all about whether you can call it fairly attributable or realized by the partner. And I think that it's perfectly fine for the Court to look at this through the lens of the 16th amendment because you get to the same ultimate result, which is that ultimately the question then would be, can Congress fairly attribute this income to you, the taxpayer? And here we have overwhelming history and tradition going all the way back to the 1860s and 1870s demonstrating that yes, Congress can. And are some of those factors that you look at, whether they control the entity, whether there's some evidence of fraud and it's used to the entity, what else would you add to that list? I would look at the taxpayers' overall relationship to the income and the entity. You know, I hesitate to try to put the gloss of control on it for a couple of different reasons. One is that I think that would incentivize taxpayers to try to argue an individual case they don't have. I'm not suggesting that's necessary. I'm suggesting it might be sufficient. Yes, I would absolutely agree that might be sufficient to establish that Congress made a fair attribution decision in that case. I would just caution the Court away from constitutionalizing that or saying it's necessary in every case. Roger that. What other factors would you have us look at? The other kinds of factors the Court has looked at are the statement made in Burnett versus Wells was whether Congress has made an attribution decision that's unrelated to any privilege or benefit. I think using that standard, it works for us here as well because there are obvious benefits associated with doing business through a controlled foreign corporation which is closely held and could keep the money offshore for all of those years subject to tax deferral. So I think that... Let me pause you there. So the foreign aspect of it and the difficulty of otherwise obtaining some kind of tax on it should factor in our analysis, you think. Again, I think those are conditions that could be sufficient. I wouldn't want the Court to say they are absolutely necessary in every case. And of course we have things like partnerships where there's not necessarily any abuse. It's a convenient way to structure taxation with respect to certain types of entities. It's very helpful to me. Any other factors you'd have me consider? I think you have covered the waterfront of the things that have already emerged in the case law. I guess if I step back to a 30,000 foot level, the one thing I would say is that I would urge the Court not to try to set down an explicit set of principles. To govern all cases for the very reasons I was describing earlier that we have seen taxpayers latch onto that and then seek to avoid any action. Roger that too. Okay. And that would take care though. If we wrote that that way, it would take care of all of your concerns about S. Corporation's schedule, F for, you know, the market to market and potentially the MRT. Yes, I certainly I think the MRT in addition to all of those other taxes satisfy the types of criteria that the Court has looked at that are relevant to this attribution question. Whether we call it attribution or constructive realization, but could be open-todd. Well, on that one, I would shy away from constructive realization just because I think it introduces an additional layer of ambiguity in the code. I mean, by definition, it means not actual realization. And so I think that it's a term that doesn't appear in the code itself that we're interested in. Maybe, and I'll just, I'll stop. But the way I read our president at least is it's fairly saying that this individual realized gain control of or could be reasonably judged to have done that by Congress. This person has control over these assets. And you've given me a very helpful list of factors from this Court's history and practice consistent with our president rather than calling it all misguided. That might work. Fair enough? I don't think that it's right to say that this list of factors gives the taxpayer sufficient control over the assets just again because the concept of control can be inherently confusing here if it suggests a majority stake. You know, the S corporation shareholders, they might have a 1% stake in the company and not have any control. So I think that's where I have a little bit of disagreement on how to describe what we're discussing. That's very helpful to me. Thank you, General. Justice Kavanaugh, you don't want to use the phrase constructive realization. Yes, I think that that phrase is inherently amorphous. It doesn't appear in the code. It appears to be a phrase that petitioners have invented for purposes of trying to save these other taxes. And I think it would open up immediate disputes about what exactly it encompasses. Right. And on the proverbial open door for Congress, members of Congress want to get reelected. So some of the high-pose are far. Yes, I think that that's why they're far-fetched. Although who knows how things would change. On some of Justice Alitos hypotheticals though, if things came to pass, I think you acknowledged I just want to confirm that unlike this case where you say that historical practice supports this Congress's historical practice, the court's cases, if there was something novel, that lack of historical support would at least be a strike against it, not dispositive necessarily. So is that accurate summary of what you said about that? Yes, I think that the point I was trying to make is that first, yes, there are huge practical and policy reasons why these taxes wouldn't be enacted. And second, if it came to pass, then the court could assess that tax on its own terms and it might look to history and think, come, this is something new. I do want to be clear that we don't think that the novelty alone would be dispositive as you mentioned. Certainly, Congress has some power to enact taxes that it hasn't enacted before, but it would certainly provide a reason to scrutinize that tax a little more carefully. Here, the court doesn't have to go down that road because the history is all on our side. One hype of my own just to make sure it's covered. I think it's an easy one, but I want to make sure if there were a federal tax on the value of someone's property, you agree that's a direct tax or on the value of someone's holdings. You agree that's a direct tax that would have to be apportioned, correct? Exactly, that's a quintessential tax on property because it's looking at the total value of the asset and it's doing it at a particular point of time and maybe you could even leviate again and again on the same value like any homeowner experiences with the property tax bill for the home. That's totally different from an income tax where you're taxing the increment of gain over time and generally only doing it one time with any future tax looking to a new increment of gain over a new period of time. Last question. Your position on the MRT and you say, Hiner and subpart F and S Corpse and say this is all similar and kind. The one wrinkle and I just want to make sure we're on the same page is that this goes back a lot of years and rolls in income from many past years. What should we say about that? I have, let me just add and he says ultimately if you can just roll in I think income at any point in time then that really becomes not much of a limit at all. So let me react to that in a couple of different ways. I think that the length of the look back period here can't change the underlying character or classification of what's being taxed as income. This was actual earnings brought in by the company kept in their coffers if it was income in year one that I don't think there's any expiration date on classifying it as income in a future year. And I think it would be anomalous for Congress to lose its ability to tax that as income just because it's granted a period of tax deferral. So instead I think that the look back period instead of relating to the 16th amendment or any fundamental questions about what income constitutes is instead a retro activity concern. It I think arises under the due process clause and would turn on whether Congress had a legitimate purpose for having this kind of look back period and used rational means. Here we think that that is clearly satisfied petitioners raised a retro activity due process argument below the court rejected it in the ninth circuit they haven't renewed it here and I think it's because it clearly fails under precedent like United States versus Carlton. But ultimately I would urge the court to recognize that that is not about the proper characterization of the underlying tax base. Thank you. Justice Ferrett? I'm going to follow up on some of your factors to Justice Gorsuch

. Yes, I certainly I think the MRT in addition to all of those other taxes satisfy the types of criteria that the Court has looked at that are relevant to this attribution question. Whether we call it attribution or constructive realization, but could be open-todd. Well, on that one, I would shy away from constructive realization just because I think it introduces an additional layer of ambiguity in the code. I mean, by definition, it means not actual realization. And so I think that it's a term that doesn't appear in the code itself that we're interested in. Maybe, and I'll just, I'll stop. But the way I read our president at least is it's fairly saying that this individual realized gain control of or could be reasonably judged to have done that by Congress. This person has control over these assets. And you've given me a very helpful list of factors from this Court's history and practice consistent with our president rather than calling it all misguided. That might work. Fair enough? I don't think that it's right to say that this list of factors gives the taxpayer sufficient control over the assets just again because the concept of control can be inherently confusing here if it suggests a majority stake. You know, the S corporation shareholders, they might have a 1% stake in the company and not have any control. So I think that's where I have a little bit of disagreement on how to describe what we're discussing. That's very helpful to me. Thank you, General. Justice Kavanaugh, you don't want to use the phrase constructive realization. Yes, I think that that phrase is inherently amorphous. It doesn't appear in the code. It appears to be a phrase that petitioners have invented for purposes of trying to save these other taxes. And I think it would open up immediate disputes about what exactly it encompasses. Right. And on the proverbial open door for Congress, members of Congress want to get reelected. So some of the high-pose are far. Yes, I think that that's why they're far-fetched. Although who knows how things would change. On some of Justice Alitos hypotheticals though, if things came to pass, I think you acknowledged I just want to confirm that unlike this case where you say that historical practice supports this Congress's historical practice, the court's cases, if there was something novel, that lack of historical support would at least be a strike against it, not dispositive necessarily. So is that accurate summary of what you said about that? Yes, I think that the point I was trying to make is that first, yes, there are huge practical and policy reasons why these taxes wouldn't be enacted. And second, if it came to pass, then the court could assess that tax on its own terms and it might look to history and think, come, this is something new. I do want to be clear that we don't think that the novelty alone would be dispositive as you mentioned. Certainly, Congress has some power to enact taxes that it hasn't enacted before, but it would certainly provide a reason to scrutinize that tax a little more carefully. Here, the court doesn't have to go down that road because the history is all on our side. One hype of my own just to make sure it's covered. I think it's an easy one, but I want to make sure if there were a federal tax on the value of someone's property, you agree that's a direct tax or on the value of someone's holdings. You agree that's a direct tax that would have to be apportioned, correct? Exactly, that's a quintessential tax on property because it's looking at the total value of the asset and it's doing it at a particular point of time and maybe you could even leviate again and again on the same value like any homeowner experiences with the property tax bill for the home. That's totally different from an income tax where you're taxing the increment of gain over time and generally only doing it one time with any future tax looking to a new increment of gain over a new period of time. Last question. Your position on the MRT and you say, Hiner and subpart F and S Corpse and say this is all similar and kind. The one wrinkle and I just want to make sure we're on the same page is that this goes back a lot of years and rolls in income from many past years. What should we say about that? I have, let me just add and he says ultimately if you can just roll in I think income at any point in time then that really becomes not much of a limit at all. So let me react to that in a couple of different ways. I think that the length of the look back period here can't change the underlying character or classification of what's being taxed as income. This was actual earnings brought in by the company kept in their coffers if it was income in year one that I don't think there's any expiration date on classifying it as income in a future year. And I think it would be anomalous for Congress to lose its ability to tax that as income just because it's granted a period of tax deferral. So instead I think that the look back period instead of relating to the 16th amendment or any fundamental questions about what income constitutes is instead a retro activity concern. It I think arises under the due process clause and would turn on whether Congress had a legitimate purpose for having this kind of look back period and used rational means. Here we think that that is clearly satisfied petitioners raised a retro activity due process argument below the court rejected it in the ninth circuit they haven't renewed it here and I think it's because it clearly fails under precedent like United States versus Carlton. But ultimately I would urge the court to recognize that that is not about the proper characterization of the underlying tax base. Thank you. Justice Ferrett? I'm going to follow up on some of your factors to Justice Gorsuch. So you talked about how it could be fair, you know, Justice Cabinajah said S Corpse partnerships, you know, an MRT to and the MRT tax to say that this is attributable to the shareholders or to the partners or, you know, to the settler of the trust. How do we know that is it because this is closely held because I assume what your friend on the other side is going to say is well they they had 10% you know they they weren't majority holders and so they couldn't force a distribution. So how how would you articulate that when it can fairly be attributed if we're not talking due process if we're talking about it from a 16th amendment point. Yes, so I think at the outset the court could rely on the lessons to be drawn from history and tradition here. This functions like the early income taxes that I pointed to from the 1860s and 1870 that tax shareholders on corporate income. At that point in our nation's history corporations were generally closely held. There were fewer Americans who owned stock and so I think that they they functioned quite analogously to the MRT and so far as they reached a distinctive category of shareholders generally in those closely held corporations. You know at the end of the day I guess what I would say is that certainly we think it's a factor in our favor that this reaches relatively large US shareholders. It's true it's 10% so they don't have to have a majority stake. But the premise of Congress is that these kinds of large shareholders can usually work together with other shareholders and this closely held corporation. There aren't going to be that many of them to direct the company's policy or to force a distribution as the case may be. And that kind of threshold 10% appears throughout the law not just in the tax code but in the securities context. For example, there are additional obligations imposed on 10% shareholders of companies. So wherever the line might be drawn and thinking about it from this relationship to the funds and level of influence of the corporation's policy, I think 10% falls well within the line of what should be recognized as permissible. Okay, thanks. Justice Jackson. So I'd rather drawbacks to setting this up in the way that Justice Gorsuch has articulated. I mean I guess I'm a little concerned because I heard you respond to Justice sort of my or by saying that one of your primary concerns is that we not suggest that realization is required. And would would would taking the approach that Justice Gorsuch has articulated. Require us to do that or could we assume or how do we get around the other caution that you put forward. So if I understood Justice Gorsuch's approach and I hope I'm not getting it wrong, the idea behind this approach would be to recognize that here we actually have realized income. So the court doesn't need to resolve the status of that under the 16th amendment and instead the pressure point is whether Congress could enact a pass through tax on the 10% US shareholder. Is that fairly encompassed by this question presented? I mean this sort of goes to your discussions with Justice Alito, I think. I thought the question presented was about the extent to which the 16th amendment requires realization. So if we're going now beyond that, are we out of the territory that is fairly encompassed here? I don't think so because I think the answer to the question presented would be we don't have to decide in all context here there was a realization. As we said in our briefing opposition to this case, we don't actually think that the case presents the question presented because here there was actual realization by the corporation and the real dispute between the parties is whether Congress made a fair attribution decision. Let me ask you just another question about the government's brief. Why did the government make an argument about excise taxes at the end? So we think that the MRT is clearly constitutional on an excise tax theory as well. There's been some suggestion at argument this morning that maybe we didn't present that argument below and that is incorrect. In the Ninth Circuit, we said that even if the MRT isn't properly characterized as an income tax, it's not a direct tax and we said that therefore Congress had Article 1 authority to enact it and pointed to the Sprechle Sugar Case, which is an excise tax case. So I think we did preserve the argument. The Ninth Circuit didn't have a occasion to reach it because it ruled in our favor on the primary income tax argument. But if this court had any doubt about whether this is a proper income tax, we think the court could affirm on the excise tax argument in particular. And as I had mentioned in an earlier response, one of the important things for the court to keep in mind is that 99% of the tax owed under the MRT is owed by domestic corporation shareholders. Large US companies, for example, that have these foreign subsidiaries where they've been holding money overseas for a number of years and this would be a tax on the privilege of doing business with those corporate relationships and in that corporate form. So at the very least we'd urge the court not to invalidate the MRT in all of its circumstances without proper consideration of that argument. And that's because the constitutional question is whether or not it is a direct tax because that would be the circumstance under which apportionment is required. Yes, exactly. And I think this relates to your earlier questions just as Jackson about the meaning of Hilton and about whether this can in any sense properly be considered a direct tax. Ultimately, I think one of the ways to understand the categories in the Constitution is in relation to one another. And at the very least this is not a tax on land, this is not a tax on personal property, it's not a head tax. Therefore, it's not a direct tax and we think it's either an excise or an income tax. One final question about McCommer. Why shouldn't we take this opportunity to just put an into it? I mean, if we were to apply the starry decisive factors that the court goes through when it decides whether or not to formally overrule the precedent, doesn't McCommer fail anyway? I agree that McCommer would fail those factors in an appropriate case. The reason we haven't asked the court to overrule McCommer here is because we just think it's in applicable by the terms of subsequent precedent that have already said McCommer only has controlling weight with respect to that very specific type of stock dividend. And so I think the court has already done the work here of effectively leaving McCommer the minute. I agree with you and we applied the starry decisive factors. You would say the government would still win on its view that McCommer is not good law or controlling this case. If this court thought it were necessary to walk through the starry decisive factors, then yes, I think that in each instance McCommer was egregiously wrong

. So you talked about how it could be fair, you know, Justice Cabinajah said S Corpse partnerships, you know, an MRT to and the MRT tax to say that this is attributable to the shareholders or to the partners or, you know, to the settler of the trust. How do we know that is it because this is closely held because I assume what your friend on the other side is going to say is well they they had 10% you know they they weren't majority holders and so they couldn't force a distribution. So how how would you articulate that when it can fairly be attributed if we're not talking due process if we're talking about it from a 16th amendment point. Yes, so I think at the outset the court could rely on the lessons to be drawn from history and tradition here. This functions like the early income taxes that I pointed to from the 1860s and 1870 that tax shareholders on corporate income. At that point in our nation's history corporations were generally closely held. There were fewer Americans who owned stock and so I think that they they functioned quite analogously to the MRT and so far as they reached a distinctive category of shareholders generally in those closely held corporations. You know at the end of the day I guess what I would say is that certainly we think it's a factor in our favor that this reaches relatively large US shareholders. It's true it's 10% so they don't have to have a majority stake. But the premise of Congress is that these kinds of large shareholders can usually work together with other shareholders and this closely held corporation. There aren't going to be that many of them to direct the company's policy or to force a distribution as the case may be. And that kind of threshold 10% appears throughout the law not just in the tax code but in the securities context. For example, there are additional obligations imposed on 10% shareholders of companies. So wherever the line might be drawn and thinking about it from this relationship to the funds and level of influence of the corporation's policy, I think 10% falls well within the line of what should be recognized as permissible. Okay, thanks. Justice Jackson. So I'd rather drawbacks to setting this up in the way that Justice Gorsuch has articulated. I mean I guess I'm a little concerned because I heard you respond to Justice sort of my or by saying that one of your primary concerns is that we not suggest that realization is required. And would would would taking the approach that Justice Gorsuch has articulated. Require us to do that or could we assume or how do we get around the other caution that you put forward. So if I understood Justice Gorsuch's approach and I hope I'm not getting it wrong, the idea behind this approach would be to recognize that here we actually have realized income. So the court doesn't need to resolve the status of that under the 16th amendment and instead the pressure point is whether Congress could enact a pass through tax on the 10% US shareholder. Is that fairly encompassed by this question presented? I mean this sort of goes to your discussions with Justice Alito, I think. I thought the question presented was about the extent to which the 16th amendment requires realization. So if we're going now beyond that, are we out of the territory that is fairly encompassed here? I don't think so because I think the answer to the question presented would be we don't have to decide in all context here there was a realization. As we said in our briefing opposition to this case, we don't actually think that the case presents the question presented because here there was actual realization by the corporation and the real dispute between the parties is whether Congress made a fair attribution decision. Let me ask you just another question about the government's brief. Why did the government make an argument about excise taxes at the end? So we think that the MRT is clearly constitutional on an excise tax theory as well. There's been some suggestion at argument this morning that maybe we didn't present that argument below and that is incorrect. In the Ninth Circuit, we said that even if the MRT isn't properly characterized as an income tax, it's not a direct tax and we said that therefore Congress had Article 1 authority to enact it and pointed to the Sprechle Sugar Case, which is an excise tax case. So I think we did preserve the argument. The Ninth Circuit didn't have a occasion to reach it because it ruled in our favor on the primary income tax argument. But if this court had any doubt about whether this is a proper income tax, we think the court could affirm on the excise tax argument in particular. And as I had mentioned in an earlier response, one of the important things for the court to keep in mind is that 99% of the tax owed under the MRT is owed by domestic corporation shareholders. Large US companies, for example, that have these foreign subsidiaries where they've been holding money overseas for a number of years and this would be a tax on the privilege of doing business with those corporate relationships and in that corporate form. So at the very least we'd urge the court not to invalidate the MRT in all of its circumstances without proper consideration of that argument. And that's because the constitutional question is whether or not it is a direct tax because that would be the circumstance under which apportionment is required. Yes, exactly. And I think this relates to your earlier questions just as Jackson about the meaning of Hilton and about whether this can in any sense properly be considered a direct tax. Ultimately, I think one of the ways to understand the categories in the Constitution is in relation to one another. And at the very least this is not a tax on land, this is not a tax on personal property, it's not a head tax. Therefore, it's not a direct tax and we think it's either an excise or an income tax. One final question about McCommer. Why shouldn't we take this opportunity to just put an into it? I mean, if we were to apply the starry decisive factors that the court goes through when it decides whether or not to formally overrule the precedent, doesn't McCommer fail anyway? I agree that McCommer would fail those factors in an appropriate case. The reason we haven't asked the court to overrule McCommer here is because we just think it's in applicable by the terms of subsequent precedent that have already said McCommer only has controlling weight with respect to that very specific type of stock dividend. And so I think the court has already done the work here of effectively leaving McCommer the minute. I agree with you and we applied the starry decisive factors. You would say the government would still win on its view that McCommer is not good law or controlling this case. If this court thought it were necessary to walk through the starry decisive factors, then yes, I think that in each instance McCommer was egregiously wrong. It didn't grapple with the text of the 16th Amendment in a legitimate way or look at all of the history that I think is relevant to that question. It has been subsequently eroded by any number of additional precedents and in the end with reliance interests here, Congress has relied on those subsequent precedents by enacting any number of taxes that wouldn't satisfy McCommer's realization framework and petitioners themselves acknowledged that McCommer's realization framework couldn't actually carry the day because the taxes that they have set are constitutional wouldn't survive under McCommer. Thank you. Thank you, Council. A rebuttal, Mr. Grossman. Thank you. The government's recalibrated position, as explained by my friend, is not narrow and the court should not mistake it as such. The government's view that a corporation's earnings can simply be attributed to a, to any corporate shareholder is staggeringly broad. Corporations like Microsoft and ExxonMobil have hundreds of billions of dollars of retained earnings on their books that they've invested in corporate assets, research and development, and other activities. And in some cases, those retained earnings exceed the current value of shares. Under the government's view, and I think is demonstrated by the MRT, apparently the Congress could simply tax backwards reaching back as far as it would care to do so to attribute those retained earnings going back many years to current shareholders, again, in some instances in excess of the value of their current holdings. But I think the court should also combine that there's an impact to that position that purportedly narrower position under the existing code, which is that there is no carve out for against taxing shareholders in the current code on corporate earnings. If those are 16th Amendment earnings, I'm sorry, 16th Amendment income to shareholders, then they are already subject to the income tax through the gateway definition of gross income that reaches everything that is income under the 16th Amendment. So there's no carve out, those would already be subject to it. I think this just demonstrates the way that the government's position would make a hash of existing law and cause enormous confusion with respect to how our tax system functions. By contrast, I don't think that there are any serious consequences of this realization principle that we've put forward in this case, because it is the thread that runs through the court's jurisprudence going back over a century, and is the glue that holds together the tax code as it exists today. Every tax that my friend has mentioned falls into one of two categories. Some of those, particularly regarding the abuse of the corporate forum, turn on theories of constructive realization, or you might say assignment of income, I don't think there's much of a distinction. The remainder of them are straightforward excise taxes that are supported by the long history of congressional practice. These includes, for example, the original issue discount. It's simply an excise tax on the transaction regarding the transfer of a bond. Congress has been living taxes like that for over 130 years at this point. Others like the market taxes are excise taxes like in spreckels on conducting business in a specified fashion. Again, those sorts of taxes predate the 16th amendment, and nobody has ever called into question their constitutionality as such. There's also case law. If it was simply enough to attribute income to anybody with a close relationship to it, all of the court's corporate reorganization cases and cases involving shareholder rights, and really pretty much all of the 16th amendment cases involving trusts and everything else would have been about a sentence law. It wouldn't really take much more than that for the court simply to say, well, there's close enough relationship, and so who cares whether or not the person realized income or not? Of course, that's not the inquiry the court has undertaken. So far as McCommer's rule is concerned, and the court has applied the dividing line recognized by McCommer's recently as 1970 hot five in Ivan Allen. It's carried forward the same principle in cases like Indianapolis power and light in 1990, as well as restating in college savings in 1991. I don't think real is this concept of realization is anything unfamiliar to our law, and indeed it's the only way to understand the current tax code. The anti-income avoidance provisions of the tax code are long lengthy reticulated. I don't envy anybody who's had to spend their time reading subpart F and practices in that field. But the reason those are so complicated and reticulated is because Congress has tried to stay within the realization line. It's done everything it can to fit that framework where it would have been the easiest thing in the world if Congress thought it had the power to do it simply to say, well, if you own shares in a foreign corporation, whatever the ownership threshold, simply pay taxes on those earnings. That's not the way the tax that these sorts of taxing provisions have ever worked. Instead they get at the idea who is really earning the income and receiving the benefit by it, and that person should be the one to pay taxes on it. We think they all fit that bold. I'd like to briefly address the 1864 tax. The Court in Hubbard recognized that it was a tax on property, subsequently in Bruce Shaber, the Court recognized that at the time that wasn't really considered or thought about as being much of a defect with respect to the direct tax causes, under sort of the reasoning of Springer. And of course, McCommer rejected the exact same argument. We would ask the Court to reverse. Thank you. Thank you, Councilor General. The case is submitted.

We'll hear argument this morning in case 2,800 more versus United States. Council. 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 it gain is not income in less than until it has been realized by the taxpayer. The Court squarely held as much an eyes and a versus macomor 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. They were taxed not because they had any income but because in 2017 they happened to own shares and a corporation carrying retained earnings on its books. This is a tax on the ownership of property if therefore must be apportioned. Dispensing with the need for realization sweeps away with 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 his 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. 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 that 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. When you say realization, do you have a definition for that or an explanation to say exactly what it is and how is it different from say attribution? 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 tax payer 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. Well, 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 to the corporation, isn't that right? Yes, the corporation has income. And we don't dispute that the corporation relies 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. So tell me, what's 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. Thank you, Justice Sotomayor. A partnership is a fundamentally different form of organization that a corporation. The law has always recognized that a corporation is a person separate from the shareholders in that corporation. And there simply isn't that separate personhood that applies to partnerships. The partnerships are simply a group of people who come together to undertake a business activity. And when they do so, the income that comes in to them is their income directly. So what do you do with subpart F? Or subpart S? Or all of the other ways in which we have attributed corporate income to individuals? The item challenge, you don't challenge the constitutionality of subpart F. That isn't an issue in this case. But in your brief, you don't appear to be challenging it. We think that subpart F follows the commonly accepted method that Congress has used to address situations when a taxpayer has interposed a corporate structure between themselves in income that is otherwise there. Well, that's the whole purpose of a corporate structure. People do that all the time, particularly for that purpose. You don't incorporate unless you want the corporate shield. You don't incorporate unless you want the benefits of the corporate protection. So under your theory, subpart F, subpart S, these are longstanding taxing mechanisms by the government. Your theory would undermine those as well, wouldn't it? I don't think that's right. Subpart F, again, works on simply categories of income on a current basis where those categories of income are properly viewed as being, or in Congress determined, are properly viewed as being earned by the shareholders due to the nature of the categories of income that are addressed. Well, I'm sorry. Go ahead. So you can see that subpart F is constitutional. I just want to be sure that I understand your answer. We think that the defect with the MRT doesn't really apply to subpart F. The court has never considered the constitutional of subpart F. But as we take it, we don't think that there's a constitutional. So what is the distinction? Is it just that other parts of subpart F to the extent that they tax income, do it on an annual basis and the MRT was a one shot that went backwards? I think that's part of it. But again, I think what it really is is that the MRT is, I'm sorry, is that subpart F addresses this fundamental income shifting concept, whereas the MRT doesn't, and that's so in two respects. First of all, subpart F operates on a current basis while the corporation is subject to the control of the controlling shareholders. And whereas the MRT takes no account of that. I'm sorry. There's no question that you meet the definition of subpart F. You need in subpart Fs, at least 10 percent of the company's share, and the company has to be owned more than 50 percent by U.S. owners. So it's identical in terms of the percentage of ownership or the percentage of shares. That's right. But subpart F, unlike the MRT, aligns the control and the ability to redirect income with the year that it is applicable to. The MRT takes a change. It comes to me that what you're attacking is only a due process issue of how long the taxes for, not the ability to tax. I don't think that's right for the reason that I think whether you owned a particular piece of property on a given date, which is the question that the MRT asks, is sort of the synchronic plan on of the tax on property. Whereas subpart F looks at income as it comes in while the controlling shareholder has the ability to redirect that stream of income. It isn't that then just a question of whether it's fair to attribute, fair from a due process point of view, it's just a sort of my order saying whether it's fair to attribute the income generated by chisened craft to the morse, which is a distinct question of whether there was income within the meaning of the 16th amendment, right? Well, I think it ultimately comes down to a 16th amendment question for the same reason that the court thought so in Macombra, which is that a shareholder's interest in a corporation including in its income is a capital interest in therefore a property interest. So if there is some reason to look beyond that and attribute income to the shareholder, that would necessarily raise a question of income and why it is that the shareholder isn't being taxed and what would otherwise be a property interest. So I think the court has always addressed this sort of question as a question of income as a, and that includes, for example, all of the assignment of income cases that the court has decided over the years. Can I go back to square to first principles? The concept of realization was very well established at the time that the 16th amendment was adopted. But the amendment does not reference realization. All that the drafters had to do was add the word realize after income to lay and collect taxes on income realized, but they never use the word realize. And then I look at the history both before and after the ratification as far back as 1864, not so far back. Congress tax from the ratification. Congress tax quote gains and profits of all companies, whether incorporated or partnerships, in estimating the annual gains, profits or income of any person entitled to the same, whether divided or undivided. In 1913, just eight months after the ratification of the 16th amendment, Congress included undistributed corporate earnings to certain shareholders. Your brief tries to distinguish all these things. But I come back to the main point. Both sides can point to congressional actions that tax some realized income, some or didn't tax unrealized income, but we have examples of Congress taxing unrealized income. Why don't I take it that the plain checks of the amendment doesn't make reference to realization? I think there are two central features of the text of the amendment that reflect that it does apply only to realized gains. The first is simply the use of the word income. I would particularly commend to the Court's attention that the Amicus brief filed by the professors of law and linguistics, which analyzes the use of the word income in period texts. As I go back, all of this goes back and forth because the government has other definitions. We're back in square one if what we're doing is weighing historical definitions. The weighing in this case, your honor is quite lopsided. The government relies principally on two definitions that were put forward by economists in the years following the amendment's adoption, and neither of which reflects the common understanding at the time. One of the economists recognized that he was simply espousing his own economic views, divorced from any question of law or common understanding. And the second economist recognized the common understanding of income is what we say that it was, a realized gain. So far as the common understanding of the term was concerned, the only indication that the Court has before, it aside from dictionaries which, again, lopsidedly favor our position, is the corpus linguistics analysis of the professors of law and linguistics, which looks at how the word was used in everyday language at that time. And it concludes that unanimously, where it's possible to distinguish income-ment realized gains. There's also in the amendment the language from whatever source derived. As we pointed out, derived was generally meant to refer to concepts like receipts. And indeed, again, the amicus brief of the professors of law and linguistics recognize that when income was described as being derived, it was always used in that fashion. I thought that that was just a response to Pollock, which had distinguished between income on personal property and other forms of income. And all that the 16th Amendment authors were doing is to say that distinction that Pollock drew, we don't approve of that distinction. Right. I think that what the 16th Amendment did was remove the necessity to consider whether income came from one source, specifically property, versus other types of sources. But in so doing, it necessarily required as a precedent that the amounts that what was being taxed, in fact, be income and not something else. But why should we take the common meaning of income rather than the legal meaning given the context that Justice Kagan points out? I mean, if the 16th Amendment was specifically responding to this Court's legal precedent related to the meaning of income, I guess I'm curious as to why you think that the common meaning of income is what we should be focused on when we try to understand what the 16th Amendment meant when it used that term. Well, that's certainly the approach that Court typically takes in addressing questions of original meaning. But that aside, that's what the Court's cases have said for merchants, bank, and Macombaer again and again that the 16th Amendment is to be construed according to its ordinary meaning. And I would note that if the Court were to depart from that and say, for example, that personal property was not subject to a portionment, which I take it to be the thrust of the questions in this direction, and taxes on personal property that is, that would more, that would up end pretty much the entire line of the Court's 16th Amendment jurisprudence over the past century. But why? I'm sorry. Go ahead. Okay. But why? If what we do is to think about a particular tax, which seems to be what we've been doing for over 100 years, to see whether that tax is income as understood by attribution or as an excise tax or by other principles, we wouldn't have to give, we would consider each tax on its own form. You're asking us to just announce what realization is out of context. And for the last 100 years, we've been studiously avoiding doing that because we recognize that it's dangerous to do that. To state a word like realization, we then have to come up with a working definition that applies to every piece of property and every way in which people gain wealth. It doesn't seem logical to me. Why don't you just concentrate on why Congress can't say that in certain situations it's going to ignore the corporate form and attribute to the individual shareholder certain income. That's what it's been doing all along. And here it doesn't need realization because Congress has attributed this to the individual owners of the corporation. Respectfully, the Court has already said in multiple occasions that realization is in fact required for there to be income under the 16th Amendment. It's not only McCommer, it's also McLaughlin versus Alliance Insurance. It's the safety car heating. Yes. On certain types of property, but not all. It's Ivan Allen. But we also said that taxes can, that partnerships can be taxed individually, even when the partners are not receiving the property. We have Subtactor F and S. We have had all sorts of different forms of wealth that we have attributed to individuals rather than to the legal forms of ownership. And all of those taxes rely on the principle that the Court expressed in cases like forced in banks, which is that income should be taxed to he who earns it and enjoys its benefits. In putting the side, Mr. Grossman, whether there is any realization requirement at all, I mean, there is quite the history in this country of Congress taxing American shareholders on their gains from foreign corporations. And you can see why, right? Congress, the U.S. government can't tax those foreign corporations directly. And they wanted to make sure that Americans that didn't kind of stash their money in the foreign corporations watch their money grow and never pay taxes on them. So, you know, there's a long century old history of these kinds of taxes on gains from your holdings in a foreign corporation. Why is this any different? And why shouldn't we understand that to be quite well subtle that Congress can implement those taxes and enforce those taxes for those purposes? The taxes in that area have followed the pattern that I described that simply a taxpayer interposing a corporation between themselves and income that would otherwise be theirs. And those provisions from the beginning, it isn't. Those provisions from the beginning, if they're particularly- These are the same shareholders as in subpart F. The difference is that those provisions have typically addressed things like passive income and related party transactions that are properly attributable to, say, apparent corporation. In other words, apparent corporation could own an income generating asset itself or it can simply shift that into a corporation into a foreign corporation and thereby avoid the income. And what the law is recognized is that just as in cases like horse and banks, that's effectively an assignment of income and that it can be attributed to the person who- The parent corporation for that reason because the parent corporation is the one that controls the flow of the income as it's coming in. The MRT by contrast operates its attacks on property. It doesn't take account of any power that the shareholder had over the income as it was coming in the door to the corporation or only takes account of ownership in 20 years. That seems to be an argument about timing. In other words, we 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 shareholder. So the shareholders or the partnership to the partners and the only real wrinkle I think here is that it goes back and captures prior years income. I think there are two wrinkles. One is that with respect to those prior years, the statute doesn't require that the shareholder is being taxed had any ability to control the disposition of the income in those years. That's a fundamental distinction. The second is that subpartial- The fact of this case, so correct. It is not true for the fact of this case, but you're saying generally. Well, I think it just demonstrates that this is a tax on property. In other words, do you own something on a particular date as opposed to what do you do at the past? Did you have that power in the past? But second, provisions. It's been taxed year by year with that have been permissible? No, and that's the second wrinkle, so to speak. The MRT is the inverse of its predecessors in the statutes. All of the predecessors, like the foreign personal holding company provisions, as well as subpart F, focus on categories of income. There is susceptible to being reassigned into the corporate form. Congress has never reached so far as to tax shareholders of foreign corporations on the active business income of those corporations. Why is that different analytically? I mean, this was all part of a big change from a worldwide tax system to a territorial tax system, and this is one piece of that. But I guess I'm not sure why which kind of income is that issue matters for the ultimate analysis of whether the attribution is permissible. Because all of these attribution schemes, going back to the very beginning, have focused on effectively the fraudulent or improper available of the corporate form to avoid income. And they've always done that historically by focusing on particular categories of income that are susceptible to that type of abuse. Congress took that to the max as it amended subpart F over the years to capture more and more types of that sort of income avoidance. What's interesting is that subpart F says you've captured the field, now let's get everything else, and that everything else is the active business income that's attributable solely to the foreign corporations, only legitimate business activities overseas. And so the shareholder in a foreign corporation stands in no different position with respect to that income than a shareholder and say Microsoft or any other corporation. This isn't the type of income that that shareholder would in the ordinary course of affairs or as a matter of reality, be able to shift around into a corporate form and thereby avoid receiving it themselves. I also want to address just the difficulties that the government's interpretation would raise with respect to the current tax code. As I noted, the tax code already reaches the full extent of Congress's authority under the 16th Amendment. And if the government is right there for that certain novel categories of income, certain novel categories of what a K24 has been regarded as unrealized income or unrealized appreciation were subject to taxation under the 16th Amendment, then those would already be subject to taxation under existing law. Well, I ask you a question about your argument before you go on with the governments. So if we agree with you that the 16th Amendment's use of income requires realization and that the MRT does not meet the realization requirement, those are two I think different steps of your analysis. It seems to me that all we've done is demonstrate that the 16th Amendment doesn't justify the MRT. Don't you still have to demonstrate that the MRT is a direct tax in order to establish that the Constitution has been violated? Well, if the MRT is not a tax on income, then I think it stands to reason that it would be a tax on the ownership of shares because otherwise the government makes another argument in their brief. For example, they offer that it could be an excise tax. So I guess my point is just any indirect tax I would think just has to be uniform under the Constitution. So it seems as though it's your burden regardless of this issue about realization to establish that this tax is a direct tax in order to sustain your constitutional argument. Am I wrong about that? We alleged below that it was a direct tax. The government filed a motion to dismiss. It argued that it was in fact a tax on income. It did not dispute. So I appreciate that people haven't argued this. Would we then send it back to the Ninth Circuit to determine this issue of whether or not it's a direct tax? Or is it your argument that we can sustain its constitutionality just because we haven't had briefing on this particular aspect of it? Well, I think what the Court could do is answer the question presented. As to whether or not there would be anything left for remand, I think it's at the Court's discretion as to whether it wishes to reach the government's excise tax argument. So far as that argument is concerned, again, the bear tax of the statute operates based solely on ownership of a particular piece of property on a particular date and takes no account of any type of business operations of the people whom it's taxing. That is the sort of tax that flint, which I think is the high water map mark of the Court's excise tax jurisprudence indicates is in fact a tax on property and cannot be sustained as an excise tax. So I think the Court could very easily make short work of that argument. Going to the government's position, is that argument within the question presented? No, Your Honor. Was it preserved? No, Your Honor. It was raised for the first time before this Court. So far as the government's position is concerned, I mean, just think about, for example, if someone has a contract to sell widgets to a third party in a future year. If the price of widgets goes down so that they're less expensive to manufacture or acquire, then necessarily that person has received an economic gain under the government's position that would be taxable. Thank you. Thank you, Councilor Justice Thomas. Would your case be any different, or your argument be any stronger if you, we were talking about real estate rather than owning stocks and a corporation on interest and a corporation? No, Your Honor. Pretty much all of the Court's 16th Amendment cases over the course of the last century have concerned personal property in the form of investments. I think it's well established at this time that taxes on personal property. Well, actually, what I'm more interested in is not necessarily distinctions between real and personal property, but rather being having an investment in a corporate form or a partnership where you can actually, there is an argument that the income had been realized by the corporation or income had been realized as you've heard this morning by the partnership and whether or not that should then be attributed to those who invested in those, in those companies. Whereas in real estate, unless there is a transaction sale or lease or something, there's no taxable transaction. So would there be a difference between a stake in a corporation or partnership as opposed to real estate or personal other personal property? I don't think so. I mean, the Court has applied the same principles across the sweep of its 16th Amendment cases. Pretty much all of the early ones applying the principle that we put forward did involve corporate investments and different types of corporate reorganizations that the government argued resulted in income to the shareholders. But the Court applied the same principles in cases like, I'm sorry, Brun, for example, that involved real property and recognized that in that instance, there equally had to be realization. Likewise in Blatt, the Court reached the opposite results in Brun with, again, with respect to an improvement made to real properties. So we don't think the constitutional principles are any different. I think the only difference, perhaps, with respect to corporate shares is that the government might have an argument that there is some type of constructive realization under the statute that imposes the tax. But isn't that just based on the questions, this more than that seem to be a vulnerability that you would not have with real property? For instance, I don't think it's a vulnerability given the general principle that's required and given the nature of this tax. I think it would be a more difficult case if this tax were structured in an entirely different fashion that didn't operate in the way that it does, but that's obviously a hypothetical that's not before the Court. Justice Alito? One last question. Does your theory put at risk limited liability companies, closely health corporations, limited partnership corporations? I mean, there's all sorts of corporate forms that are there. Use your definition, I think, would affect the government's ability to tax those individual partners, no? Those individual shareholders? No, you're honor. Why not? We don't think that those provisions present any constitutional difficulty whatsoever. Again, a corporation is different. The Court's cases have recognized that. I don't know why, meaning whether it's limited liability or closely health, it's still a corporation. Well, first of all, I mean, you've got distinguishing a corporation from partnership. I mean, again, you have the doctrine of corporate personhood that the Court has long understood, does make a difference in these circumstances. But so far as other types of corporations, like S. Corporations, are concerned, there is an election that is made by all of the shareholders to those corporations to allow pass through taxation. If somebody wants to come to the government and say, I am earning income and that's how I've organized my business and I'm operating it, I think the government can accept that as a concession. We're going back to whether attribution is legal. Thank you. I don't think it's a question of attribution, Your Honor. I think it's a question of a concession by the shareholders. Well, no, that's exactly the point, which is why should they get to choose and not the government, where to attribute the income? Thank you, Council. Justice Kagan. So at the risk of a little bit repeating some of the discussion, it seems to me that there are four principles, there may be others, but there are four principle kinds of taxation that Congress has repeatedly counterenced and that this Court certainly has done nothing to get in the way of that you have to distinguish here. And I just want to make sure I understand your distinctions and whether there's a single distinction that sort of covers all of these or whether each one has a different explanation. So here on my four, it's sub part F, it's S corporations, it's partnerships, and it's taxing on a cruel basis. So give me why it is that you think we can decide for you without putting any of those kinds of very established taxation schemes at risk. At a 10,000 foot level, Your Honor, they all huge of the realization line as it's been developed in the Court's cases and by historical precedent. See, I would have thought that none of them huge of the realization line. I think that, I mean, that's why this is my question, I guess. Again, sub part F uses that familiar mechanism of simply attributing income to the person who earned it, even if they've directed it somewhere else, and taxes of that nature have long been justified on that basis. As corporations, again, are by election of the shareholders. If they can see that this is in fact their income and that's how they're operating their business, I don't think that the government would have any basis not to take them out their word. Should the government choose to do so. So far as partnerships are concerned, again, there's no separate person that sits above the shareholders of a, or I'm sorry, the partners of a partnership. And those have always been treated differently going back to, I mean, gosh, going back to the Dartmouth College case and where it wasn't even new at that point. But with respect to income, going back to Gibbons versus Mahan, which recognized it as well established principle at that point, that corporations are different in that respect from partnerships. Indeed, that was the basis on which McCommer rejected the same argument. And then finally, with respect to a cruel, the court already addressed that issue in the safety car heating and lighting case where it held that standard 16th Amendment realization principles, and it cited among others McCommer, applied to the accrual method of counting. So whatever question there might be about that methodology and its constitutional status, I think at this point that's been long established and is water under the bridge. And can I go back to Justice Thomas' question, which is your own definition of realization? And I'm just going to give you Macombers and tell me if you agree with it or disagree with it, or think it needs to be modified. Macombers said that which proceeds from the property is severed from the capital is received or drawn by the recipient that is the taxpayer for his separate use. Is that your definition, too? I think subsequent case law has recognized that the separation concept may be, doesn't necessarily apply in every circumstance, although it does apply in the circumstance of distinguishing shareholders versus corporations. Yeah, so for example, in Brune, we've basically ignored this separation requirement, correct? The Court said that it was applicable in the corporate context, but not necessarily in other contexts. In that example, for example, an improvement that was made to land that was not severable from the land. And that definition really wouldn't be very good to explain subpart F, is that correct, too? Well, I think what the Court has recognized in subsequent cases is that it's really the concept of realization as opposed to, say, actual receipt that is important. I mean, look, it's good. What you're saying is basically we've left Macomber behind. No. I think the Court's case is through Gwenshaugh Glass, you know, up through, as recently as, say, Indianapolis Power and Lighter Banks, recognized that there is something more that is needed that is needed that a mere economic gain. No, no, no, I wasn't suggesting that we've left entirely behind any concept of realization. I mean, that's a different question. But that we've left the Macomber definition of realization behind. I don't think, I think that Macomber's holding in that respect remains good law. I don't think that it's been left behind. Macomber goes on to recognize, for example, regarding corporations, that there may be appropriate circumstances for the law to look behind the corporate form to ascertain the true right in actions of the shareholder with respect to income. And so I think, I think, Macomber taking as a whole does recognize this principle, and it uses the best language that occurred to the judges in the context of the case to express that, look, in most cases it's going to be receipt, but in other cases something else may well qualify. Justice Gorsuch? I think the argument we've kind of heard from the other side involves, okay, if there is a realization requirement it's met here because the corporation realized the income. And then it just becomes a question of attribution of that realized income. And Congress has a free hand there, and the 16th Amendment says nothing, your response. My response is that income is, I mean the court has always looked at questions of income from the point of view of the shareholder. If you point to a 16th Amendment case, or a case involving gross income under the tax code, the court has always looked at the individual circumstances of the shareholder to ascertain whether or not that shareholder has actually realized again. And so for example, Indianapolis power in late 1990 case, the court looked specifically at the facts regarding certain types of customer security deposits. It didn't look at it as some sort of abstract inquiry where things might be assigned and so forth. It sought to address the question as to whether or not that shareholder income. The Comer did exactly the same thing with respect to shareholders of corporations. I think the court would certainly have to reverse the Comer, which the government has not asked it to do, to get beyond the idea that, you know, just some free floating notion of income is sufficient for the government to point at something in tax it to a particular individual as their income. You're saying, if I can put a fine point on it, if I understand it, the question is whether it's income to the taxpayer who's being taxed. Yes, Your Honor. And then I'd like you to go back to the discussion you had with Justice Jackson, and I understand your point that the excise argument has been forfitted or perhaps even waved in this case. Just watch your thoughts on it generally as an original matter. You know, we have a Hilton case from quite a long time ago. Carriages were thought perhaps not to be a direct tax. Could the government as an original matter call this an excise tax? I think the answer resoundingly would be no. The whole point of the direct tax clauses was to make it difficult for Congress to levy these types of taxes while still leaving that authority available at, you know, in times of emergency. And so far as taxes on personal property and things like investments were concerned, that was addressed extensively during the ratification debates for the Constitution. And it was really one of the primary arguments of the anti-federalist against ratification of the Constitution was that permitting Congress to levy direct taxes would simply be a step too far and would allow Congress to destroy the states and reach all the property that was known to all families across the country. So I mean that was one of the foremost concerns and the way that the framers address that was to render these types of taxes specifically subject to apportionment. I mean this was addressed and discussed at the Connecticut, the Pennsylvania and the Virginia ratifying convention by James Madison, by Chief Justice Marshall. It was a central concern at the time and as a matter of original meaning this sort of investment, this sort of property is something that necessarily was subject taxes on it was subject to apportionment. Sorry, one last question returning to my first one apologies to shift you about. If the court were to hold that the only realization requirement is some realization somewhere along the chain by a corporation and a seat to the taxpayer will be the consequences of a holding like that. The consequences would be to open the door to taxation of practically everything. I mean all property that a person owns is the fruit of income at some point in time whether it might be income that they've received long in the past. I mean ultimately all property that we have is made up of flows of income that have then been invested. And so if all that was necessary was some level of income then Congress could simply point at anything and say well at some point this was income. At some person at some level and therefore can be subject to taxation without apportionment. I suppose we could and maybe would have to draw lines as to how far back in time one can go in assessing that chain of realization. That's right and I don't really understand how the court would do that based on the constitutional text. The government's definition of income is simply the increase in a person's wealth between two points in time. Well if the time is set at persons birth or many decades in the past that could reach some are potentially all of their property and I don't really understand what the limiting principle would be. Thank you. Justice Cavill? In your brief to distinguish subpart F and S-corps and partnerships use the phrase constructive realization and I would ask if you could define what you mean by constructive realization. Sure. We use constructive realization as a blanket term to encompass such concepts as constructive realization and assignment of income. It refers to the general principle espoused in cases like banks and like horse that income should be taxed to the person who earns it and enjoys its benefits. And Congress when it has enacted cases relying on that sort of doctrine has approached it in that nature. In other words assessing whether the in-cubbid issue is something that in the ordinary course of affairs could be attributed to the person to the particular taxpayer issue regarding say categories of income or abuse of the corporate form and so forth. Okay. Thank you. Justice Barrett? Except there are situations you know there are cases in which state law said that partners couldn't have control over the property or pull it out unilaterally in which we've said it's okay for that income to be attributed to the partner. And I understand that partnerships are a different kind of form because as an ownership matter the partners would own it equally. But I guess I don't think our cases have established control as the linchpin. Can you kind of point me in the right direction if you disagree? With respect to partnerships if you accept the view that simply a partnership's income is directly the income of its partners then restrictions on the use to which partnerships may put their income such as distribution, distributing it in certain circumstances is no different from a state law preventing an individual from using their own income in some particular fashion spending it on a particular item that they might wish to purchase. But I guess I just mean that control you know when we're thinking about how to define income I'm just questioning whether control can really be the word to use as opposed to just some sort of distinction between capital and income you know the you know seed and its fruit. Right I mean it seems to me that control might go a little bit too far. I don't well I control has always been an essential element of income attribution statutes because the general idea has to be that the taxpayer issue has the ability to redirect that stream of income somewhere else and thereby avoided and avoid taxes on it. Why isn't that a due process issue I guess this goes back to just a score such as point about what would the consequences be and we would have to draw lines you said that means that something that was earned income anywhere along the line ultimately lands in you know my bank account. And then it can be considered income to me but is that a 16th amendment problem or is that a due process problem where we have to draw lines about when it's fair to attribute one person's income to someone else. I think it can raise issues under both but the court has traditionally considered it to be a 16th amendment issue not only in McCommer but in trust cases like Corlis where again the court considered a question of did the taxpayer have control over the over the extreme of income that he had in that case redirected into a trust for the benefit of his close family members and I mean that's the way the court has always analyzed it from the point of view of the taxpayer and whether that taxpayer has actually received income or not. And last question is about sub part F I just want to be sure that I understand your position you say that income is about whether the person has the ability to direct the income stream am I accurately repeating what you said when it's about attribution. I think that is a necessary part of it yes. It's a necessary part of it and you've also said that sub part F corporations in general of which you know Chris and craft meets the definition sub part F corporations and sub part F do not pose the same 16th amendment problem that you see here right. We think that we do you mean with respect to the application of sub part F aside from the MRT yes yes. Okay and is that because kind of going back to your point about control is the distinction then between MRT and the rest of sub part F this idea that in the other context the shareholders have some more ability to direct the stream. Well I think it's two things it's not that they have more ability it's that they have any ability because again under the terms of the statute the MRT doesn't take account as to whether or not a shareholder exercise control while that stream of income was coming in the door. It only focuses on ownership in 2017 but also that degree of control has also been has also been combined historically with a question of whether or not the types of income being tax are those that are susceptible to that sort of abuse such that attribution is appropriate. You mean so there's some sort of like fraud overlay to this like is this really functioning as a tax shelter as Justice Kagan was pointing out. That's how Congress addressed it in the very first that's a constitutional requirement. I think Congress certainly viewed it that way in the very first income tax statute that provision regarding fraudulent available of corporations to avoid income was specifically limited specifically by many of the chief proponents of the 16th amendment to avoid the precise question that we're addressing to the precise defect that we're addressing today. Their view is that you could not ordinarily attribute corporate income to shareholders but could do so only in the in sense where there was some sort of fraudulent abuse of a corporation to avoid income and that's Justice Jackson. Yes. I'm interested in your conversation with Justice Gorsuch about the sort of original meaning of the direct tax clause and I'm trying to understand whether it's your position that as an original matter the data is not a legal term. The direct tax clause was interpreted to include income and all sorts of things or was it narrow. I had thought originally as we said in the Hilton case that it was pretty narrowly focused on capitations and taxes on land. Am I wrong about that? The Hilton case had three serial and opinions two of them viewed it as a consumption tax regarding conveyance of persons. The third of them by Justice Eridel adopted the view that well if it's difficult to apportion something then it should not be subject to apportion. What about Justice Patterson's explanation that this was a pretty narrow clause and that it was designed to protect southern states and slavery from federal interference that that was really what was going on here and therefore when you're looking at direct taxes you're talking about direct taxes as opposed to indirect you're talking about certain kinds of things and that it's not necessarily others income and that sort of thing. I think as a matter of original meeting that's incorrect but I would note in the context of that opinion it was dicta certainly didn't stand for the position of the court. Did the court until McComber held that income was direct? Not with respect so much to income. Sorry Pollock is what I'm saying. Pollock. I mean I think the case that addressed this issue prior to Pollock was springer which did adopt the narrower interpretation of the direct tax clauses. So up until Pollock which was addressed by the 16th amendment we had a very narrow conception of direct tax. For a 20 year period there was subsequent to that as I said pretty much all of the court's 16th amendment cases over the past century have concerned taxes on personal property in the form of investment. So I think the court would really have to up and it's jurisprudence if it were decided this late date that the direct tax clauses ought to be given some other interpretation. All right let me ask you about realization going back to Justice Thomas Thomas's very first question and what the definition is. I guess I'm trying to understand whether you think Congress has the authority to define what constitutes realization or not. Is that something you are giving to the court through constitutional interpretation or who gets to decide what the realization line is? Well I think it's an initial matter yes I mean Congress does get deference on that but it actually has to try to do that which is not what it did in this case. I mean again the tax here on its face turns on ownership of property on a particular date and it doesn't take into account. No I guess I don't understand your answer if Congress could we find that there is realization in this case that there is realization like who makes the definition of realization. Could the court determine that there's realization here under a definition that we are appreciating. I mean the government has never argued that there is realization in this case the government has simply presented its alternate argument that realization is not required. So I think it would be unusual for the court to reach out and decide a question of that import without the government actually having the question. Are you asking us to maybe I'm let me put it this way you're asking us to adopt a particular definition of realization under which your client wins in this case. If we disagree with you about what realization means do you lose. We're simply asking the court to adopt to reaffirm the definition that it's applied since nearly the dawn of the 16th Amendment. So I don't think we're asking. Even though the 16th Amendment doesn't have realization in it you're saying that the implied realization requirement has a definition that you're asking the court to adopt. We're simply asking the court to say that realization is necessary as that concept has been espoused in the court's decisions over the course of a century. Thank you. Thank you council. General Prielagar. Mr. Chief Justice and may it please the court. The MRT is firmly grounded in the 16th Amendment's text and history. The amendment allows Congress to impose taxes on incomes. That phrase had a well established meaning drawn from numerous pre ratification income taxes that Congress enacted before this court's decision in public. Several of those taxes were like the MRT in that they taxed shareholders on undistributed corporate earnings including the income taxes in 1864, 1865, 1867 and 1870. And this court upheld Congress's power to impose those taxes in Hubbard. The 16th Amendment's drafters therefore would have understood taxes on incomes to include taxes like the MRT. That's confirmed by the very first income tax Congress enacted under the 16th Amendment. That 1913 law taxed certain shareholders on their pro-Rotta shares of undistributed corporate earnings. And the trend of pass-through taxation has continued throughout the next century from taxes on partners to S corporation shareholders to foreign corporation shareholders under subpart F. Against all that history petitioners stake their case on McComber. But the court has limited McComber to taxes on particular stock dividends that are not an issue here. If the court now extended McComber's discussion to invalidate all taxes on undistributed business earnings, it would cause a sea change in the operation of the tax code and cost several trillions of dollars in lost tax revenue. Petitioners say that every other provision of the tax code could be saved under a theory of constructive realization, but they don't provide a comprehensive definition of that term or explain why it would rescue every provision except the MRT. My friend today said it's a blanket term that's defined by the circumstances where you can say that constructive realization occurred, but that's simply circular. And by conceding constructive realization, they've acknowledged Congress's power to draw reasonable lines about what counts as income and who can be taxed on it, which is exactly what Congress did in the MRT. Finally, the court doesn't actually need to resolve any fundamental questions in this case about whether the 16th Amendment requires realization. The 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 just as it has done in any number of pass-through taxes throughout our nation's history. The court could say only that and affirm. I welcome the court's questions. When you say realized, it has been realized. What do you mean by that? I think that this is a paradigmatic case of realization, Justice Thomas, insofar as the thing that's being taxed, the underlying tax space for the MRT are the earnings that actually were came into the corporation, the foreign corporations coffers. So the tax space here was the substantial ordinary business income that the foreign corporation generated through its operations in the foreign country and that has to date been subject to tax deferral. That income has never been taxed at the corporate or entity level. Instead, what Congress did in the MRT is enact a pass-through tax that attributed the liability on that actual income that was realized to the U.S. shareholders. Outside of that context of the MRT, do you think that the just the increase in value of real property could be a taxable event? So I think that that raises a more difficult question. This presses on the idea of whether you can characterize gains in the form of appreciation as income that's taxable. I think that there's a strong argument that that falls within a definition of income that looks to whether there have been economic gains over time. And it's important to note that Congress has at various time imposed taxes on that kind of appreciation. Some of the Civil War era income tax laws that I pointed to at the beginning of my introduction had appreciation based taxation for certain property like livestock. And still today there are really important provisions of the tax code that effectively tax individuals on appreciation. For example, the market to market taxes that my friend has conceded are constitutional. Treat a taxpayer as though there was a realizable event at the end of the tax year for certain futures contracts, for certain life insurance holding securities dealers holding that mark the amount of the value to the market price even in the absence of any kind of sale. So I think that there is strong support for the idea that you can tax at least certain forms of appreciation. Well, if you're there's strong support. I mean, you've buried Macomber. I mean, and that takes away a lot of the strong support for a pretty basic proposition that the government can't tax as income to the property owner, the appreciation and value of the property. So, I mean, what is left to defend that proposition without Macomber? Well, Mr. Chief Justice, I disagree with the suggestion that Macomber involved the tax on appreciation, the court there instead of the government. Well, I mean, I know your argument that it's limited to stock dividends, but it also has been recognized as the, at least in the beginning before certainly narrowed over time, as standing for the proposition that the government cannot tax the appreciation in property. And you've taken that off the board in your presentation today. So I wonder if you can give us a little more view or assurance on what's left to defend that proposition once you've stabbed Macomber. Well, Mr. Chief Justice, I want to say that we're invoking this court's own precedent about Macomber's scope and reach. It's the court itself that said that Macomber is limited to the particular type of stock dividend at issue there. And that type of stock dividend didn't actually represent any kind of economic gain to the taxpayer. In other words, in Macomber, the taxpayer received additional shares in the company, but it was a stock split, and her shares were diluted in a commensored amount so that the court said that from the taxpayer's perspective, there was no difference in her ownership stake in the company both before and after the stock split. If you wanted to, if you wanted to defend the proposition that the government cannot tax the appreciation in property without any other event of realization, what would you cite given the fact that Macomber is not on the table? Well, the thing that I would cite if the court were looking for a limiting principle that takes appreciation off the table, at least in certain circumstances, would be history. I do think that there is a different historical foundation for that type of tax compared to what we have here, which is a pass-through tax on actually realized corporate income. So I think that the court could reserve judgment on whether there might be principled lines based on the history of that type of tax scheme to suggest that it wouldn't be what the framers of the 16th Amendment had in mind. But again, I do want to emphasize the fundamental distinction between a tax base that focuses on actually realized income and then attributes it to a different taxpayer, which is a prevalent feature of the tax code, and which involves many of the provisions my friend who may have been receiving our constitutional. One of your arguments that you press most strongly, and certainly it has resonated a lot in the coverage of this case, is that the adoption of the petitioners' arguments would have far-reaching consequences, isn't that correct? That's correct. So do you think it is fair then to explore what the consequences of your argument would be? I am happy to talk about the consequences of our argument, although I want to say at the outset, I think that the court could resolve this case quite narrowly. Now, the Ninth Circuit held that the Supreme Court has made clear that realization of income is not a constitutional requirement, but is instead founded on administrative convenience. Is that correct? The Ninth Circuit was referring to this Court's decision and cottage savings, where the court did say that realization requirements are founded on administrative. Well, not the question whether that's a correct interpretation of our prior precedence. Is it your position, as I understand you, to argue in your brief that realization is not required? The 16th Amendment simply permits the taxation of income, whether realized or not. We certainly think that there is no bright-line realization rule or requirement under the 16th Amendment, and that Congress is permitted to tax certain forms of unrealized gains. I don't want to suggest that the Court here needs to set out to define income for all purposes, or to announce any bright-line rules about realization. I think it's sufficient here for the Court to say that you have before you a particular type of tax on undistributed corporate earnings that were actually realized, and to look at the history and tradition that demonstrates that that fits well within Congress. Well, what I'm trying to do is to understand the breadth of your argument, just as we need to understand the consequences of petitioner's argument. So I take it what you've said is that realization is not a requirement. You say that explicitly in your brief. We think there long to say it always is a requirement. We don't have to agree with you on that for you to prevail. I think you've said in your opening as well, because even assuming or leading open whether realization is a constitutional requirement, there was realized income here to the entity, and then it's attributed to the shareholders in a manner consistent with how Congress has done that, and this Court has allowed. That's correct Justice Kavanaugh. We think that here the constitutional question is actually quite easy, and it doesn't require the Court to consider some of the foundational questions about the meaning of the 16th Amendment in other contexts, because here we have paradigmatic realized income at the entity level, and this functions just like the past through taxes on partnerships, the taxes on other types of corporate shareholders as corporation shareholders, and particularly in the context of foreign corporations, the tax under subpart F of which the MRT is just a part. So the answer is that there need not be realization by the taxpayer. It's sufficient if there's realization by some other entity. Correct? Under the 16th Amendment, that's correct, although there is a due process question in that context about the limits on Congress's ability to attribute income that was realized by one taxpayer to another taxpayer. All right. That the due process question, and that's a question of substantive due process. That's how this Court has analyzed it in cases like Burnett versus Wells, where it was looking at the limits on Congress's ability to make that kind of attribution decision. And anything under substantive due process involving an economic regulation like this, the only thing that would need to be shown is that it was rational for Congress to do what it did. Yes, the Court has looked at whether Congress has made an arbitrary choice, whether it's acted unresonably, but I think that the Court's precedence revealed that the Court really has looked at whether the taxpayer who owes the tax liability has a relationship to the underlying. Well, if it's a rational basis review, then that's not much, right? So we could say the 30-year requirement here is a substantive due process issue, so we don't have to grapple with it here. But to be honest, we would be saying unless you can show it was irrational, that would be sufficient. Well, I want to be precise about the doctrine here. You mentioned the 30-year look back period. I think that that actually has to do with retroactivity principles under the due process clause, and I think that that's somewhat different than the attribution question that we had been discussing about whether Congress can fairly attribute tax liability to one person for income that was earned at the entity level. I recognize that maybe there are some complicated questions out there that could exist in this space, but the important point is that here we have an enormous amount of history and tradition on our side to support the idea that this particular attribution decision falls well with the constitutional balance. I'm going to talk about this case, and ultimately we have to talk about this case, but I just want to understand how far your argument goes. How far does it logically go? So under your argument, does this 16th amendment allow the taxation? It allows the taxation of income, and you define income as an increase in an economic gain between two points in time. So let's say that somebody graduates from school and starts up a little business in his garage, and 20 years later, 30 years later, the person is a billionaire. Can Congress, under your argument, can Congress tax all of that on the ground that is income? So if that has already been taxed as I imagine it would through annual income taxes, then it sounds to me like the hypothetical is actually functioning as a property tax insofar as looking at the total value of the asset. The appreciation in stock value over 20 or 30 years could Congress say we want to reach back and tax all of that. So I think that's a hard between two periods of time. Yes, I think that's a harder question, and here's why. I do think that that would fit within an ordinary conception of income as covering economic gain between two points of time and focusing on the increment of gain, but we don't have the same tradition to support Congress levying income taxes in that manner. Now the court might conclude, if the court. So I'm starting to interrupt, but on this point in your brief at least, and I understand your argument is a little bit different here today, but in your brief at least, you confronted the question whether Congress could tax millions of Americans who hold small amounts of stock in their retirement investment accounts. And you say yes, and you point to the 1864 Civil War laws. And then you say, but that would be administratively unwarkable. So as I understood, at least in your brief, the answer to Justice Alito's question I think is yes, that could happen. So I think this is a really important point, Justice Gorsuch, and let me clarify that that statement in the brief was referring to the idea of pass-through taxation on all large or all corporate shareholders. That would function like the MRT, the basis for the tax would be the corporations earnings, and then the shareholders would be responsible for a pro-rata share of the corporations earnings. That's a different time. I'm not sure that's clear. It seemed to me at least that the argument was that you were dealing with was the change in value over time. And stock prices increase. Could you tax that unreal, otherwise we consider unrealized gain treat that as a realized gain. And the answer is yes, because they did that in 1864, and because if there's any limitation it has to do with administrative for capability. In 1864, they were doing a pass-through tax on the corporate earnings, and so the calculation of the tax was not based on the appreciation in the shares, but rather was based on what the corporation had actually earned as its income. And I don't want to suggest that a tax on appreciation in stock would necessarily be invalid, as I had mentioned to Justice Thomas. There are provisions on the books today that my friends can see it are constitutional. But let me say that to the extent that this question and Justice Alito's question is pressing on the idea that maybe this kind of appreciation should just be beyond the reach of Congress's taxing pattern. No, I'm just asking what the limits of your argument are, and it seems to me there are none. Well, I certainly think that Congress has broad taxing power, and what I was about to say is that here the relevant question is not whether Congress has the power to tax in the first place, the court has said Congress has plenary power. It can tax people just for existing. The question is whether that's a direct tax that has to be a portion, or whether it's subject to the rule of uniformity as an indirect tax. And if I might address what I now perceive to be kind of a backup argument, so the first argument, brief argument is no realization requirement. Today I'm hearing, well, even if there is realization, there was somewhere in the chain realization, and then Congress can attribute it freely as it wishes. And I understand that argument, but I'm not sure how we fit it with our precedent. If we ditch McComber, I understand your argument. But let's assume McComber isn't completely misguided. Okay, and I think those were your words, misguided. I look at Phallus, I look at Brune, I look at Hearst, and it seems to me at least as I read them that they're all trying to work within McComber's framework. And talking about, is it fair to say that there was realization to the taxpayer, not realization somewhere back in the chain of history, an income realized by the corporation or a parent or a subsidiary or whomever. And just as a matter of precedent now I'm talking. What's mistaken about that? So in those subsequent cases, I wouldn't say that the court was mistaken there, it did happen to find realization on the facts of those particular cases. For the taxpayer, right? For the taxpayer, of course they involved different types of tax, none of those cases involved a pass-through tax. And so I think looking at what is maybe the closest precedent to the situation that we have here, I point to the court's decision in Hiner versus Mellon, which considered the propriety of attacks on partners, even in a circumstance where they couldn't actually access the partnership income to the state law prohibited a distribution to them. And of course that was perfectly fine. You haven't made an argument that there was realization to this taxpayer though, have you? But the whole premise of the property tax. Just answer that, before you launch off, you haven't made that argument, right? We don't think that the tax's constitutionality depends on whether these taxpayers get a distribution because this is a pass-through tax, just like the other context I've been mentioning. And I think that there are kind of ways to think that out. I'll take that as a yes. Well, I was about to say there are two ways to think about it. One is to say that there was realized income at the entity level and Congress can permissibly attribute that to the taxpayer. Another way to look at it would be to say that the taxpayer has a close enough relationship to that underlying income for Congress to permissibly treat it as income to the taxpayer. But we don't have that argument before us. What do we do about that? That argument hasn't been made. Well, we certainly intended to make that argument and I understand our briefing to focus on both aspects of this issue. We have of course joined issue with petitioners on whether the 16th Amendment requires realization because that is a- maybe it requires realization, but not to the taxpayer. The one argument that I'm missing is that there was realization here to the taxpayer. That's just not even in the briefs. It's not an argument today. What do I do about that? Well, I think we did. If you think there is realization to this taxpayer, why didn't- why didn't- why didn't she make that argument? We are not suggesting that there's anything like strict realization in the sense of the taxpayer having received something in hand. But I don't even understand petitioners now to be saying that's what's required because they conceived that they need not- Oh, of course not. In our cases in in in in brune and horse to say that there can be something like a constructive realization of a partnership situation or a fraud situation or an S corporation situation. We've been clear about that that that there's some enjoyment that the taxpayer has over that money, some control. He may have signed it elsewhere. He may choose to keep it in the escort whatever, but he controls it. And so there's some realization under McComber's framework that's enough. But that argument that this taxpayer had that kind of enjoyment isn't in the briefs before us. And I just wonder what do I do about that? Well, I think we did make that argument because we made the point that to the extent the court goes down the road of recognizing some theory of constructive realization, then the MRT would fit within that same framework because petitioners haven't identified any actual distinction between how those other tax contacts operate and how the MRT operates. Let's let's just say I don't see that argument. Then what do you want me to do? Am I supposed to vacate and remand if they for consideration of that question? Is it waived? What would you have me do? I certainly think that in our brief we argued that here the taxpayer can properly be held accountable for the corporations income and that the court can say that. I got that argument general. I got the argument that either there's no realization or as a backup there's realization and fair attribution. But if I'm working within this court's precedence, if I don't consider them wholly misguided, if I'm not willing to overturn 100 years or the precedent what you're asking us to do. And the question is is it fair to say this this taxpayer constructively or actually realize this income? Should I vacate and remand? No, you should affirm because here we made the argument that there is the same level of control and exactly the same relationship as in subpart F. So we did make this argument just a score such we made the point that if the court is focused on things like control or influence that there is no relevant distinction with subpart F because this is taxing and precisely the same way as subpart F operate. And general, what do you think is the significance of petitioner's concession that subpart F is constitutional to your point? I think that that is an incredibly significant concession here because it demonstrates that even if the court were to apply a lens of control or influence, I think the right word to use would be relationship to the income, petitioners have acknowledged that 10% US shareholders have the requisite level of relationship in order to properly have income attributed to them. Now my friend suggested that there is some fundamental difference with subpart F because it taxes different types of income. I think he said it's income where you can interpose the corporate form. I don't understand that distinction because of course the 16th Amendment says that Congress contacts all income from whatever source derived. So the 16th Amendment's text by its own terms makes clear that the different forms of income being taxed don't make a relevant constitutional difference. And even if you look at it as a factual matter, my friend's argument doesn't withstand scrutiny because he suggested that for example, all of this income could have been earned by the taxpayer himself, but that doesn't explain many important features of subpart F like ensuring risks outside the country of incorporation for the CFC or doing business in countries that are subject to US sanctions. Those are parts of subpart F income and I don't think that there is a relevant distinction with respect to whether it could be properly attributed to the taxpayer. Just a score such said you were asking us to overrule 100 years of our precedent. Sounds bad, are you? I am not asking the court to overrule any precedent in this case. I'm asking the court to follow its precedent that postates Macommer and makes clear that the discussion in that case was limited to the particular type of stock dividend issue there. I recognize that there is language in Macommer that seemed to have broader sweep, but this court itself has already recognized that that is not the right way to read the language. General, if I might, though, I mean, in Macommer it said realization, you say that's misguided. In Fellas, we said that we were following, applying the test laid down in Macommer. In Brune, we said that it was following Macommer's understanding of income. And in horse, it said that we direct, it said much the same thing. I'm not going to bother with the quote. But in each of those cases at least, it purported to be faithfully following Macommer. Justice, what is such an excuse? You just disagree with that, I guess. I disagree with that reading of those cases because I think if you look at each of the cases you mentioned, the court defined realization on the particular facts there, but using different standards than Macommer itself had articulated. Take, for example, Brune. That was a case where I think you said the court was said it was faithfully applying its interpretation of income, but the court in Brune specifically disavowed the aspect of Macommer that said you have to be able to separate the economic gain from the underlying property. Certainly, it talked about control, but it spoke of applying Macommer. Now, maybe you think it was deluding itself, but that's how the court perceived what it was doing. Shouldn't that count for something? But look at the Court statements in Griffiths. There, the court said that Macommer's theoretical bases had been undermined, that it had, quote, in effect, been limited to the particular type of stock dividend at issue there, and that it didn't have controlling weight even with respect to other types of stock dividends, let alone other types of economic gain. So what do you understand to be the current state of our precedent? I mean, at a certain point you said, well, Macommer was confronting something that stock dividend had no economic consequence whatsoever. And that was true, and that could have been, I mean, Macommer could have been decided in a paragraph, saying that, but that's not what the court did. Then, as you say, there are many cases following Macommer, which basically leave Macommer's own theory of realization in the dust. But what do you, what do you take to be the current state of our precedent that we need to pay attention to? I think that if this Court had before it another stock dividend case that involved an economically substanceless split, then Macommer would control, that's what Griffiths said, Macommer's limited to that particular type of stock dividend. But the court itself in any number of follow-on cases had said that Macommer doesn't have controlling weight outside that context. The court said in Glenshaugh Glass, the statements in Macommer were not intended to provide a touchstone for resolving all future gross income questions that could arise. So I think to the extent that that leaves Macommer is a bit of an island unto itself, that is just the natural effect of this Court subsequent precedent. And we're asking the court to follow that precedent. The precedent most on point for you, I think you said, is a hiner, right, the partnership case. That's right, I think it involved the most analogous tax to the MRC. Explain why that dictates the result here, or strongly supports the result here from your perspective, since that's the one you're relying on most. It strongly supports the result in this case, because in hiner the court confronted a situation where partners claimed they could not lawfully be taxed on partnership income on a pass-through basis, because state law operated to preclude any distributions of that partnership income to them. So by definition, under state law, the partners were not going to personally realize that income, state law prohibited the distribution. And the court rejected the claim from the partners and said that it didn't make a difference with respect to the permissibility of that pass-through tax from the partnership entity level to the partners themselves. Now, petitioners have suggested that partnerships can just be distinguished down the line, because they say that partnerships have a different legal status than corporations. But it's not like partnerships have an innate legal status. Instead, they're creatures of state law. And there are any number of states out there that define a partnership as distinct from the underlying partners themselves. We also have good case law that governs subpart F in the lower courts. This has been applied in numerous additional contacts involving pass-through taxation and corporations in particular. And it's not just the modern laws, just as Kavanaugh, it is all of the history here. For virtually the entirety of this nation's experience with an income tax, there have been laws on the book other than the brief period when Paulic governed, where Congress has taxed corporate income at the shareholder level. That is a classic pass-through tax, and it's how the MRT operates. I agree with that history. In your description of I was just isolating the case that's really kind of closest, I think, is Hiner. I just wanted you to spell that out. What about the fact? I'm sorry. Go ahead. I was just going to ask you, Hiner is closest on this pass-through point. What's your best federal case upholding a federal tax on appreciation? Or do you have one? So I don't have a case from this court that upholds a tax on appreciation. I think there are some lower court cases that have considered things like a cruel accounting or other situations. There are fewer taxes that reach appreciation. I think the pass-through mechanism is the more common one when we're thinking about gains that aren't realized to the taxpayer himself. But there are, I think, a variety of taxes out there and have been through history. It's a market to market when you are very high. Exactly. And it's really important to recognize the importance of being able to tax in that context. The situation that Congress confronted that prompted it to enact these market to market taxes is the fact that taxpayers can often manipulate realization events. So for example, they can enter into offsetting futures contracts that don't really have any economic substance to them, but allow the taxpayer to hold on to the one that has a gain, to defer taxation, maybe get favorable capital gains rates, and to sell the one that's a loss and thereby immediately have a taxable event. And Congress recognized that that was a loophole in the tax code that could enable this kind of abuse. So there are taxes like the market market one that tax based on appreciation, but it's fair to say that we would be doing something new if we accepted your argument that income is any kind of economic gain appreciation included. I appreciate the opportunity to clarify because we are not actually asking the court to define income that way. I think if there is a lesson to be drawn from a coma, it's that there's a real danger in trying to, as an abstract matter, define income for all purposes or to, you know, as Glenshaugh Glass said, to provide a touchstone for all future cases. In part, because our experience with the tax code is that taxpayers often latch onto those statements and use it as a basis to try to avoid taxation going forward. So I don't think that the court needs to approach this issue by adopting some global or universal definition of income. The internal revenue code itself doesn't define income, instead it says that income is all income from whatever sources realized and then gives some illustrative examples. I don't think my friends are offering the court a definition of income because they say income is realized gains or maybe some category of unrealized gains that you can say are constructively realized. I don't think it's necessary for the court to actually try to comprehensively define it here. Thank you, Council. I understood your answer to Justice Barrett to be the same as the answer that you gave me with respect to unrealized increase in value from one time to another time in real property that you didn't have any authority to support that. That's right. I'm not pointing to a case from this Court that I think would find that that's taxable. There's also nothing from this Court other than reading Macomber for all its worth that I think would necessarily rule that out. And when you just said that's the lesson of Macomber, you mean that's the lesson of Macomber's demise? Yes, exactly. Ultimately, that ultimately I think the Court recognized that those statements which were rendered as an abstract matter and opined on taxes that weren't directly presented there had untenable consequences and were also profoundly a historical. So I think there's a lot of wisdom in following the approach the Court articulated in Griffiths where the Court said we don't rule on the constitutionality of attacks until we find that Congress has actually laid that tax. I think the Court should take each tax as it comes for purposes of resolving these questions. Thank you. Justice Tomics. Justice Alito? General, I still want to understand the limits of your argument. I am quite concerned by the potential implications of petitioners' argument and you stress that in your brief. You say that if we rule in petitioners' favor, then large, important pieces of the tax code will also logically fall. And I think that's a fair argument. But I think it's also a fair argument to do the same thing with your position. And I want to understand the limits of your position. Now, coming in, I understood your position to be that realization is not required and that the 16th Amendment realization to the taxpayer is not required. And therefore, the 16th Amendment allows the taxation of income. And you seem to define income in your brief as economic gain between two points in time. You say it is that those well-established principles that distinguish income taxes from property taxes. So if that is correct, then what about the appreciation of holdings in securities by millions and millions of Americans, holdings in mutual funds over a period of time, without selling the shares in those mutual funds? Can those be taxed under the 16th Amendment? I think of Congress actually enacted a tax like that and it never has that we would likely defend it as an income tax. But you don't have to agree that that tax would be valid in order to uphold the MRT. So whether you think that- Well, I understand that. And in order to rule for petitioners, we don't have to say anything about subpart F or S corporations or partnerships or the accrual method of taxation. But your answer is that would probably, you at least go that far. That would probably be permissible under your interpretation of the 16th Amendment. I think it probably would, but I think the court could draw lines based on history. And if there truly were a widespread tax on all amount of appreciation for every taxpayer, that wouldn't look like anything Congress has done before. The court has sometimes used history like that to draw principled lines. Here we have exactly the opposite situation where Congress has enacted a tax that looks exactly like any number of pass-through taxes through history. So here I think history functions as a rule of inclusion with respect to the propriety of this tax. Now, as to the Chief Justice's question, how about the appreciation and value of real property? I think it would be subject to the same analysis that would fit within a conception of income as economic gain between two points in time, but Congress hasn't traditionally taxed that. And so perhaps the court if it were confronted with that situation would conclude that there's a historical line or limiting principle here. So unless history rules that out, I'm not quite sure how Congress is failure to enact a tax in the past. It brings that outside the 16th Amendment if the tax would otherwise fall within the 16th Amendment. But you say that that potentially is also taxable as income under your theory. Yes, and I think it's clearly taxable under the Constitution. Again, this is not a question about Congress's power. It's about the mode of taxation and whether to apportion that tax or not. Now, if some sort of constructive realization were some test for attribution is required, what is your test? How far may Congress go in attributing income to someone who has not realized that income in the standard understanding of that term? I would apply the test to the court used in Burnett versus Wells, which presents the most closely analogous situation. Tax payer argued that because he had been the granteur of a trust, he couldn't be held liable for the gains in the trust it couldn't properly be attributed to him because he had no continuing control and wouldn't personally enjoy those gains, which instead went to the beneficiaries. This court rejected that claim and what it said is that Congress had not acted arbitrarily in making that attribution decision. It looked at the taxpayer's relationship to the underlying income and concluded that there was good reason to tax the granteur in that circumstance, including to avoid shifting income to lower income taxpayers. But if the court were applying that kind of attribution analysis here, I think the MRT, like many pass-through taxes, is equally constitutional. Here, the income has never been taxed at the entity level and there are real complications with trying to tax foreign corporations directly. So in many respects, these large U.S. shareholders, who by definition together collectively have a majority stake in a closely held corporation, are in many senses the most suitable person or entity to tax. Well, have we ever said, and maybe we should, in this case, say that the 16th Amendment applies differently to income or property that is obtained abroad than it does to income or property possessed within the United States. The court hasn't previously said to that, but my friend himself suggests that in thinking about these issues, the court should focus on the potential for tax avoidance or tax abuse. And I think that that concession just underscores the point that when you are using a foreign corporation, it provides a ready vehicle to shelter funds offshore, keep them out of the reach of U.S. taxing authorities and thus complicate efforts to access those funds, even when they have a really significant connection as they do here, because these companies are majority owned by U.S. taxpayers. And it's important to recognize, too, that this case is not the paradigmatic case of how the MRT applies. The overwhelming majority of taxpayers subject to this are domestic corporations, often parent companies of wholly owned foreign subsidiaries who have arranged their affairs to be able to keep this money offshore to a period of long tax deferral. But I think that it would be anomalous to suggest that the money is forever out of the reach of U.S. taxing authorities. The petitioners were in on the ground floor with this corporation, but what if they had simply bought into the company the day before the MRT made taxes to do? Wouldn't that look an awful lot like a tax on capital rather than a tax on income in any sense of the word? So I have three reactions to that. I think that the underlying nature of what's being taxed, which are the realized earnings of the corporation, wouldn't change. I do think that raises a harder attribution question, because that taxpayer would have less of a direct relationship to the thing that's being taxed. And so maybe someone in that situation would have a better as applied due process claim, as you mentioned, the more is themselves, aren't in that position. The second thing I would say is that if the court is interested in exploring this as applied due process issue, it's important to know that the MRT is not unique in this regard. There are other taxes and other contexts where the court has recognized that someone can be taxed on gain and property that happened before the ownership stake was obtained. That was the holding and tax versus vours where the court considered this issue with respect to the gift tax. It's also how subpart of itself can operate. You can buy shares in the controlled foreign corporation and be taxed under subpart F with respect to earnings that happened before you bought your stake. The third point I would make is that as a factual matter, this situation is unlikely to arise. And that's because Congress has enacted other provisions of the code that largely tie the gains to the person who owned the shares at the relevant time. This is 26 USC section 1248 and it taxes gains at the time of sale. So when you're hypothetical in 2017 when the person is buying the share in the company, it taxes gains to the seller as though they were paid out of the retained corporate earnings. And then there's a parallel provision for the buyer under the MRT, 26 USC 965 D2B that ensures that the buyer doesn't have to include that in his income through a cross reference to section 959. So in those ways, I think that Congress was trying to attribute the income to the person who owned the shares at the relevant time. Thank you. One last subject. I'm sorry to go on so long on this. Your brief makes an awful lot out of collector versus Hubbard decided in 1871 to what degree does your argument depend on that? Our argument doesn't depend on Hubbard. Ultimately, we think that what carries the day here is the overwhelming history that demonstrates that Congress has long tax income. At the corporate level, two shareholders Hubbard upheld that exercise of authority. And so I think if you're looking at the tax of the 16th Amendment and what those who drafted it would have in mind, they would have been well aware of this past through taxation and of the Hubbard precedent itself. Do you think that I'm sorry to interrupt? Do you think that Hubbard decided that the tax that was an issue in Hubbard satisfied Article 1 section 2 and Article 1 section 9. It draws the distinction between direct and indirect taxes. Do you think that the court decided that question in Hubbard? So Hubbard's discussion of this issue is brief. I don't think that it parsed to the constitutional text that way, although it did say that this was within Congress's power to enact. So I understand that to be a constitutional holding, but I acknowledge that it didn't get into the specific provisions of the Constitution or their integrity. Do you think it was overruled in Pollock? So I think that I don't think it would be right to say that Pollock was the last word on it, of course, because even if it was overruled in Pollock, the 16th Amendment came along and it self reversed Pollock. Do you think that Pollock court understood itself to be overruling Hubbard? I think it's possible that yes, the Pollock court understood itself to be overruling Hubbard. It was obviously adopting an understanding of what constitutes a direct tax that was a sharp departure from what had come before. I guess what I would say, Justice Alito, is that it seems to me implausible that the drafters of the 16th Amendment in seeking to overturn Pollock and fully revive Congress's pre-existing income tax authority would have meant to do so with respect to all the ways Congress had exercised that authority. Except for the type of pass-through tax that Hubbard specifically approved. If the court in Hubbard thought it was overruling Hubbard, I'm sorry, if the court in Pollock thought it was overruling Hubbard, what do you make of the fact that it doesn't even mention Hubbard? And as far as I can tell, Hubbard was never cited by the attorneys in that case. And I looked back at Professor Thiss's volume in the Alverwendell Holmes' device of the Supreme Court on what he has to say about Pollock. Pollock was a special ceremonial occasion for the court. The greatest lawyers of the day appeared for both sides. So the greatest lawyers for the day didn't understand that there was Hubbard, that had supported the attorney arguing for the government, just didn't realize that they had Hubbard on the book that supported their position. Well, the Court made it entirely missed it. Maybe they missed an opportunity to make a good argument in that case, but I think ultimately, the important point is that relying on Pollock and trying to parse Pollock versus Hubbard, ignores the effect of the 16th Amendment. This was an amendment to the Constitution that was specifically designed to restore a pre-existing power. And the right way to look at what that power means is to look at how it had actually been exercised before. Just to so to me, Orr? I don't fault the parties for shooting for the stars. But I guess the tenor of the questions is that nobody's happy with anybody's definition of anything. You started by suggesting a narrow ruling. I think there are two ways to narrowly rule. Tell me one is better than the other, if at all. Okay, but first we can say there is a realization requirement, and here it was realized, because the corporation realized that you have to deal with justice courses is concerned that you waive that argument. I may disagree with him, but that we can work out among ourselves, but the bottom line we could rule that way. Or we could do it the way Justice Kavanaugh started his question, which is we assume that there's a realization requirement. And it was met here. So which of the two ways should we do it? And why not? It would be critically important for the court to do it through Justice Kavanaugh's approach. That is, I don't think the court needs to resolve anything about whether the 16th Amendment requires realization. Here we happen to have it, and this kind of tax corresponds to pass-through taxes we've had through history, and that suffices to resolve this case. We have serious concerns on the court. Does that, the history is that Congress can attribute that realization? Correct. The Congress can attribute that realization by the corporation to the shareholders, and there are taxes that look like that at virtually all points in our nation's history. The reason why I would strongly caution the court away from adopting a realization requirement is not only that we think that it is inaccurate, profoundly a historical, inconsistent with the text of the 16th Amendment, but it would also wreak havoc on the proper operation of the tax code. I think that there are pass-through taxes that would withstand scrutiny if the court affirms the attribution holding. But as I had mentioned to Justice Barrett, there are a number of critically important provisions of the code that don't actually have that kind of pass-through mechanism and don't turn on realization at all. That includes the market to market taxes, original issue discount on bonds, that drives prices and bond markets, and avoids what could otherwise be sheltering of income that should be taxable. It includes the expatriation tax when people renounce their United States citizenship. So I think that there are various ways in which adopting any form of a realization requirement would have profound practical consequences, and it's unnecessary for the court to go down that road in light of the serious legal arguments against that reading. Thank you. Justice Kagan? And General Pre-Logger, just to take you back to the implications of Mr. Grossman's argument, he's made a number of statements in his brief and today as well about how he would distinguish this tax from many others, from subpart F, from S corporations, from partnerships, from a cruel, from you name it, there might be more. What do you worry about and why? I worry that none of those proposals actually hold up and provide a basis to distinguish the MRT. So at first he suggested has to do with control, but as I had explained to Justice Barrett before, the level of control here is exactly the same as under subpart F. These are 10% shareholders, US shareholders have closely held for in corporations, and so control cannot be the relevant difference. It's also not the difference with respect to partnerships and S corporations share holders who might have even a lower than 10% stake, and nevertheless can have income attributed to them. Then he says maybe the answer is consent, and he points to S corporations and says that turns on a theory of consent. But I don't think that that works either, because to the extent that there's any kind of realization requirement out there in the 16th Amendment, consent couldn't cure that difficulty or give taxpayers a basis to allow Congress to tax things that are outside its authority, and it doesn't even work as a descriptive matter, because the S corporation shareholders might buy their interest in the company and never personally consent to pass through taxation, or they might change their minds, and remove their consent and say I don't want to be taxed on it anymore, but if they have a minority stake in the company, they're stuck with it, and continue to have pass through taxation. So I don't think consent works. Then he says maybe it has something to do with the type of income under subpart F, but as I've explained before, we don't think that the type of income matters under the 16th Amendment, and here this is paradigmatic income. This is ordinary business income, substantial earnings realized by the company, and I think it would be a really anomalous result to say this type of income uniquely is exempt from pass through taxation. He also suggests that maybe it turns on the potential for abuse, and maybe that explains some of these other taxes, but there again, I think that the MRT itself responds to the concern that these domestic corporations in the main, also some individual shareholders, have been able to keep the money off shore and the closely held foreign corporations and thereby defer taxation on them. So with respect to every possible point of difference, we just don't think it holds up as a descriptive manner, and so there's a real concern we have that if the court goes down one of these roads, and nevertheless invalidates the MRT, it's not a principled distinction. And then with respect to the furthest, the implications of the furthest reaches of your argument that Justice Alito was asking about, and you said with respect to a number of taxes, which we'll probably never see in our lifetimes, but you said if we did see them, you would probably defend them. But when you say that, that's your job, right? Yes, so we generally defend the constitutionality of statutes. Yeah, so how should we think about that set of possibilities? So I think the important starting point is to recognize that those are hypotheticals, as you mentioned, that are unlikely to ever come to pass. There's a really good reason that Congress frequently chooses to tax based on realization, and it's the administrative practicalities of the situation, otherwise it's complicated to track fluctuations in value over time, or to engage in the valuation analysis for assets that might be hard to value. So in the main, Congress frequently does choose to rely on realization, and I think some of the hypotheticals about taxing all people who have shares or taxing all home appreciation are unlikely ever to come to pass. But I also think that it's important for the court to not rely on concerns about those types of far-fetched hypotheticals to announce bright line rules about what the 16th Amendment requires that could actually take down critically important provisions of the tax code, and that respond to real life concerns and very legitimate exercises of the taxing power. In particular, many of the times when Congress has chosen to tax in the absence of realization, it's because taxpayers can abuse the rules. They can manipulate realization events, or they can make use of certain structures or financial instruments to shield assets from taxation. And any coherent or proper administration of the tax code has to be able to respond to that kind of taxpayer abuse. Thank you. Justice Gorsuch. Would you agree, General, that when the court opens a door, Congress tends to walk through it? I don't want to over generalize on the back and forth between the court and Congress. But Justice Gorsuch, if I am anticipating correctly where you're going... I'm just... maybe you are, maybe you are, probably are. You usually are. But if the only bar to Congress from an acting at attacks on millions of Americans' retirement accounts and mutual funds is administrative ability, they're pretty clever over there, aren't they? Justice Gorsuch, I think that's not the point. Because they know how to get around administration concerns pretty well, don't they? I think that there would be good reasons for them to avoid the administrative complexities that would open up. Oh, sure as a policy matter, but isn't it the case that would open a big door? That door is already open. Congress can enact that tax. Right, you'll understand. It's been open forever. Yes, but the Constitution gives Congress the power to take that. And then in terms of your argument here as well about there's no difference between income and that kind of that unrealized capital gain, you're familiar with the 1918 tax cases obviously. The government's brief in that case, one of my industrious law clerks pulled it, and there the government does draw that distinction and says that that kind of capital gain is not income because the individual received the taxpayer received nothing. And that's not income, it's a mere gain of or loss of capital value. Are you familiar with that? I'm not sure exactly which brief you're talking about, do you happen to know that? Yes, the slister general is brief in the 1918 income tax cases and its pages 32 and 53. So I would have to look at the particular issue that was being considered there. There are a number of statutory realization requirements that could explain those statements. There have also been a lot of evolution in the thinking about these issues following Macomber. I recognize that the government has sometimes taken a broader view of Macomber itself, for example, but that was in an era when the court itself had been unclear about the reach of Macomber before the court had sharply limited it. And then I do think there is room for some narrow ground as just as sort of my or suggested. If one thinks that the question is attribution, you call it. I think your front on the other side would call it, is it realized by the taxpayer? You say is it fairly attributed to the taxpayer? Potato, potato, I sometimes wonder. I'm from Idaho, so I love it. You totally get that. You totally get what I'm saying. If we're talking about the same thing, you make a pretty persuasive argument that under the MRT, the moors do have constructive control. That it is fairly attributable to them because they're a 10% stakeholder and some other facts. Again, I may be missing it. I don't see that argument in the brief. Assume that argument hasn't yet been made. What do I do? I agree, Justice Gorsuch, that we haven't made the argument expressly in terms of control because we don't think that's the right standard. But we very clearly did make the argument that the MRT is constitutional for the very same reason. Yes. Petitioners say that the subpart F regime is constitutional. I understand that. But just to answer my question, you know, if we think that there's some constructive realization or attribution requirement required, but that hasn't been adjudicated yet. Hasn't been argued yet. What should I do? If you think it hasn't been argued yet, I of course disagree on the facts. No, I understand. The Court can affirm on an alternative round even one that the party didn't race. The Court said that in Dada versus United States, for example. So I think it would be open for the Court to affirm on that ground because we do think it's a very strong argument, and I would encourage the Court to do so. Okay. And then you've argued that attribution is a feature of due process rather than income under the 16th century. And so that's why we're talking about the Court's implementation of the amendment. But of all of our cases, whether we're talking about partnerships or you want to talk about S-Corp's or Schedule F, have treated it as whether it's a form of income to the taxpayer under the 16th amendment. That's how we've grounded our analysis so far. It would seem quite a change to move it over to due process. Can you react to that? Sure. So I think actually the Court's central case on attribution was a due process case. This is Burnett versus Wells and involved the grantor of trust and the Court there put it explicitly in the process. Well, you mentioned partnership earlier. And I went back and looked at that and due process those words don't... You said that's the best case for you. Those words just don't appear anywhere in the injustice brand, I says opinion. It's all about whether you can call it fairly attributable or realized by the partner. And I think that it's perfectly fine for the Court to look at this through the lens of the 16th amendment because you get to the same ultimate result, which is that ultimately the question then would be, can Congress fairly attribute this income to you, the taxpayer? And here we have overwhelming history and tradition going all the way back to the 1860s and 1870s demonstrating that yes, Congress can. And are some of those factors that you look at, whether they control the entity, whether there's some evidence of fraud and it's used to the entity, what else would you add to that list? I would look at the taxpayers' overall relationship to the income and the entity. You know, I hesitate to try to put the gloss of control on it for a couple of different reasons. One is that I think that would incentivize taxpayers to try to argue an individual case they don't have. I'm not suggesting that's necessary. I'm suggesting it might be sufficient. Yes, I would absolutely agree that might be sufficient to establish that Congress made a fair attribution decision in that case. I would just caution the Court away from constitutionalizing that or saying it's necessary in every case. Roger that. What other factors would you have us look at? The other kinds of factors the Court has looked at are the statement made in Burnett versus Wells was whether Congress has made an attribution decision that's unrelated to any privilege or benefit. I think using that standard, it works for us here as well because there are obvious benefits associated with doing business through a controlled foreign corporation which is closely held and could keep the money offshore for all of those years subject to tax deferral. So I think that... Let me pause you there. So the foreign aspect of it and the difficulty of otherwise obtaining some kind of tax on it should factor in our analysis, you think. Again, I think those are conditions that could be sufficient. I wouldn't want the Court to say they are absolutely necessary in every case. And of course we have things like partnerships where there's not necessarily any abuse. It's a convenient way to structure taxation with respect to certain types of entities. It's very helpful to me. Any other factors you'd have me consider? I think you have covered the waterfront of the things that have already emerged in the case law. I guess if I step back to a 30,000 foot level, the one thing I would say is that I would urge the Court not to try to set down an explicit set of principles. To govern all cases for the very reasons I was describing earlier that we have seen taxpayers latch onto that and then seek to avoid any action. Roger that too. Okay. And that would take care though. If we wrote that that way, it would take care of all of your concerns about S. Corporation's schedule, F for, you know, the market to market and potentially the MRT. Yes, I certainly I think the MRT in addition to all of those other taxes satisfy the types of criteria that the Court has looked at that are relevant to this attribution question. Whether we call it attribution or constructive realization, but could be open-todd. Well, on that one, I would shy away from constructive realization just because I think it introduces an additional layer of ambiguity in the code. I mean, by definition, it means not actual realization. And so I think that it's a term that doesn't appear in the code itself that we're interested in. Maybe, and I'll just, I'll stop. But the way I read our president at least is it's fairly saying that this individual realized gain control of or could be reasonably judged to have done that by Congress. This person has control over these assets. And you've given me a very helpful list of factors from this Court's history and practice consistent with our president rather than calling it all misguided. That might work. Fair enough? I don't think that it's right to say that this list of factors gives the taxpayer sufficient control over the assets just again because the concept of control can be inherently confusing here if it suggests a majority stake. You know, the S corporation shareholders, they might have a 1% stake in the company and not have any control. So I think that's where I have a little bit of disagreement on how to describe what we're discussing. That's very helpful to me. Thank you, General. Justice Kavanaugh, you don't want to use the phrase constructive realization. Yes, I think that that phrase is inherently amorphous. It doesn't appear in the code. It appears to be a phrase that petitioners have invented for purposes of trying to save these other taxes. And I think it would open up immediate disputes about what exactly it encompasses. Right. And on the proverbial open door for Congress, members of Congress want to get reelected. So some of the high-pose are far. Yes, I think that that's why they're far-fetched. Although who knows how things would change. On some of Justice Alitos hypotheticals though, if things came to pass, I think you acknowledged I just want to confirm that unlike this case where you say that historical practice supports this Congress's historical practice, the court's cases, if there was something novel, that lack of historical support would at least be a strike against it, not dispositive necessarily. So is that accurate summary of what you said about that? Yes, I think that the point I was trying to make is that first, yes, there are huge practical and policy reasons why these taxes wouldn't be enacted. And second, if it came to pass, then the court could assess that tax on its own terms and it might look to history and think, come, this is something new. I do want to be clear that we don't think that the novelty alone would be dispositive as you mentioned. Certainly, Congress has some power to enact taxes that it hasn't enacted before, but it would certainly provide a reason to scrutinize that tax a little more carefully. Here, the court doesn't have to go down that road because the history is all on our side. One hype of my own just to make sure it's covered. I think it's an easy one, but I want to make sure if there were a federal tax on the value of someone's property, you agree that's a direct tax or on the value of someone's holdings. You agree that's a direct tax that would have to be apportioned, correct? Exactly, that's a quintessential tax on property because it's looking at the total value of the asset and it's doing it at a particular point of time and maybe you could even leviate again and again on the same value like any homeowner experiences with the property tax bill for the home. That's totally different from an income tax where you're taxing the increment of gain over time and generally only doing it one time with any future tax looking to a new increment of gain over a new period of time. Last question. Your position on the MRT and you say, Hiner and subpart F and S Corpse and say this is all similar and kind. The one wrinkle and I just want to make sure we're on the same page is that this goes back a lot of years and rolls in income from many past years. What should we say about that? I have, let me just add and he says ultimately if you can just roll in I think income at any point in time then that really becomes not much of a limit at all. So let me react to that in a couple of different ways. I think that the length of the look back period here can't change the underlying character or classification of what's being taxed as income. This was actual earnings brought in by the company kept in their coffers if it was income in year one that I don't think there's any expiration date on classifying it as income in a future year. And I think it would be anomalous for Congress to lose its ability to tax that as income just because it's granted a period of tax deferral. So instead I think that the look back period instead of relating to the 16th amendment or any fundamental questions about what income constitutes is instead a retro activity concern. It I think arises under the due process clause and would turn on whether Congress had a legitimate purpose for having this kind of look back period and used rational means. Here we think that that is clearly satisfied petitioners raised a retro activity due process argument below the court rejected it in the ninth circuit they haven't renewed it here and I think it's because it clearly fails under precedent like United States versus Carlton. But ultimately I would urge the court to recognize that that is not about the proper characterization of the underlying tax base. Thank you. Justice Ferrett? I'm going to follow up on some of your factors to Justice Gorsuch. So you talked about how it could be fair, you know, Justice Cabinajah said S Corpse partnerships, you know, an MRT to and the MRT tax to say that this is attributable to the shareholders or to the partners or, you know, to the settler of the trust. How do we know that is it because this is closely held because I assume what your friend on the other side is going to say is well they they had 10% you know they they weren't majority holders and so they couldn't force a distribution. So how how would you articulate that when it can fairly be attributed if we're not talking due process if we're talking about it from a 16th amendment point. Yes, so I think at the outset the court could rely on the lessons to be drawn from history and tradition here. This functions like the early income taxes that I pointed to from the 1860s and 1870 that tax shareholders on corporate income. At that point in our nation's history corporations were generally closely held. There were fewer Americans who owned stock and so I think that they they functioned quite analogously to the MRT and so far as they reached a distinctive category of shareholders generally in those closely held corporations. You know at the end of the day I guess what I would say is that certainly we think it's a factor in our favor that this reaches relatively large US shareholders. It's true it's 10% so they don't have to have a majority stake. But the premise of Congress is that these kinds of large shareholders can usually work together with other shareholders and this closely held corporation. There aren't going to be that many of them to direct the company's policy or to force a distribution as the case may be. And that kind of threshold 10% appears throughout the law not just in the tax code but in the securities context. For example, there are additional obligations imposed on 10% shareholders of companies. So wherever the line might be drawn and thinking about it from this relationship to the funds and level of influence of the corporation's policy, I think 10% falls well within the line of what should be recognized as permissible. Okay, thanks. Justice Jackson. So I'd rather drawbacks to setting this up in the way that Justice Gorsuch has articulated. I mean I guess I'm a little concerned because I heard you respond to Justice sort of my or by saying that one of your primary concerns is that we not suggest that realization is required. And would would would taking the approach that Justice Gorsuch has articulated. Require us to do that or could we assume or how do we get around the other caution that you put forward. So if I understood Justice Gorsuch's approach and I hope I'm not getting it wrong, the idea behind this approach would be to recognize that here we actually have realized income. So the court doesn't need to resolve the status of that under the 16th amendment and instead the pressure point is whether Congress could enact a pass through tax on the 10% US shareholder. Is that fairly encompassed by this question presented? I mean this sort of goes to your discussions with Justice Alito, I think. I thought the question presented was about the extent to which the 16th amendment requires realization. So if we're going now beyond that, are we out of the territory that is fairly encompassed here? I don't think so because I think the answer to the question presented would be we don't have to decide in all context here there was a realization. As we said in our briefing opposition to this case, we don't actually think that the case presents the question presented because here there was actual realization by the corporation and the real dispute between the parties is whether Congress made a fair attribution decision. Let me ask you just another question about the government's brief. Why did the government make an argument about excise taxes at the end? So we think that the MRT is clearly constitutional on an excise tax theory as well. There's been some suggestion at argument this morning that maybe we didn't present that argument below and that is incorrect. In the Ninth Circuit, we said that even if the MRT isn't properly characterized as an income tax, it's not a direct tax and we said that therefore Congress had Article 1 authority to enact it and pointed to the Sprechle Sugar Case, which is an excise tax case. So I think we did preserve the argument. The Ninth Circuit didn't have a occasion to reach it because it ruled in our favor on the primary income tax argument. But if this court had any doubt about whether this is a proper income tax, we think the court could affirm on the excise tax argument in particular. And as I had mentioned in an earlier response, one of the important things for the court to keep in mind is that 99% of the tax owed under the MRT is owed by domestic corporation shareholders. Large US companies, for example, that have these foreign subsidiaries where they've been holding money overseas for a number of years and this would be a tax on the privilege of doing business with those corporate relationships and in that corporate form. So at the very least we'd urge the court not to invalidate the MRT in all of its circumstances without proper consideration of that argument. And that's because the constitutional question is whether or not it is a direct tax because that would be the circumstance under which apportionment is required. Yes, exactly. And I think this relates to your earlier questions just as Jackson about the meaning of Hilton and about whether this can in any sense properly be considered a direct tax. Ultimately, I think one of the ways to understand the categories in the Constitution is in relation to one another. And at the very least this is not a tax on land, this is not a tax on personal property, it's not a head tax. Therefore, it's not a direct tax and we think it's either an excise or an income tax. One final question about McCommer. Why shouldn't we take this opportunity to just put an into it? I mean, if we were to apply the starry decisive factors that the court goes through when it decides whether or not to formally overrule the precedent, doesn't McCommer fail anyway? I agree that McCommer would fail those factors in an appropriate case. The reason we haven't asked the court to overrule McCommer here is because we just think it's in applicable by the terms of subsequent precedent that have already said McCommer only has controlling weight with respect to that very specific type of stock dividend. And so I think the court has already done the work here of effectively leaving McCommer the minute. I agree with you and we applied the starry decisive factors. You would say the government would still win on its view that McCommer is not good law or controlling this case. If this court thought it were necessary to walk through the starry decisive factors, then yes, I think that in each instance McCommer was egregiously wrong. It didn't grapple with the text of the 16th Amendment in a legitimate way or look at all of the history that I think is relevant to that question. It has been subsequently eroded by any number of additional precedents and in the end with reliance interests here, Congress has relied on those subsequent precedents by enacting any number of taxes that wouldn't satisfy McCommer's realization framework and petitioners themselves acknowledged that McCommer's realization framework couldn't actually carry the day because the taxes that they have set are constitutional wouldn't survive under McCommer. Thank you. Thank you, Council. A rebuttal, Mr. Grossman. Thank you. The government's recalibrated position, as explained by my friend, is not narrow and the court should not mistake it as such. The government's view that a corporation's earnings can simply be attributed to a, to any corporate shareholder is staggeringly broad. Corporations like Microsoft and ExxonMobil have hundreds of billions of dollars of retained earnings on their books that they've invested in corporate assets, research and development, and other activities. And in some cases, those retained earnings exceed the current value of shares. Under the government's view, and I think is demonstrated by the MRT, apparently the Congress could simply tax backwards reaching back as far as it would care to do so to attribute those retained earnings going back many years to current shareholders, again, in some instances in excess of the value of their current holdings. But I think the court should also combine that there's an impact to that position that purportedly narrower position under the existing code, which is that there is no carve out for against taxing shareholders in the current code on corporate earnings. If those are 16th Amendment earnings, I'm sorry, 16th Amendment income to shareholders, then they are already subject to the income tax through the gateway definition of gross income that reaches everything that is income under the 16th Amendment. So there's no carve out, those would already be subject to it. I think this just demonstrates the way that the government's position would make a hash of existing law and cause enormous confusion with respect to how our tax system functions. By contrast, I don't think that there are any serious consequences of this realization principle that we've put forward in this case, because it is the thread that runs through the court's jurisprudence going back over a century, and is the glue that holds together the tax code as it exists today. Every tax that my friend has mentioned falls into one of two categories. Some of those, particularly regarding the abuse of the corporate forum, turn on theories of constructive realization, or you might say assignment of income, I don't think there's much of a distinction. The remainder of them are straightforward excise taxes that are supported by the long history of congressional practice. These includes, for example, the original issue discount. It's simply an excise tax on the transaction regarding the transfer of a bond. Congress has been living taxes like that for over 130 years at this point. Others like the market taxes are excise taxes like in spreckels on conducting business in a specified fashion. Again, those sorts of taxes predate the 16th amendment, and nobody has ever called into question their constitutionality as such. There's also case law. If it was simply enough to attribute income to anybody with a close relationship to it, all of the court's corporate reorganization cases and cases involving shareholder rights, and really pretty much all of the 16th amendment cases involving trusts and everything else would have been about a sentence law. It wouldn't really take much more than that for the court simply to say, well, there's close enough relationship, and so who cares whether or not the person realized income or not? Of course, that's not the inquiry the court has undertaken. So far as McCommer's rule is concerned, and the court has applied the dividing line recognized by McCommer's recently as 1970 hot five in Ivan Allen. It's carried forward the same principle in cases like Indianapolis power and light in 1990, as well as restating in college savings in 1991. I don't think real is this concept of realization is anything unfamiliar to our law, and indeed it's the only way to understand the current tax code. The anti-income avoidance provisions of the tax code are long lengthy reticulated. I don't envy anybody who's had to spend their time reading subpart F and practices in that field. But the reason those are so complicated and reticulated is because Congress has tried to stay within the realization line. It's done everything it can to fit that framework where it would have been the easiest thing in the world if Congress thought it had the power to do it simply to say, well, if you own shares in a foreign corporation, whatever the ownership threshold, simply pay taxes on those earnings. That's not the way the tax that these sorts of taxing provisions have ever worked. Instead they get at the idea who is really earning the income and receiving the benefit by it, and that person should be the one to pay taxes on it. We think they all fit that bold. I'd like to briefly address the 1864 tax. The Court in Hubbard recognized that it was a tax on property, subsequently in Bruce Shaber, the Court recognized that at the time that wasn't really considered or thought about as being much of a defect with respect to the direct tax causes, under sort of the reasoning of Springer. And of course, McCommer rejected the exact same argument. We would ask the Court to reverse. Thank you. Thank you, Councilor General. The case is submitted

Legal Case Summary

Moore v. United States

Date Argued: Tue Dec 05 2023

Case Number: 22-800

Docket Number: 67774473

Judges:Not available

Duration: 108 minutes

Court Name: Supreme Court

Case Summary

Moore v. United States

Oral Audio Transcript(Beta version)