Moore v. United States: Income must be realized

A key issue in Moore v. United States is whether income has to be realized to be taxable.  An amicus brief in the case was filed by Professors of linguistics who did a 1913 search of the use of the words "income" and "derived" from the Sixteenth Amendment and found that overwhelmingly Americans thought income has to be realized to be taxable.  The online dictionary of etymology concurs as follows:

Online Etymological Dictionary:

income (n.)

1600. 1300, "entrance, arrival," literally "a coming in;" see in(adv.) + come(v.). Perhaps a noun use of the late Old English verb incuman "come in, enter." Meaning "money made through business or labor" (i.e., "that which 'comes in' as payment for work or business") first recorded c. 1600. Compare German einkommen "income," Swedish inkomst. Income tax is from 1790, introduced in Britain during the Napoleonic wars, re-introduced 1842; in U.S. levied by the federal government 1861-72, authorized on a national level in 1913.

also from c. 1300

The United States should lose this case.  Income literally has to "come in" before it is taxable both as the word was used in 1913 and based on its etymology.

Comments

[Dr. Ed 2]

The only other way that I could see them going -- and this is how a "universal basic income" could be introduced -- would be to have progressively refundable credits for years in which ones income was below a certain level, progressing into even larger refundable credits for years in which investors lost money. It would be a logistical nightmare but if they were to tax unrealized gains, I don't see how they couldn't give credit for unrealized losses.

If they didn't, and I'm keeping the math simple here -- lets say I started with $1000 of stock, which went down to $500 in 2008 and then came back to $1000 -- they'd be taxing me for $500 that I never actually earned because it was the same $500 that I had lost. That's what is so asinine on taxing unrealized gains on often volatile assets.

[NOVA Lawyer]

"That’s what is so asinine on taxing unrealized gains on often volatile assets."

As has been pointed out repeatedly in prior threads on this case, that isn't what is happening here. At all.

[Brett Bellmore]

What's asinine here is that the corporation in question is a charitable enterprise. Not only haven't the Moore's realized any income from it, they never will. You might as well attribute taxable income to somebody based on their donations to the Red Cross.

[NOVA Lawyer]

Another purportedly brilliant silver bullet argument that no one briefed before the Supreme Court.

The Moores don’t dispute that they own a profit making business venture in India. They just dispute whether the profits may be attributed to them on a pro rata basis.

[Tom for equal rights]

NOVA Lawyer 8 hours ago Flag Comment Mute User “That’s what is so asinine on taxing unrealized gains on often volatile assets.”

“As has been pointed out repeatedly in prior threads on this case, that isn’t what is happening here. At all.”

Nova you even more wrong than Dr Ed. Ed’s mistake is calling it unrealized income. It is income - its just not the Shareholders income.

The statute is attempting to impose US income tax on an individual for income earned by a foreign corporation on the foreign corporation’s Non US source income.

[NOVA Lawyer]

"The statute is attempting to impose US income tax on an individual for income earned by a foreign corporation on the foreign corporation’s Non US source income."

No. The statute imposes an income tax on realized income of the Moore's business venture that is attributable to them individually on a pro rata basis. They argue that it isn't their income, but the U.S. government can choose to tax individual business venture owners individually in the U.S. (partnerships, LLC's, S-Corps), so it can certainly do so with a foreign corporation. The U.S. government need not recognize the legal fictions of other countries for U.S. tax purposes.

[Tom for equal rights]

Nova - You are correct that the statute is imposing a tax on the income of the foreign corporation.

However, legal structure is not a fiction. The income that statute is taxing is the income of the corporation, It is NOT the income of the individual.

As I stated - you are more wrong than even Dr. Ed.

[NOVA Lawyer]

“The income that statute is taxing is the income of the corporation, It is NOT the income of the individual.”

That is the Moores’ argument. The government, obviously, argues (and quite persuasively) that the profit is the income of the individuals who own more than 10% of the corporation.

I’m not sure why you’re pretending that restating the argument that lost below somehow makes it so.

I’ve explained (at least in brief) why I believe the government’s argument is convincing. You just keep restating petitioner’s conclusion. That is not a convincing way to argue or to demonstrate any analytical or legal reasoning ability.

[Lee Moore]

The government, obviously, argues (and quite persuasively) that the profit is the income of the individuals who own more than 10% of the corporation.

If the profit is the income of the individuals who own more than 10% of the corporation, is it also the income of the individuals who own less than 10% of the corporation ?

[NOVA Lawyer]

It could be, but that's not how the law is written.

[Lee Moore]

Which is the point 🙂

Your answer confirms that it is only this tax law that deems the income to belong to the shareholders, solely for tax purposes, it is not the ordinary consequence of the shareholders actually owning the income, under commercial law.

Which is not what the 16th Amendment permits.

[NOVA Lawyer]

"Which is not what the 16th Amendment permits."

A complete non sequitur from all that went before.

The 16A doesn't say anything about following commercial law.

The tax law at issue in Moore does make the income of a majority U.S. owned corporation the income of the owners who hold a 10% or greater share. And the 16A says nothing that deprives Congress of that authority.

Did you listen to oral arguments today? The Moores are absolutely going to lose. They are going to lose because a solid majority of the Court rejects your reasoning and accepts mine.

[Lee Moore]

I did not listen but I read the Scotusblog report which indicates that the Republican appointed squishes were…..squishy.

Quelle surprise !

I am pleased to see, though, that both you and Kavanaugh appear to reject ReaderY’s fantasy that the income of the foreign corporation IS the income of the shareholders, and accept that it is merely “attributed” to them by the tax law.

What fun it must be to “attribute” one person’s income, and so tax liability, to another, with the stroke of a Congressional pen.

[NOVA Lawyer]

“What fun it must be to “attribute” one person’s income, and so tax liability, to another”

You understand that corporations aren’t actual people. They are joint business ventures of multiple actual people that are given legal personhood in some circumstances by law. Law can define the scope of that legal personhood (or end it).

So, I don’t know whether it is fun, but attributing the income of a joint business enterprise to the owners on a pro rata basis only has analogue to “attributing one person’s income to another” through the legal fiction of corporate personhood. But, at bottom, a corporation is the people who make it up.

I see people way too invested in corporate personhood, particularly foreign corporations.

You could predict the outcome of this case by: (1) the purpose of the law is to close a loophole and ruling for petitioners would give them a windfall and (2) a ruling for petitioners would undermine the constitutionality of numerous other current and (until now) uncontroversial provisions of the tax code. On the other side, you have fanciful arguments that it would allow taxing people on the hypothetical market value appreciation of Beanie Babies sitting on a shelf. The realities of the case weigh heavily in favor of the government (particularly as dicta can be added to the opinion foreclosing the Beanie Baby example).

Perhaps easy cases make bad law, in your opinion, but this is an easy case.

[Randal]

I don't have to pay taxes on my income because really the income belongs to my bank account. I haven't "realized" the income since I haven't withdrawn it, even though I own the bank account.

Sounds retarded, no? It's the same argument the Moores are making, just replace "bank account" with "foreign corporation."

[Lee Moore]

If you're tilting at the windmill of separate legal personality of corporations, you're gonna need a heavy lance. That windmill has been around for centuries.

[Joe_dallas]

Randal 7 hours ago
Flag Comment Mute User
"I don’t have to pay taxes on my income because really the income belongs to my bank account. I haven’t “realized” the income since I haven’t withdrawn it, even though I own the bank account."

Randal - yes your statement does sound retarded - because those are not even remotely the facts in the case. Serious misconstruing the facts - similar to how CA9 misconstrued the prior SC precedents in the case.

[Joe_dallas]

Nova's comment - "They argue that it isn’t their income, but the U.S. government can choose to tax individual business venture owners individually in the U.S. (partnerships, LLC’s, S-Corps), so it can certainly do so with a foreign corporation."

Nova - a major point that you overlooked is that the US Congress has no authority to impose an income tax on a foreign corporation's income that has no US Source income.

[NOVA Lawyer]

"a major point that you overlooked is that the US Congress has no authority to impose an income tax on a foreign corporation’s income that has no US Source income."

Setting aside whether any of that is true, a major point that you've overlooked is that the government's position is that, in fact, the realized profits are income of the owners of the corporation on a pro rata basis and, so, 13% of those realized profits are the Moores' income.

You simply saying the opposite of that isn't an argument, much less one that proves anything, it's just an assertion.

The Supreme Court will decide whether it is the Moores' income or not and, I believe, they will decide that the profits are attributable to the Moores as income.

*But it is important to note that, you seem to think the Moores should have argued that the income is the corporations and the US has no authority to tax a foreign corporation on foreign profits. I leave it as an exercise to you as to why the Moores attorneys did not make that argument.

[Lee Moore]

I leave it as an exercise to you as to why the Moores attorneys did not make that argument.

Because the IRS is not attempting to tax the foreign corporation. The IRS is trying to tax the Moores. If the IRS tried to tax the foreign corporation itself, no doubt the foreign corporation would either pay up or engage lawyers to argue why the IRS should fail in its demands.

[NOVA Lawyer]

"Because the IRS is not attempting to tax the foreign corporation."

That doesn't address the argument. The Moores aren't arguing that it is the foreign corporations' income and, so, isn't taxable. You seem to agree which just supports my point that this whole line of argument of Joe's and Tom's is a red herring and, setting aside whether they have stated any valid legal principles, the purported principles have no application to this case.

Which makes one wonder why two people who know so little pretend to be experts.

Also, how did oral argument go for petitioners today?

LOL to the Joes and Toms and Calabresis of the world. This case is a loser. I told you it was a loser. You just kept demonstrating you didn't understand the arguments while I explained why your arguments that they would win were trash and that, in fact, that they would lose. And they will lose.

[Joe_dallas]

NOVA Lawyer 5 hours ago
Flag Comment Mute User
“a major point that you overlooked is that the US Congress has no authority to impose an income tax on a foreign corporation’s income that has no US Source income.”

nova's response - Setting aside whether any of that is true, a major point that you’ve overlooked is that the government’s position is that, in fact, the realized profits are income of the owners of the corporation on a pro rata basis and, so, 13% of those realized profits are the Moores’ income."

Nova - I agree that is the "governments' Position. But the statute in question is assigning the foreign corporation's income to the Moore's for purposes of taxing the foreign corporations income. There is a multitude of case law (tax court cases, TCM's etc ) that have all held that the taxpayer cant assign income to a different taxpayer, yet the statute is attempting to do that very thing.

There is no reason the SC limited the question to the constitutional issue of direct taxes under 16A unless the court wanted shut down any future attempts to tax unrealized income.

Quite frankly there is an abundance of case law that should have shut the statute down, without resorting to the constitutional question.

[NOVA Lawyer]

"There is a multitude of case law (tax court cases, TCM’s etc ) that have all held that the taxpayer cant assign income to a different taxpayer, yet the statute is attempting to do that very thing."

Are you for real? Of course taxpayers can't choose who gets taxed on their income. But Congress isn't a taxpayer. It writes the laws.

And your argument only makes sense if the Constitution requires Congress to recognize the separate legal personhood of foreign corporations. It does not. U.S. law does recognize their personhood (if they jump through particular hoops) for various purposes. But the U.S. is not required to recognize the personhood of any statutorily created foreign entity.

Again, nobody is making these arguments that you are making in the Moore case. The reason is they are shitty arguments.

[NOVA Lawyer]

And how did oral argument go today for your side, Joe?

LMFAOOOO.

[Armchair]

" The statute imposes an income tax on realized income of the Moore’s business venture"
-Indeed, it tries to impose a tax on the income of the business. Not the Moore's. But it can't actually do that because it is a foreign owned business with no real business in the US.

"They argue that it isn’t their income,"
-Because it's not. It's the business's income, in which they have a minority interest. They've never actually seen a cent of income for their personal accounts.

But here's an interesting case example. Let's say someone "gifts" you a 10% share of a foreign company...say in Russia. That company has foreign earnings...in Russia. And Russian law says you can't actually sell any shares of that company. But US tax law says you're mandated to pay the tax on those earnings.

What do you do?

[bernard11]

Suppose you got a $500 deduction, just like a business loss, the first year, and then were taxed on your $500 gain the second, just as if you had made a profit from your business in year 2?

Still asinine?

[Abdul Abulbul Amir]

Lets hope so. The code would become orders of magnitude more complex if not.

[ReaderY]

Accrual accounting – the standard form of accounting for public corporations – is unconstitutional? S-corporations are unconstitutional? Taxing interest on savings accounts (or an account of any kind) when the money hasn’t actually been withdrawn is unconstitutional?

Unrealized sums have been counted as income for purposes of accounting in so many situations, for so long, that it will take more than a single dictionary etymology note (and especially a note saying nothing more helpful or nonobvious than that the (incoming) word “income” comes in to us from the concept of something that comes in) to establish that a long history of established meaning and practice when the word is used in a specifically financial context is wrong.

Professor Calibrisi be equally helpful and convincing if he provided an etymological dictionary entry to justify insisting that “reservations” are something created through a treaty with the country of India (i.e. with Indians), and are certainly not something that has anything to do with a restaurant.

[Spinach Chin]

Rubbish.

In accounting, the income WILL be realized. It's only a matter of defining when the income is counted.

In investing, the income MAY OR MAY NOT be realized. There's no comparison to be made here. They're literally not the same thing.

[ReaderY]

The US v Moore case is about income that has already been realized in the sense of actually being received by the foreign corporation they invested in. It simply hasn’t been realized in the sense of having been distributed to the Moores, The situation so far as the definition of “income” is concerned isn’t much different from as S corporation, whose income is simply atteibuted to its shareholders whether or not actually distributed to them.

Nothing prevents Congress from considering the foreign corporation they invested in to be nothing more than the Moore’s pro rata alter ego for tax purposes. It has no right to have any separate legal existence recognized. As with an S corporation, Congress can decide that if it receives money, then for tax purposes they receive money. Congress can treat foreign corporations in an a manner analogous to S corporations if it wants to, whether the shareholders want it that way or not.

Contrary to this, Professor Calibrisi argues above, very plainly, that money must “come in” to be considered income. Money one expects to come in in the future, however reasonable ones expectation, has not yet come in.

[NOVA Lawyer]

This.

It's bad enough that commenters here keep ignoring or misunderstanding this. It's pathetic that Calebresi pretends not to know this or engage with this pretty plain refutation of the constitutional argument. The Constitution does not require recognition of foreign corporate forms for income taxation purposes.

[Lee Moore]

I think the reason why folk set little score by Reader Y’s arguments is that he repeatedly fails to deal with the specific objections raised. Which I will repeat :

The US v Moore case is about income that has already been realized in the sense of actually being received by the foreign corporation they invested in. It simply hasn’t been realized in the sense of having been distributed to the Moores

Correct. And the income that has been realised is therefore that of the foreign corporation, not of the shareholders.

The situation so far as the definition of “income” is concerned isn’t much different from as S corporation, whose income is simply atteibuted to its shareholders whether or not actually distributed to them.

No, it is not “simply” attributed to the shareholders. It is so attributed if and only if the shareholders so elect. It is a voluntary acceptance of the tax burden by the shareholders, in exchange for the government not taxing the corporation. It’s a deal, not an imposition. No election, no taxing the shareholders.

Nothing prevents Congress from considering the foreign corporation they invested in to be nothing more than the Moore’s pro rata alter ego for tax purposes.

Ipse dixit. Can Congress deem income (by fiat) that under commercial law belongs to A, to belong to B for tax purposes ? And if B, why not anyone ? Can Congress tax Joe Biden on Hunter’s earnings ? If not, why not ?

It has no right to have any separate legal existence recognized.

He keeps repeating this dementedly. The case has NOTHING to do with any supposed rights of the foreign corporation. It is to do with the rights of the shareholders.

As with an S corporation, Congress can decide that if it receives money, then for tax purposes they receive money. Congress can treat foreign corporations in an a manner analogous to S corporations if it wants to, whether the shareholders want it that way or not.

Simply assumes the conclusion, again sailing by the fact that with S corporations it’s shareholder taxation by agreement, not by fiat.

[Lee Moore]

Contrary to this, Professor Calibrisi argues above, very plainly, that money must “come in” to be considered income. Money one expects to come in in the future, however reasonable ones expectation, has not yet come in.

Nor has it. Can you be taxed on your expected 2024 paychecks in 2023 ?

And finally, your gloss :

The Constitution does not require recognition of foreign corporate forms for income taxation purposes.

The constitution gives Congress power “to lay and collect taxes on incomes, from whatever source derived” – that is the chunk of text that SCOTUS is faced with. Which leaves questions as to what is meant by “incomes” and “from whatever source derived.”

The idea of derivation of income from a source connotes actual derivation not a mere deeming. Thus the question of whose income it is, is highly relevant. This is a matter of commercial law, and it’s interesting that in his confusion about constitutional rights, Reader Y actually gets this analysis the wrong way round.

It is conceivable (but unlikely) that the US Congress might have the power to disregard – for the purposes of commercial law, and so the identification of the person who has derived income for 16th Amendment purposes – the existence of a domestic corporation. At least Delaware (for example) is a US state and federal law has supremacy in areas where the federal constitution gives the Congress power to act. But Congress has no power to override the commercial law of a foreign state. There’s no supremacy clause for that. Whether the income belongs to the shareholder or the foreign corporation is a question of the foreign law, not US law. Sure US law governs the taxation of that income, but it is constrained by 16A to tax income that has actually been derived by the taxpayer, not income that Congress deems to have been so derived in defiance of actual commercial law.

So Congress’s power to say this corporation’s income actually belongs to its shareholders is weaker for foreign corps than domestic ones.

[ReaderY]

No.

So far as the constitution is concerned, a “blue” Congress has every right to regard a foreign corporation as having the same relationship to its American shareholders as blue states consider a fetus as having to its mother. No constitutional rights means no right to have, or be regarded as having, any separate legal existence for any purposes whatsoever, and certainly not for tax purposes.

It’s just a piece of paper. The fact that they created a piece of paper saying someone else owns it doesn’t mean that Congress has any obligation to pay any attention to that piece of paper. The existence of a separate owner is a complete fiction, a fiction Congress doesn’t have to pay any attention to.

The definition of income has nothing to do with taxpayer wishes. If the 16th Amendment permits ignoring the corporate form and attributing a corporation’s income to its shareholders with their consent, that same amendment permits atteibuting it without their consent. Consent doesn’t change, it just doesn’t have anything to do with, what constitute incomes for 16th Amendment purposes.

While other constitutional provisions might impose some obligation on Congress to respect the corporate form where a domestic corporation is involved, there is no such obligation regarding foreign corporations.

The United states doesn’t have to recognize or treat with foreign states. Of course it can override their commercial law. Whether it recognizes them (and their laws) as even having any existence is a purely political question.

The United States can simply seize the property of foreign corporations if it wants to. It has done so multiple times in its history. It seized the patents of German corporations during the world wars. Recently, the Biden administration has discussed seizing already-frozen assets of certain Russian corporations as sanctions for the war on Ukraine. It can. Whether to do so or not is a purely political question. Of course the Russian sanctions program flatly ignores Russian commercial law. The United States has no obligation to pay any attention to it at all. It could do the same here if the United States ever got into a cold war with India. The Moores invest in a foreign corporation at their own risk and peril.

[Rossami]

That comment is astonishingly totalitarian. It is also legally wrong. The US government may seize the assets of foreign governments and may, in times of war, seize the assets of civilians (both foreign and sometimes domestic). Those are inherent to the government's power to control foreign policy. But neither of those situations are applicable here. We are not in a declared state of war and the incremental income here has nothing to do foreign policy. This is an unabashed tax grab.

[ReaderY]

No constitutional rights absolutely means the US government can do anything it wants. Agency for International Development v. Alliance for Open Society was about a claim of free speech right. In rejecting the claim, the Supreme Court said foreigners outside US territory don’t have ANY constitutional rights. They are no different from fetuses so far as the constitution is concerned.

The US government absolutely can conquer any foreign country it cares to and impose a totalitarian government on them tomorrow if Congress authorizes it.

As for your claim Congress can’t do this in times of peace, we are not at war with either Iran or Russia. But the US seized Iranian assets, private as well as government, and is considering seizing Russian assets.

Ignoring a foreign corporate form is a triviality compared with what Congress has the power to do.

No right to life means Congress can perform the foreign-affairs equivalent of an abortion on any foreigner it cares to, whether fictitious or natural, any time it wants. On demand. Whether it should or shouldn’t is limited only by the moral beliefs and values of its members and their voters. So far as the constitution is concerned, there is complete freedom of choice.

[Dilan Esper]

The US government absolutely can conquer any foreign country it cares to and impose a totalitarian government on them tomorrow if Congress authorizes it.

Maybe in the very short term, but the teaching of the much-maligned Insular Cases (and I share Justices Gorsuch and Sotomayor's view of them), is that while "the Constitution doesn't follow the flag" wholesale, there are certain fundamental rights that even people in territories have.

So while during a time of military occupation Johnson v. Eisentrager may apply and the Constitution doesn't apply at all, at some point the Insular Cases kick in and the US could not in fact run a totalitarian government in a territory.

[ReaderY]

Replying to Dilan Esper. Johnson v. Eisentrager, which you note, closed this argument. The United States had kept its sector of occupied Germany under military rule for years after active hostilities ended. The Supreme Court said that means Germany remained “extra-territorial” and it meant Eisentrager had no right to due process or habeas corpus.

Sure, if Congress organizes a US territory, the constitution follows the flag. But if it keeps a foreign country under military rule, and it did so for years in Germany, it doesn’t. How long it takes for the Insular cases to kick in (if ever) hasn’t been litigated, but it’s definitely a very long time. Congress can de facto impose a totalitarian government, at least temporarily, and temporarily means at least years if not decades. I wouldn’t call that “very” short term.

[Tom for equal rights]

ReaderY - Ignoring a foreign corporate form is a triviality compared with what Congress has the power to do."

ReaderY - care to give us a citation in the constitution or any other document that power over a foreign corporation not doing business in the US.

[NOVA Lawyer]

"care to give us a citation in the constitution or any other document that power over a foreign corporation not doing business in the US."

But the U.S. isn't exercising over any foreign corporation. It is exercising power over U.S. citizens and ignoring the legal fiction of a foreign corporation for these one-time tax purposes (which, if they didn't, would result in a massive tax-free windfall to the Moores and others similarly situated).

This is why, as stated elsewhere, no one is briefing or arguing the putative "rights" of the foreign corporation at issue.

Even the Moores and their advocates recognize that the government isn't doing anything vis a vis the foreign corporation other than ignoring it and attributing the realized income to the U.S. owners of the business enterprise to which some other country, but not the U.S., has granted corporate status.

[Tom for equal rights]

Nova Not a Lawyer – “But the U.S. isn’t exercising over any foreign corporation. It is exercising power over U.S. citizens and ignoring the legal fiction of a foreign corporation for these one-time tax purposes (which, if they didn’t, would result in a massive tax-free windfall to the Moores and others similarly situated).”

Nova – I would hope you are not actually an attorney since a competent attorney would not claim that a legally formed entity is a legal fiction.

[NOVA Lawyer]

"ignoring the legal fiction of a foreign corporation"

Obviously, "ignoring the legal fiction of the independent personhood of a foreign corporation such that it can enter contracts, make profits, have income, etc."

The U.S. government is under no obligation to recognize and attribute income to artificial persons created as a matter of foreign law. Instead, the U.S. government may attribute as income to the individual owners (who are actual people, unlike corporations) on a pro rata basis the profits of their foreign business venture.

[Joe_dallas]

NOVA Lawyer 7 hours ago
Flag Comment Mute User
“ignoring the legal fiction of a foreign corporation”

Obviously, “ignoring the legal fiction of the independent personhood of a foreign corporation such that it can enter contracts, make profits, have income, etc.”

The U.S. government is under no obligation to recognize and attribute income to artificial persons created as a matter of foreign law. Instead, the U.S. government may attribute as income to the individual owners (who are actual people, unlike corporations) on a pro rata basis the profits of their foreign business venture.

Nova - after reading your arguments - Seriously - Are you actually an Attorney?

[Lee Moore]

Again you march past the point.

That the foreign corporation has no constitutional rights is simply irrelevant to the question of the shareholders’ constitutional rights. Maybe Congress can ignore the corporation’s legal personality for the purposes of taxing the foreign corporation, but it can’t ignore legal facts when the question is whether the shareholders rights preclude them from being taxed on what is legally someone else’s income. The 16th Amendment requires them to have derived income from a source. Congress cannot redefine the terms used in the constitution, it cannot deem away facts if so doing infringes the constitutional rights of the taxpayer. Which is the Moores, not the foreign corporation – because that’s who the IRS is trying to tax.

Even if Congress did have the power to declare that a foreign corporation has no legal personality for US legal purposes it has not done so. All it has done is pass a tax law deeming the company’s income to be the income of the shareholders. But Congress doesn’t get to deem when and whether a taxpayer derives income from a source. That’s a question of the words that are in the constitution and whatever Congress says it would like to deem to the contrary means squat. It has to tax the taxpayer’s actual income.

Moreover even if the US has the power to seize the assets of foreign corporations, that does not give it the power to levy taxes on US citizens on the income of the foreign corporations. The US citizens have constitutional rights, even if the foreign corporations don’t.

[ReaderY]

Legally it IS the Moores’ income. Legally there is no “someone else.” Congress, which makes the law, says so. Your only basis for a claim otherwise is that the law is unconstitutional.

Congress, the law, Uncle Sam, has no obligation to pay any attention to the Moores’ imaginary friends. When it comes to paying taxes, Congress can simply look right through the Moores’ nice-looking piece of paper and say that legally it’s the Moores’ money. And it did.

[Tom for equal rights]

ReaderY 3 hours ago (edited)
Flag Comment Mute User
"Legally it IS the Moores’ income. Legally there is no “someone else.” Congress, which makes the law, says so. Your only basis for a claim otherwise is that the law is unconstitutional."

ReaderY - No its not the shareholders income. Are you competing with Nova for the most delusional understanding of tax law.

[Lee Moore]

This is mistaken. The tax law does not purport to enact that the foreign corporation is not a separate legal person from the shareholders, it simply deems the income of the foreign corporation to be the the income of the shareholders for the purposes of tax.

The 16th Amendment does not provide Congress with any power to deem that A's income is B's.

Nor does it provide Congress with any power to redefine the words of the Amendment at its convenience.

[Randal]

Lee, even if it’s “the corporation’s” income, you’ve failed to explain why the US can’t assess the tax againt the owners of said corporation, same as e.g. an S Corp. It's not taxing unrealized income, or "deeming" the income to be anything it isn't. It's assessing the tax on the corporation's income against the corporation's owners.

You mentioned something about it being voluntary in the case of S Corps, but why in the world would that matter? Unconstitutional voluntary taxes are still unconstitutional.

[Lee Moore]

Same reason as why the IRS can’t assess you on my income. There’s no deeming in the 16th Amendment, it’s income derived from a source.

Congress can try writing any law it likes deeming this and that for tax purposes but unless the income IN FACT belongs to the assessed taxpayer it’s not within Congress’s 16 A power.

[Lee Moore]

The relevance of voluntary agreements is that they extend the legal turf beyond the laws and constitutional provisions dealing with tax.

If you agree with the bank that you will pay off my mortgage as and when it falls due, in return for the bank agreeing not to pursue me for the debt, the bank can enforce its contract against you even though you aren’t the borrower on the mortgage.

The IRS can make all sorts of deals to settle taxes with willing participants that it might not be able to enforce by fiat.

[Randal]

It would absolutely not be constitutional for the government to provide people with an unconstitutional tax as an alternative to paying the income tax.

"Here, you can either pay your income tax, or an unapportioned property tax." No way ever.

[M L]

Lee Moore “No, it is not “simply” attributed to the shareholders. It is so attributed if and only if the shareholders so elect. It is a voluntary acceptance of the tax burden by the shareholders, in exchange for the government not taxing the corporation. It’s a deal, not an imposition. No election, no taxing the shareholders.”

Ehh . . . not exactly. The default tax status of a business is to be indistinguishable from its owner, a sole proprietorship. Or in the case of a single member LLC, a disregarded entity, and in the case of partnerships the income is also pass-through based on partnership tax principles. The S Corporation is a special animal, yes it’s one that you have to opt into, but setting up a double-taxed C Corp is also something that you have to go out and do voluntarily.

So you are technically correct as far as S Corps go, but Reader Y’s fixation on S Corps makes absolutely no sense in the first place. But Reader Y unwittingly has a point, I think, in the basic idea there is no constitutional requirement to recognize a business entity as a distinct person for tax purposes. Whether Congress has coherently and constitutionally made such a choice in this case, I don’t know.

[NOVA Lawyer]

"in the basic idea there is no constitutional requirement to recognize a business entity as a distinct person for tax purposes"

This is the point. Thanks for calling Lee on his misstatement re S corporations and corporate taxation generally.

And if there is no constitutional requirement to recognize a foreign corporation as a distinct person for tax purposes, the Moores lose.

Therefore, the Moore's lose.

(The government easily establishes that the there was actual, realized income and that the Moore's are the 13% owners of the business venture and, so, have realized income which can be taxed. The Moore's whole argument is that they didn't personally receive the income, which is why the partnership, LLC, S-corp examples are useful, they realized, and so can be taxed on, their share of the business venture's realized income even if it didn't go into their bank account.)

[Lee Moore]

You need to stop thinking in terms of “for tax purposes” because that’s at the heart of Reader Y’s confusion.

16A has no deeming or “for tax purposes” content. To be taxed it has to be your actual income, not your income “for tax purposes.”

And actual means following the commercial law. Let us stipulate for fun that it is within Congress’s power to determine that foreign or domestic corporations are not separate legal persons and it is their shareholders who are conducting the business directly including earning the income directly and are exposed to the creditors directly. So stipulated it’s still irrelevant, because even if Congess had the power to do it, THATS NOT WHAT CONGRESS HAS DONE.

It has made an “as if” law deeming As income to belong to B “for tax purposes.”

[Randal]

But we all know from NFIB that that's not how it works. Congress doesn't have to use magic words in order for taxes to be constitutional. What matters is the practical operation and effect of the tax. This tax, in operation and effect, is a constitutional income tax on business income assessed against the owners of the business.

[NOVA Lawyer]

What Congress could do is recognize a foreign corporation as a person with income separate from its owners for tax purposes. This particular provision plainly does not do that. Thus, the income is the Moores' income because Congress chose not to adopt the legal fiction that the foreign corporation is a person separate from its owners, but instead attributes the income from the business venture to the actual people involved in the business venture (if they own at least 10% of the business venture).

The income is not, as is allowed with C corporations for example, treated as the corporation's income for tax purposes rather than the income of the actual people involved in the business venture. Nothing in the Constitution requires Congress to recognize corporations as independent people separate from their owners. Congress could require all corporations to report taxes like partnerships or LLCs or S corporations. Nothing in the Constitution forbids that.

If I am wrong about that, what provision of the Constitution requires Congress to tax corporations as entities separate from their shareholders?

[Lee Moore]

16A limits Congress to income derived from a source.

What that requires is an inspection of the commercial law, not a special “just for tax purposes” deeming.

And no Congress is not required to affirmatively recognise corporations as separate legal persons before the courts can make a judgement on that.

Absent any law from Congress, the courts would simply rely on expert evidence on Indian commercial law as to whether the Indian corporation was a separate legal person from its members in its place of incorporation.

[NOVA Lawyer]

First, you have not provided any argument as to why the Constitution requires Congress to tax corporations as entities separate from their shareholders. I take the point as conceded.

On the points you do raise:

“16A limits Congress to income derived from a source.”

Which this income clearly is and any income from a business venture (whether conducted individually or via a combined business venture of multiple individuals who form a business entity under state law). It’s not clear what this has to do with whether the Constitution requires taxing corporations rather than individual owners.

“What that requires is an inspection of the commercial law”

The Constitution does not enshrine “commercial law”. If you mean the original public meaning of the text of the 16A, etc., sure, but that says nothing about whether Congress must tax corporations as corporations rather than assigning corporate profits to owners on a pro rata basis.

(Which, of course, Congress chooses not to do for S corps and LLCs and partnerships. I think you frame it as the individuals opting into individual taxation when, in fact, it is Congress providing the alternative of being taxed as a corporation.)

“And no Congress is not required to affirmatively recognise corporations as separate legal persons before the courts can make a judgement on that.”

I’m not really sure what you mean here. Regardless, Congress could affirmatively state that corporations will be taxed like partnerships or LLCs if they wanted to and there is nothing in the Constitution or 16A that would prevent that.

“Absent any law from Congress, the courts would simply rely on expert evidence on Indian commercial law as to whether the Indian corporation was a separate legal person from its members in its place of incorporation.”

But there is a law from Congress which says the income is attributable to the individuals, not the fictional person created under Indian law. Anything else would allow tax havens to create new types of entities or business forms to frustrate U.S. tax laws. While the U.S. can choose to recognize them, there is no requirement that the U.S. recognize, for tax or other purposes, corporations or other foreign business/etc. entities and the legal fictions the Indian government chooses to create (or allow individuals to create). Mostly, the U.S. does recognize them for most purposes (so long as they meet other filing, etc. requirements) because there are plenty of good reasons to do so. But it isn’t required by the Constitution.

[Lee Moore]

First, you have not provided any argument as to why the Constitution requires Congress to tax corporations as entities separate from their shareholders. I take the point as conceded.

As I have explained, 16A requires income tax to be limited to actual income from actual sources. The reason why Congress can’t tax a member on the income of a corporation, if the corporation is a separate legal person under commercial law, is the same reason why Congress can’t tax you on my income. There’s nothing special about corporations here – the question is whose income is it ?

Which – because 16A requires actual income from an actual source – rules out any deeming “for tax purposes.” If the corporation is a separate legal person under commercial law, then it is separate legal person for tax purposes, and its income is its own.

The Constitution does not enshrine “commercial law”. If you mean the original public meaning of the text of the 16A, etc., sure, but that says nothing about whether Congress must tax corporations as corporations rather than assigning corporate profits to owners on a pro rata basis.

Same point again. Commercial law determines whose income it is. 16A does not permit Congress to “assign” income for tax purposes. The income is either actually the income of the taxpayer or it isn’t. There’s no deeming.

Which, of course, Congress chooses not to do for S corps and LLCs and partnerships. I think you frame it as the individuals opting into individual taxation when, in fact, it is Congress providing the alternative of being taxed as a corporation.

Opt in or opt out, Congress does not attempt to tax the member on the corporation’s income without the acquiescence of the member.

All your points are essentially the same one. Which boils down to “Congress can deem what it likes for tax purposes.” But it can’t. It’s constrained by 16A to tax the actual income of the taxpayer. And as I mentioned above, even if Congress had the power to specify that a foreign corporation (or a domestic corporation) was not a person separate from its members, such that as a matter of fact rather than deeming, the income belonged to the members – it hasn’t done so. It has merely deemed that the corporation’s income belongs to the member, just for tax purposes.

It has no power to deem things to be so for tax purposes, when they are not in fact so. That is the import of 16A’s requirement for actual income from actual sources landing in the lap of the actual taxpayer.

[NOVA Lawyer]

"If the corporation is a separate legal person under commercial law, then it is separate legal person for tax purposes, and its income is its own."

This is not a constitutional provision or principle. Corporations are separate legal persons under the law as it is. That's not the question. The question is what in the Constitution "grants" corporations personhood? Nothing. In fact, in the U.S., corporations are granted "personhood" by state law. These aren't actual people. Yes, given the law as it is we pretend and in every way act as if this fiction were real. But it is not. The Constitution doesn't require that Congress recognize corporations as separate legal people, generally (obviously, they can't vote) or for any specific purpose.

Imagine every state and other U.S. jurisdiction abolished C corporations (and the tax code was amended to reflect this) and told everyone that they could only conduct business as an individual (sole proprietorship), in a partnership, in an LLC, or in an S corp.

(And to avoid any reliance interests, etc., this only applies to new business formations. No new corporate formations will be accepted or acknowledged.)

What constitutional provision prohibits the states and/or the federal government from doing this?

Commercial law has been changed and what constitutional provision stops a state or federal government from changing commercial law to allow some business forms and not others. (which, of course, the law already does)?

"Commercial law determines whose income it is."

Commercial law isn't constitutional law and Congress's powers are constrained by the constitution, not by commercial law which can be changed at will.

"even if Congress had the power to specify that a foreign corporation (or a domestic corporation) was not a person separate from its members, such that as a matter of fact rather than deeming, the income belonged to the members – it hasn’t done so."

Ahh, a point. You seem to concede that it could. But if it can specify that a corporation is not a person separate from its members, and it changes the tax code to say that, in these circumstances, a corporation is not separate from its members. And that is, basically, what it did here. If the government can destroy the corporate form, it can modify it. It can say a corporation is a separate legal person for purposes of contracts, lawsuits, etc., but it is not for taxation purposes. You like to say "deemed" but a corporation is only a separate legal person by virtue of law, the law can be changed to specify the contours of the personhood (which the examples of partnerships, LLCs, S-corps, and C-corps makes clear...there isn't one way and one form of corporate "personhood" that must exist).

Corporations, for example, cannot vote. They can't be given full personhood rights under the Constitution. And, in fact, they can be entirely eliminated as people consistent with the Constitution, therefore, Congress, in drafting the tax code, is not required to treat a corporation as a separate legal person.

Another hypo: Congress passes a law that all foreign corporations that are majority U.S.-owned must pay annual dividends to their U.S. shareholders equal to a pro rata share of that years' income. What constitutional provision prevents Congress from doing that?

If Congress can do that, I would argue it can exercise the lesser power of taxing the income without requiring a distribution of the already realized income.

You can have the last word. I'll just again point out, that if this was the silver bullet argument, it is curious that no one made or responded to that argument in the Moore briefs.

The Moores argue that they haven't "realized" the income and so it isn't income for 16A purposes. They say they haven't realized it because it is in a foreign corporations accounts (and purchased assets). The government says their concept of realized income is erroneous. Further, government argues that, even if the petitioners win on that point, the 16A doesn't require "realized income", it only requires income.

[Joe_dallas]

NOVA Lawyer 5 hours ago
Flag Comment Mute User
This.

It’s bad enough that commenters here keep ignoring or misunderstanding this. It’s pathetic that Calebresi pretends not to know this or engage with this pretty plain refutation of the constitutional argument. The Constitution does not require recognition of foreign corporate forms for income taxation purposes."

Nova - as lawyer - you should know that nothing in the constitution or any other source that allows the US to impose a tax on a foreign corporation unless that foreign corporation has US source income.

In this case, the statute is taxing that non US income as if it was US source income.

[Tom for equal rights]

Nova - not only is the statute imposing a tax on Non US source income. Its imposing an income tax on a person who did not did earn or receive that income.

[NOVA Lawyer]

"Its imposing an income tax on a person who did not did earn or receive that income."

That's actually the question the Supreme Court will decide and it will decide that, in fact, the statute imposes income tax on the Moore's who did earn that income.

But thanks for playing.

[Tom for equal rights]

NOVA Lawyer 2 hours ago
Flag Comment Mute User
“Its imposing an income tax on a person who did not did earn or receive that income.”

That’s actually the question the Supreme Court will decide and it will decide that, in fact, the statute imposes income tax on the Moore’s who did earn that income."

Nova - You cant possibly be an attorney making so many mistakes. It is not the Moore's income. Repeating the same doesnt make your error true.

[NOVA Lawyer]

"It is not the Moore’s income."

Do you understand that that is a central question in the case? The Moores assert that it is not their income because they didn't realize it, but, instead, it is the corporation's income. The government insists that it is, in fact, the Moores' income attributable to them on a pro rata basis.

If you don't understand those are the two arguments, you're the one of question legal education and skills.

[NOVA Lawyer]

"you should know that nothing in the constitution or any other source that allows the US to impose a tax on a foreign corporation unless that foreign corporation has US source income."

So your argument is that Calebresi and Moore's attorneys are missing the real problem and that is the unconstitutional taxing of a foreign corporation? Funny how no one is briefing that argument.

[Tom for equal rights]

ReaderY 8 hours ago (edited)
Flag Comment Mute User
The US v Moore case is about income that has already been realized in the sense of actually being received by the foreign corporation they invested in.

ReaderY -Its the income of the foreign corporation, not the individual. It would also upset the concept of assignment of income principle where you cant assign your income to a different person ( person defined as individual, trust, partnership corporation sec 7701 (a)(1) of the IRC).

[ReaderY]

Congress has no more constitutional obligation to respect a foreign corporation’s claim to separate legal existence than it has to respect a fetus’

If Mrs. Moore were pregnant and a foreign government permitted a legal procedure assigning Mrs. Moore’s money to her fetus, Congress could simply ignore that assignment and say that for tax purposes, the money remains the Mrs. Moore’s, what foreign law says notwithstanding.

What it did here is no different. Congress can simply ignore a purported assignment of money to a foreign corporation and say that for tax purposes, the foreign corporation simply doesn’t exist as a separate entity, and the Moores continue to own their investment, and all income derived from it, themselves.

Congress has no obligation to respect the personhood of any foreign individual or entity. No constitutional rights means no right to personhood status. Remember Roe v. Wade? Dobbs didn’t overturn that part of it.

Just as with a fetus, Congress can choose to acknowledge foreign corporate legal personhood for some purposes but not for others.

[Tom for equal rights]

ReaderY

You have a delusional understanding of the issues in the Moore Case.

Neither the Constitution or the Congress can create any jurisdiction to impose a tax on a foreign corporation unless some portion of that income is US source and then the tax can only be imposed on that portion which is US source.

[M L]

"The US v Moore case is about income that has already been realized in the sense of actually being received by the foreign corporation they invested in. "

Right. Which is why all your other gibber-gabber about accrual accounting and so on is off base.

I still think everything Calabresi has written about this seems correct as far as it goes, there is just a disconnect between these academic points and the facts of this case.

[Randal]

I still think everything Calabresi has written about this seems correct as far as it goes, there is just a disconnect between these academic points and the facts of this case.

Hahaha true... and a little worrying. This court has shown a propensity to decide cases based on imaginary facts that they find interesting, rather than the actual facts of the case. So who knows what case the court might decide to decide?

In fact, the question granted in this case really speaks more to Calabresi's imaginary facts than the real facts:

Whether the Sixteenth Amendment authorizes Congress to tax unrealized sums without apportionment among the states.

[Dr. Ed 2]

I believe that the term "Reservation" comes from Colonial law -- at least in Massachusetts, land not allocated to a town (to this day) is called a "Reservation" -- e.g Breakheart Reservation, Quabbin Reservation -- the later being four towns that were eliminated.

While neither an accountant nor an attorney, I can see a difference between interest earned on my checking account and unrealized gain in the value of my stocks. Two big differences are (a) my interest is *mine*, I won't lose it even if the bank fails, and (b) the government doesn't tax me when I take money out of the account. (Don't encourage them...)

[JasonT20]

my interest is *mine*, I won’t lose it even if the bank fails

Isn't that because of the federal deposit insurance?

[Rossami]

I think Dr Ed was trying to say that he doesn't lose his legal claim to the interest, just like he doesn't lose his legal claim to his original deposits. They are both legally his money held in an account entirely controlled by him.

Whether he could actually get any of that money in the event of a bank default is a practical question that is, as you say, mitigated by the FDIC.

[bernard11]

Similarly, whether you recover any value for your shares in a bankrupt corporation depends on the specifics of the case and the complexities of bankruptcy law.

True, you often don't but sometimes you do. No less than Trump himself has boasted that he did very well out of his serial bankruptcies.

[Lee Moore]

I thought that was more to do with escaping from having to pay off liabiities than actually making a profit on the shares.

[bernard11]

I don't l know what it was or if the boast is true. Probably not.

Since the casinos continued to operate I assume that the liabilities were mostly converted to equity, but I haven't seen any details of his multiple trips to bankruptcy court.

[Lee Moore]

I will offer an illustration.

1. I buy a building for $20 million
2. Its value rises to $50 million
3. I raise a loan from a bank for $30 million secured on the building, and with recourse only to the building (ie the creditor agrees it can only claim the building if I default, not any of my other assets)
4. The building tumbles in value to $12 million and I default on the loan.
5. The bank repossesses the building and sells it for $12 million
6....to me
7. I later sell it for $20 million.

Overall I have laid out cash of $10 million plus $12 million, and I have received cash of $30m plus $20 million. Total profit of $28 million. But where did it come from ?

Well the second time I bought the building I just bought it for 12 and sold it for 20. So that's easy, a profit of 8.

But the first time, what happened ? I bought it for 10 but then I forfeited it when it was worth 12, and that value settled 12 of my bank loan. So I made a profit of 2 from my ownership of the building first time round. So where's the other 18 come from ? It's my profit on the loan. I got 30 when the loan was advanced, but I only paid 12 to get rid of it (the value of the building when I defaulted.) So

Building first time +2
Loan +18
Building second time + 8

Nice work if you can get it.

[Lee Moore]

There's a splendid description of a real estate deal of this type, in a different context, in Adam Fergusson's "When Money Dies" which I thoroughly recommend for anyone interested in the German hyperinflation of the early 1920s.

Fergusson recounts the tale of a wealthy German aristocrat who found that some land adjacent to his estate had come up for sale, I think towards the end of 1921. He bought it, financed by a loan from the bank. About 9 months later, he paid off the loan in full, with the proceeds of sale of some of (not even all of !) a crop of potatoes grown on the land since he had bought it. So the land finally cost him part of a single year's crop of its own potato yield. And the profit derived essentially from a massive "inflation--default" on the bank loan.

And you thought these guys could do nothing but fly biplanes or strut around in pointy helmets.

The story (and related ones) also explained who benefitted from the inflation and how. Basically if you could get a loan from the bank, you were made. And that meant you needed to be :

(a) already rich, and thus with collateral, or
(b) politically connected

It turned out afterwards that the German politicians had been making out like bandits by buying hard assets with bank loans. Most of them had no clue why there was massive inflation, or how their own policies contributed to it, but they did know how to benefit from it. Borrow.

[SimonP]

Yes, a broad ruling in this case would fuck up a lot of how taxes are done in this country. I suspect a lot of the people making these silly "etymological" arguments, like Steve-O here, grasp that. They're aiming for the fences on behalf of moneyed interests; very little attention has been paid on the VC to the negative consequences that could result from a broad ruling.

But there is a narrower ground to rule in this case, I believe, focusing just on the specific provision that they added to try to recoup part of the costs of Trump's tax cuts in 2017.

[Krayt]

on behalf of moneyed interests

As opposed to on behalf of incontinent spenders lavishing and borrowing insane amounts so they can be elected so their fortunes can mysteriously leapfrog?

There is nothing noble about this spending, which borrowing is tied to gdp, utterly severed from any rational need.

As things get better, tech progresses, economy grows, government should get smaller. It doesn't, because that's not the name of the game. The goal is power, so you can be corrupt.

[ReaderY]

Interesting logic.

1. As society becomes larger and more complex government, gets smaller
2. But government doesn’t get smaller.
3. Therefore, government is corrupt.

Perhaps statement (1) simply isn’t true?

[Brett Bellmore]

The argument, so I take it, is that government should be getting smaller, because the private sector keeps getting better positioned to do what government is purported to be necessary to do.

[JasonT20]

the private sector keeps getting better positioned to do what government is purported to be necessary to do.

Okay, but is that true?

[Brett Bellmore]

In some cases, yes.

Government is displacing private charity, and as we as a society have become wealthier, private charity has become easier to afford.

[Sarcastr0]

In some cases is doing a ton of work.

This echoes Marxist analysis about the withering away of the state. It's just as dumb coming from the right as the left.

[JasonT20]

If you’re talking about various social welfare programs, the question would be whether the total assistance to those in need is closer to the amount of the need with or without the government spending. To make up a hypothetical, say that 100,000 children with special needs due to disability could not get the assistance they need from only the parents’ resources. If private charities are able to fill all of that gap for all of those children, then of course, there would be no point to government spending in addition to that.

What if only 60% of the parents were finding help from private charities and only for an average of 60% of the gaps in assistance? If a government program is created that gets a larger percentage of parents the help that they need and for a larger fraction of what they need for their children, then I would argue that any displacement of private donations towards the public funding would likely be worthwhile. Now, there would still be questions of cost effectiveness of the public assistance vs private charities to consider as well, but that level of detail isn’t something I would include in a hypothetical.

As Sarcastr0 said, “in some cases” would need real world examples to evaluate to go further that arguing basic principles and hypotheticals like what you and I have said so far that we could go in circles over all day.

[TwelveInchPianist]

"Interesting logic.

1. As society becomes larger and more complex government, gets smaller
2. But government doesn’t get smaller.
3. Therefore, government is corrupt.

Perhaps statement (1) simply isn’t true?"

Well, what he said was "As things get better, tech progresses, economy grows, government should get smaller."

And that makes sense, right? Suppose the DMV takes up x percent of the economy. If productivity doubles, then all other thing being equal, the DMV should use half the resources to accomplish its mission, and the non-DMV economy would double, so the DMV should take up about x/4 percent of the economy.

[Sarcastr0]

Check out population growth.

And the concept of 'complexity' which you are ignoring. Modern life is more complex for reasons having little to do with Big Government and a lot to do with that productivity you seem to like.

[Davy C]

If government size is measured as a percent of the economy, population growth should be a relatively neutral factor. Double the people, double the buildings and double the employees, and you're back where you started.

[Tom for equal rights]

SimonP 10 hours ago
Flag Comment Mute User
"Yes, a broad ruling in this case would fuck up a lot of how taxes are done in this country. "

A ruling in favor of the government / upholding the statute would upturn bedrock principles of tax law in this country. A) It would tax unrealized phantom income and B) would impose an income tax on a person different from the person that earned the income. C) It would tax income on a foreign person that had no US Source income.

definition of "person" Code Sec. 7701. Definitions

(a) When used in this title, where not otherwise distinctly expressed or manifestly incompatible with the intent thereof -

(1) Person

The term "person" shall be construed to mean and include an individual, a trust, estate, partnership, association, company or corporation.

[Randal]

A) Phantom incomes!
B) This happens already with e.g. dependents.
C) No one seems to be making this argument. It's much more compelling than putting the word "phantom" in front of "income" and then saying "there, now you can't tax it." But I have to assume it's wrong, otherwise it would be part of the case...?

[Kazinski]

"Taxing interest on savings accounts (or an account of any kind) when the money hasn’t actually been withdrawn is unconstitutional?"

Ridiculous, the money is at your disposal. It's the same if you reinvest your stock dividends, you made the choice on how to allocate the dividend so it has been realized.

Does your splitting of non-existent go so far as to postulate that if you get handed money in an envelope then it's not realized until you open the envelope?

[ReaderY]

By Professor Calibrisi’s definition, money which has not “come in” is not income. “The check is in the mail” - money in an envelope - is perhaps the classic example of money that has not yet “come in.” You agree with me it can nonetheless be considered income. You didn’t catch that I’m disagreeing with Professor Calibrisi’s simplistic definition?

Nor does money have to be at your disposal to be considered income. Consider the undistributrd income of an S corporation, or interest on a CD.

[Martinned]

Ridiculous, the money is at your disposal.

So are the unrealised gains that are sitting in your investment account.

[Craig Johnston]

Unrealized gains are no more money at my disposal than the house I live in. I’d have to sell the house or the stock in order to have the money. Shall we allow the government to tax the unrealized gain in our property value as well?

[Martinned]

Why not? The municipal taxes I pay on my property in the Netherlands are calculated as a percentage of the assessed value of the property, which they re-assess every year. There's no fundamental problem with that, as long as you think the bureaucracy is worth it.

[Craig Johnston]

There is a massive difference between paying local property taxes based on the assessed value and paying federal income tax on the unrealized gain. The property tax is based on the current value, which is always positive, and goes to fund local programs and services. The “income” tax would be based on the change in value, which might be positive or negative, and goes to pay for something, I guess.

[Tom for equal rights]

That is a property tax not an income tax

[bernard11]

I’d have to sell the house or the stock in order to have the money.

Well, selling stock is pretty simple. It might take all of 30 seconds if you are unfamiliar with your broker's process, less once you've done it a few times. Anyway, the decision to sell or not is just as much a voluntary choice as the decision to take money out of a savings account or not.

[Davy C]

But selling is *not* voluntary. At least, not selling at a particular price. I can declare that I want to sell a million shares of IBM at its current price of about $161 per share, but I can only do that if someone else is willing to buy it at that price. The very act of selling that many shares is likely to depress the price to some degree.

A savings account is different. The money is available; you can spend it without depending on other people to buy you out.

[Armchair]

This is a misunderstanding of the process.

Yes, in a well functioning fluid stock market, with limited sale volumes, selling stock can be easy.

But that's not necessarily the case. One issue is, you need to find someone to actually buy the stock. With stocks of limited fluidity or very large volumes, it can actually be difficult to sell the stock.

To give an example, let's take Elon Musk's Tesla shares. They're currently valued at ~$200 Billion. But he can't instantly sell those shares for that price. There's no buyer for that much Tesla stock at that price now. If he tried, he'd only bring in a fraction of that price

[Randal]

I don’t think anyone’s confused by the difference between interest / rent vs. changes in property value.

Otherwise, we’d get to deduct inflation from our income taxes.

Well... I take that back. You and bernard are confused. No one else is confused.

[bernard11]

Ridiculous, the money is at your disposal.

So too is the value of your stock portfolio. Just log on to your account, click a few times, and it's yours.

It’s the same if you reinvest your stock dividends, you made the choice on how to allocate the dividend so it has been realized.

But not taking your capital gains is exactly analogous to reinvesting your dividends. One is just as much your choice as the other.

[Lee Moore]

This is incorrect.

If money, such as interest, is standing to your credit in your bank account, you have an unconditional right to it. That doesn't mean you'll actually get it, if the bank is bust, but you have an unconditional legal right to it.

But with your appreciated stock portfolio it's different. What you have an unconditional legal right to is the stock. You have no right to any cash.

Unless you undertake a transaction, with a willing buyer, to sell the stock for cash. Once you've done those few clicks, yup you've realised your gain. But until you do so, you haven't.

[Dilan Esper]

Why can't someone make the same argument about a long-term CD? The interest is accrued and yet the only way I can access it is if I assign my right to the proceeds.

That's empty formalism. It seems to me Congress can choose how it wants to tax value that accrues in an asset.

[WuzYoungOnceToo]

Why can’t someone make the same argument about a long-term CD? The interest is accrued and yet the only way I can access it is if I assign my right to the proceeds.

Because that interest has been realized in that it is present in your account and cannot legally be taken from you. It is a fixed amount of money that has been locked in, and you own it irrevocably. This is NOT true in the case of a security like a stock, which only has potential value, which is based on what someone else is willing to pay you for it at any given moment in time IF you sell it. It is purely theoretical until that event occurs. "Access" is irrelevant.

This really isn’t that difficult to understand.

[bernard11]

That seems pretty pedantic to me.

You have the right to sell the stock, for cash, at any time the market is open. That you don't do so is not because of any constraint, just like leaving accrued interest in a savings account.

[Davy C]

You have the right to sell the stock in the same sense that a store has a right to sell a loaf of bread. Will someone buy it? Who knows?

You want to sell a hundred shares of stock, you can *probably* quickly find a buyer very close to whatever the current price is, although that's not guaranteed. You want to sell 10% of the company? That's probably not going to happen so readily.

[Lee Moore]

There is no blueberry muffin on the table in the kitchen to go with my coffee. Because I ate it last night.

But it would be the work of a moment to stroll down the street and buy another. OK there’s a small chance they could have run out. Or it might suddenly start raining so it would be a pain to go out. But broadly, that muffin in the shop is as good as mine, if I chose to make it so.

But it ain’t mine. A muffin in the hand is not the same as a muffin in the shop.

It may seem pedantic to make such a fine distinction, but it is at least an intellectually coherent bright line that can be policed. Assessing how difficult it might be to realize your profit is an unpoliceable line. Some days Elon might be able to sell his whole Tesla stake, because someone might be interested. Some other days it might take him a decade to sell.

Even clicking on your broker account is not a slam dunk. I have some illiquid things where I can’t sell them online, I can only sell them by phone, and only then in small packets if there’s a counterparty.

En passant, I will note a point that will enrage you even more. I could buy some shares for $10,000, and they might rise to $150,000. I might get nervous that they could fall back, but I might want to stay in for the ride. So for $6,000 say, I buy a put option exercisable at say $125,000. So I’m now absolutely guaranteed – broker bankruptcies permitting – a profit of $109,000.

Shirley that counts as realising a gain ? Nope, or not usually – unless you’ve tied everything up too tight. The IRS will wait for the actual realization event.

[WuzYoungOnceToo]

That seems pretty pedantic to me.

That's because you're an idiot with a mile-thick skull, as evidenced by the fact that the flaw with your comment below has already been explained to you numerous times, and yet here you are still mindlessly regurgitating it.

You have the right to sell the stock, for cash, at any time the market is open.

[Don Nico]

“it will take more than a single dictionary etymology note” I think that is correct, but accruals such as interest not withdrawn or not distributed are certainly different that fluctuations in values of assets which can fluctuate dramatically cannot be realized unless the asset is sold. If any definition is needed, it is the word “realized.” As you note the interest on my invested assets is taxed whether I withdraw or not and that does not change even when the value of the invested asset changes.
The interest on the CD is at one's disposal, minus the contractually agreed penalty for accessing the funds prior to the maturity of the CD

[NOVA Lawyer]

"are certainly different that fluctuations in values of assets which can fluctuate dramatically cannot be realized unless the asset is sold."

Good thing those fluctuations aren't at issue in Moore!

The only thing being taxed in Moore is realized income, however much Calebresi and others ignore and try to obfuscate that fact.

[Don Nico]

Indeed, that would make no sense.
As for the matter of extremely wealthy borrowing against present assessments of assets without paying income tax, one should have no objection as long as the interest paid on such borrowed funds is NOT tax-deductible.

[NOVA Lawyer]

Agreed.

(With caveats. I'm open to hearing and being persuaded that there are ways to prevent the ultra wealthy from avoiding taxes while continuing to accumulate vast sums of wealth. But, yes, in general, no objection to the scenario you describe.)

[Tom for equal rights]

Don - there are several limitations on the deduction of interest expense under section 163, for example 163(d) limits the deduction for interest for money borrowed to purchase property held for investment to an amount not to exceed investment income. section 265 limits the deduction for interest paid for assets generating tax exempt income.

[bernard11]

I disagree, Don.

I don't think it's a matter of the interest being tax-deductible, which I don't think it is. Rather, it's a matter of avoiding ever paying tax on the gains involved.

When the billionaire dies his heirs get a "step-up" in basis. The new basis is the value of the stock at the time of death. They can sell the stock tax-free to repay the loans, no matter how much its value has increased.

Of course, you pretty much have to be massively wealthy to take advantage of this, since you don't want to borrow against a big share of your assets.

[Joe_dallas]

bernard - there is an excise tax commonly known as the estate and gift tax which means there is a tax on the transfer of property via gift or the estate. the current exemption is 12m which reverts back to 6m per individual (indexed for inflation)

so those unrealized gains dont completely escape taxation.

[Lee Moore]

As you note the interest on my invested assets is taxed whether I withdraw or not and that does not change even when the value of the invested asset changes. The interest on the CD is at one’s disposal, minus the contractually agreed penalty for accessing the funds prior to the maturity of the CD

It's perhaps worth noting that the niceties of what is and is not income, and when income arises, were originally matters of interest to trust beneficiaries, before there ever was an income tax. And the analysis was invariably form not substance - ie sell a debt instrument with accrued interest not yet due, that's entirely on capital account.

[Michael P]

Accrual accounting for taxes on individuals is presumptively unconstitutional, yes. Corporate taxes are not direct.

The idea that interest paid to a fungible account hasn't been realized is, well, "special".

[Tom for equal rights]

fwiw - an individual can elect to report income under the accrual method of accounting. Its not done very often, but it is done. It was done more frequently in the 1940's through the 1960's. The last one that I was involved with was an accrual election for the individual in 1984. The right circumstances for the election to have positive results dont happen very often.

[Tom for equal rights]

ReaderY 12 hours ago (edited)
Flag Comment Mute User
"Accrual accounting – the standard form of accounting for public corporations – is unconstitutional? S-corporations are unconstitutional? Taxing interest on savings accounts (or an account of any kind) when the money hasn’t actually been withdrawn is unconstitutional?"

ReaderY - WTF?

[WuzYoungOnceToo]

Accrual accounting – the standard form of accounting for public corporations – is unconstitutional? S-corporations are unconstitutional?

That doesn't even rise to the level of strawman argumentation. It's just flat-out making stuff up.

Taxing interest on savings accounts (or an account of any kind) when the money hasn’t actually been withdrawn is unconstitutional?

Withdrawal of money is not an income-producing event, an more than taking a stack of cash out of your wall safe is. Sale of a security at a profit is.

l can't believe anyone over the age of 12 is making the idiotic arguments you are.

[Randal]

They're the same idiotic arguments the Moores are making.

[mword]

Question: if Moore wins doesn't it throw some shade on the constitutionality of the AMT (Alternative Minimum Tax)? I hope the answer is yes because I currently can't pay a large tax bill on paper profits that I haven't been able to realize. I think I would even be willing to join a class action against the AMT in this case.

[Kazinski]

I don't think you have much of a case, the AMT is a used an alternative rate on realized income and limits credits and deductions.

It doesn't count unrealized income.

[mword]

Hm, if my income was "realized" (by any reasonable definition) I'd expect to be able to use some of it to pay my taxes.

[Joe_dallas]

Post 2017 tax act, you shouldnt be hit with AMT. The number of individuals paying AMT post 2017 is probably less than 5% of the number of individuals paying AMT prior to the 2017 tax act. The exemption went up dramatically, which was a huge benefit

[Tom for equal rights]

The constitutionality of the AMT was decided shortly after the 76 tax reform act. It did poorly address the retroactivity of the AMT since the AMT applied to all of 1976 where as the 76 tax reform act was passed in mid 1976.

[Longtobefree]

In courts where the judge can rule that men are women, you are expecting a dictionary to matter at all?

[JasonT20]

If a woman adopts an infant, is she that child's mother? Or will you insist on a biological definition of mother that requires the woman to give birth to that child to be its mother? What about surrogacy? Or egg donation? And who gets to decide, anyway?

[Michael P]

How many legs does a dog have if you call his tail a leg?

[JasonT20]

So, are you saying that a woman that adopts a child is a tail and not a leg? Or are you avoiding the analogous question because you don't like the implication of the answer most people will give?

[Michael P]

You're the one refusing to answer the analogous question because you don't want to justify your attempted equivalence.

[NOVA Lawyer]

If the law defines a dog's tail as a dog's leg, then most dogs will have five legs under the law. The biological fact of a dog includes the biological definition of a leg, so, for biological purposes, a dog has four legs, regardless of what the law says.

You can define a woman (or man or mother or child) however you want to, but different laws define the term different ways depending on circumstances. Deal with it.

Now, is a woman who adopts a child a mother?

And what does this tell you about the stupid rhetorical question that started this particular thread?

[Michael P]

So your argument is "the law is *still* an ass". That seems to have been the original point here.

[JasonT20]

If I agree to the definition of "leg" according to its form and function, then I would not call a tail a leg because it has a very different form and function. I see no reason not to agree to that definition of leg, so that question is answered. Feel like answering mine now?

[Tom for equal rights]

Nova - Lots of statutes have definitional sections. That is nothing new.

[NOVA Lawyer]

Which is why longtobefree's original comment wasn't well thought out.

Got a case in mind in which a judge ruled that "men are women"?

[Lee Moore]

If a woman adopts an infant, is she that child’s mother?

Well, obviously, if the law so provides, she is, for legal purposes. But for biological and medical purposes, she's not. Docs, when treating a child, do not hunt about for clues in the medical history of the adopting mother.

In this case, 16A is written in natural language, with no mysterious deeming clauses. So the question to be determined is - have the Moores actually derived income from the business conducted by the Indian corporation* they own shares in. No deeming, no mulligans.

(*Which is not an S corporation, whose income the shareholders would be entitled - by agreement with the IRS, not by compulsion - to "adopt.")

[JasonT20]

Well, obviously, if the law so provides, she is, for legal purposes. But for biological and medical purposes, she’s not. Docs, when treating a child, do not hunt about for clues in the medical history of the adopting mother.

Longtobefree's comment that started this was a diversion from the topic of the original post, but I tried to address that usual anti-trans argument with a question I have heard recently that I think deserves consideration.

We aren't just talking about the definition of "woman" legally when discussing trans issues and trans rights. There are also the cultural implications for it. And along those lines, I think a woman that had adopted a child would be quite offended to not be considered that child's mother. That a doctor obviously would not consider that woman's medical history when treating the child does not change that, as that is a different context.

[Lee Moore]

Sure, there are lots of words with metaphorical usages. And since being an actual “mother” usually involves not merely the conception, pregnancy and birth stages; but also the post birth care stages, all the way along to criticising excessive tattooing in early adulthood, then “mother” is a good candidate for metaphorical cultural usage for someone who takes on these tasks after the child has popped out of someone else’s womb, or even that plus a few years of childhood.

But – legal definitions aside – it’s still a metaphorical usage, nodding back to the literal usage. Just as an adoptive Mom might be miffed at not being called a child’s “mother”, plenty of adopted kids get miffed when they discover that their Mom is not their actual Mom, but a substitute. (Ditto substitute Dads.) And they set off in search of their “real Mom.” Or Dad.

I’ll mention in passing since it is invariablty omitted from those unpleasant news reports that we see from time to time – step fathers assault, including sexually assault, “their” children roughly 200 times as often as actual fathers do. Sometimes the difference between reality and metaphor matters.

As it does in some cases with trans folk. Whether a woman is an actual woman, or a trans one, matters in some cases. Not merely medically, but in sports, in public bathrooms, in “genital preference” for sexual partners, security in prison, and of course in the matter of reproduction.

Adoptive mothers at least have a piece of paper from the government establishing their official status, which brings with it responsibilities. There are, of course, uncertified adoptive mothers and always have been, but as a rule you can’t just pronounce yourself an adoptive mother. There needs to be some evidence of your status.

So there’s a recent trend in some circles, in some countries, to extend the use of “woman” and “man” to men and women who “see themselves” as woulda coulda shoulda in some sense, the sex that they’re not. But just for the avoidance of doubt, they’re not. This new usage is metaphorical.

PS in the end, all threads lead to trans 🙂

[NOVA Lawyer]

And, to the extent your reasoned response isn't a refutation of longtobefree's rhetorical point (judges ruling on the law, not on biology, after, setting aside it's not at all clear what US case he was talking about given his was a response to US case law), your response is incomplete as it pretends there is a binary biological distinction between men and women.

We know that a chromosomal definition leaves out some women who from birth have been considered female including because they have had, from birth, female genitalia.

We know that a definition based on genitals at birth is under/over inclusive as well in that some XY people who, nonetheless, have either typically female or genitalia that is not typically female or male (so sometimes were surgically "assigned" female at birth).

Likewise, any other purportedly objective definition of "woman" will necessarily be over- and/or under-inclusive.

Consequently, people pretending gender is necessarily an objective, immutable fact are wrong.

(As to your specifics of "mothers", what you've really established is that there is no one definition of mother. You can also find plenty of adopted children who view the woman who raised them as mother and the woman who conceived them as nothing more than an egg donor or the like. Plenty also recognize having two mothers.

Your examples are incomplete and leave out the most relevant fact in reply to the original off-topic comment: The law is informed by, but not dictated by, the often contradictory and perhaps usually not perfectly overlapping biological and cultural facts. Motherhood, like gender, is not a simple, objective biological fact.)

[Lee Moore]

You’re overcomplicating sex (not sure why you’re calling it gender here.) There are loads of interesting, and sometimes tragic, developmental abnormalities when it comes to sex differentiation, but almost all of them are irrelevant to the question of who is a man and who is a woman. Only those who do not have gonads of one sex or the other are "ambiguous" as to sex. And that’s roughly 1 in 100,000. And they’re not really “ambiguous” either – they just don’t have a sex.

Sex is a characteristic of anisogamous species – the clue is in the name. It’s all about gametes. As the gamete factories therefore, the gonads are decisive in classification. Everything else is secondary. A turkey dinner is a turkey dinner if there’s turkey. Nothing about the trimmings converts it into a goose dinner.

Those very few unfortunates who are not men or women, because they have no sex, do not of course disrupt the binary biological distinction between men and women, for obvious logical reasons.

[JasonT20]

Those very few unfortunates who are not men or women, because they have no sex, do not of course disrupt the binary biological distinction between men and women, for obvious logical reasons.

Taken your argument here as a given for the moment, would that justify refusing to use the preferred pronouns of such an "unfortunate", or insisting that they only use whatever bathrooms match whatever was put on their birth certificate, even though they don't actually have a sex, according to your argument?

I'm still seeing mainly an insistence that definitions remain fixed to something that matches a historical cultural norm. Looking at the biology shows situations where that cultural norm of a strict binary fails. Whether it is 1 in 100,000 or 1 in 100 people that don't fit this male = sperm, female = egg definition you have, why is it so necessary to cast them into social buckets that they don't want to be in?

[Lee Moore]

You may have misunderstood my point. The distinction between male and female is not a cultural convention, historical or otherwise, it’s a clear biological distinction that applies to all anisogamous species. Sex differentiation is anisogamy. All sexually differentiated features in all species that exhibit sexual differentiation are evolutionary and developmental consequences of the primary differentiation of gametes.

The cultural question of how to treat people with sexual development disorders is not a biological matter it’s a cultural matter. In a free society how A treats B is a matter for A, within the usual limits of respect for equal liberty.

My own opinion on the cultural question is that it is inevitable that if 99.99% of the population fit into 1 or 2 boxes, the 0.01% who don’t are liable to feel odd and may wish to be treated as if they were in one of the boxes. I can’t see any problem with this except in the circumstances where the distinction between “is” and “as if” matters. eg don’t marry someone you know is desperate to have children if you know you can’t. Or at least make sure they know what they’re getting into.

Nor do I have the slightest cultural difficulty with people who are unambiguously of sex A presenting themselves to the public as if they were sex B, if that is how they feel. Nor with other people accepting them at their “as if” persona. Nor with other people declining to do so. I am a cultural liberal in these matters.

[TwelveInchPianist]

"If a woman adopts an infant, is she that child’s mother? Or will you insist on a biological definition of mother that requires the woman to give birth to that child to be its mother?"

I'm not sure how this is responsive to the dictionary question. Dictionaries reflect current usage, and current usage almost always reflects that a female adoptive parent is a child's mother.

Suppose some group of people decide they want to destroy the institution of adoption. And instead of doing so by making reasoned arguments, they try to do it by refusing to call adoptive parents moms and dads, or adopted children sons or daughters.

People opposed to such a move should insist on standard terminology.

[NOVA Lawyer]

"Dictionaries reflect current usage, and current usage almost always reflects that a female adoptive parent is a child’s mother."

Surely you understand that dictionaries recognize that "mother" may refer to either:

a. one that begets or brings forth offspring; or

b. a person who brings up and cares for another.

M-W.com

But you are right, people opposed to gay marriage or trans rights shouldn't pretend that, while they are entitled to define marriage how they want or woman or whatever, there are multiple definitions and the law accommodates both. The people trying to use definitions to "win" the debate are almost exclusively right-wing cultural warriors who like to pretend marriage or woman or whatever has only one immutable definition handed down by god.

The fact is, most words, and especially woman, mother, etc., have multiple nuanced meanings some of which exclude the people that longtobefree wants to exclude and others that don't. Your pretending words have only one meaning isn't helping.

[TwelveInchPianist]

"Surely you understand that dictionaries recognize that “mother” may refer to either:"
I never said it didn't.

"The people trying to use definitions to “win” the debate are almost exclusively right-wing cultural warriors who like to pretend marriage or woman or whatever has only one immutable definition handed down by god."

Huh? I'm pretty sure it's the left that's insisting that the only definition of "woman" is someone who identifies as one, and that people who refer to men who identify as women as men are definitionally incorrect, and a lot of other things as well.

And the right is correct to the extent that, until recently, as a factual matter, the definition of "woman" excluded someone with a penis.

[JasonT20]

Huh? I’m pretty sure it’s the left that’s insisting that the only definition of “woman” is someone who identifies as one, and that people who refer to men who identify as women as men are definitionally incorrect, and a lot of other things as well.

That may be your perception, but I don't see that. Especially if it is coming from something as vaguely defined as "the left." (We are talking about definitions after all, so who exactly counts as being part of "the left," and are they actually phrasing it the way that you said?)

[Randal]

I’m pretty sure it’s the left that’s insisting that the only definition of “woman” is someone who identifies as one, and that people who refer to men who identify as women as men are definitionally incorrect, and a lot of other things as well.

And you would be wrong. The left isn't fixating on the definition of "woman" ‐‐ it's a meme on the right that's intended as some sort of pathetic gotcha.

Justice Jackson didn't bring up the definition of "woman" in her confirmation hearings, that was a retarded line of questioning by Senator Blackburn (R). Secretary Cardona didn't bring up the definition of "woman" in his congressional testimony, that was a retarded line of questioning by Rep Clyde (R).

[JasonT20]

The real issue surrounding the idea of wealth taxes is how the very wealthy can increase their wealth and use that increase in wealth to fund their lifestyle without it becoming realized income. How much of that is myth and how much is reality would be important information to determine if loopholes and tax shelters need to be closed. Questions about what kinds of taxes are constitutional are important, but libertarians won't make the issue itself go away by winning this case.

The push for these kinds of taxes is coming from news reporting and claimed statistics about how much the wealth (net value of assets and debts) of the richest people in America increases each year while they allegedly find ways to end up with a small fraction of that being considered taxable income. What are they doing with it? The free market idealists tell us not to be envious or concerned about whether they pay their "fair share", because "a rising tide lifts all boats" and similar pithy aphorisms. But the question isn't sufficiently answered, to me, at least, that those of us working for a paycheck are really benefiting from the actions that increase their investment portfolios so much.

[Longtobefree]

Those "loopholes" are called The US Tax Code.
You don't like it, write your congressman or senator.
"They" don't "find ways"; accounts read IRS regulations.

[jb]

Pretty weird comment in a thread about where Congress did precisely that and now the argument is about whether they're even allowed to do so.

[Stephen Lathrop]

JasonT20, chain the boats to the bottom by a short rode, and a rising tide sinks them.

[Don Nico]

another of your stupid comments

[Don Nico]

"The real issue surrounding the idea of wealth taxes.."
That is either envy or it is allowing those individuals to claim interest on their borrowing as tax-deductible.

[JasonT20]

I'm not quite getting what your saying, but the tax deductible borrowing is part of what I hear.

Think about this:

A person bought a house for $100k. 20 years later, the house is worth $400k. The person refinances the house to extract some of that equity. They pay off high interest credit card debt (past consumption) and use the money to fuel current consumption, and possibly even new investment. They deduct the interest on the new mortgage from their income taxes. Did they realize the gain in value of the house or not?

[Craig Johnston]

The person doesn’t “realize some of that equity”; they take a loan out with the house as collateral. When they eventually sell the house, they will be taxed on the current value less the cost basis. The cost basis does not include loans they took out.

[Don Nico]

Exactly

[NOVA Lawyer]

Except, they don't eventually sell the house, they bequeath it to their children. Their children's tax basis is the fair market value of the house at the time of death. Thus, the owner in this example was able to extract equity and use that equity for living expenses (or investment or whatever) without ever paying taxes on it, neither did the heirs.

We accept this for "low" budget things like a $400,000 house, but it becomes more concerning when it is large fortunes the income/gains from which essentially escape taxation.

[WuzYoungOnceToo]

Except, they don’t eventually sell the house, they bequeath it to their children. Their children’s tax basis is the fair market value of the house at the time of death. Thus, the owner in this example was able to extract equity and use that equity for living expenses (or investment or whatever) without ever paying taxes on it, neither did the heirs.

So change the tax code so that the tax basis is whatever was originally paid for the property so that the heirs pay capital gains on the appreciation that had accrued at the time of inheritance, if you can talk Congress into it. But that in no way changes the fact that equity was not "extracted" from the home via the loan. What happened was that a business was willing to loan the home owner money using the house as collateral, because that company took a calculated risk (a very safe risk in nearly cases) that it could recoup the outstanding loan in the event that the lendee defaulted on it.

[TwelveInchPianist]

Yup. What's being discussed is just a garden-variety capital gains tax break, not some arcane loophole.

[NOVA Lawyer]

"But that in no way changes the fact that equity was not “extracted” from the home via the loan."

Yes, they did take out the equity. As you then helpfully point out....

"What happened was that a business was willing to loan the home owner money using the house as collateral, because that company took a calculated risk (a very safe risk in nearly cases) that it could recoup the outstanding loan in the event that the lendee defaulted on it."

And why did they make the loan? And why was it "a very safe risk"?

Because of the equity that the homeowner had and, basically, traded to the bank for cash with a promise to pay it back in the future at favorable rates (because it was secured by equity). It's a way to turn the equity into cash without incurring a taxable event. The uber wealthy have many more ways of doing this.

"So change the tax code so that the tax basis...."

That's a solution. But we are discussing what the current code allows and it allows wealthy people to turn their capital gains into spendable cash without paying taxes on those capital gains.

[WuzYoungOnceToo]

Yes, they did take out the equity. As you then helpfully point out….

You've already repeatedly demonstrated your inability to understand what it is that you're responding to (or the dishonesty to misrepresent it). There's no need to run it into the ground here.

[NOVA Lawyer]

You're the one claiming I made arguments I didn't make.

Now you run away like a scalded dog.

Coward.

[WuzYoungOnceToo]

Congratulations on having finally achieved Sarcastr0 levels of being a lying sack of shit.

[Don Nico]

yes, in the special case of a mortgage on a primary dwelling, they can deduct the interest. When they sell the house they will pay capital gains. (there is a $500K exclusion of gain).

Now to the exercise with respect to a different type of asset. Typical that interest is not tax deductible or the Congress could make it so

[Tom for equal rights]

Jasont20 question - ". Did they realize the gain in value of the house or not?"

The answer to that question is no - there is no transfer of title or any other triggering event.

Nor did the taxpayers likely realize an economic gain on the increase in the value of their house since A) a significant portion of the increase in value was due to appreciation and B) they would incur similar cost to find replacement house. Therefore no real economic gain realized or unrealized.

[Tom for equal rights]

correction - a significant part of the increase in value is due to inflation (much smaller portion due to real economic appreciation)

[JasonT20]

If they had paid off the original mortgage, then sure, some of what they are extracting out of the equity is essentially their original investment. And if they had a mortgage, then they would still have paid off a substantial amount of the principle by then. But, of course, they also had the benefit of living in that house all of those years, so it wasn't like they were just withdrawing money from a savings account that had an interest rate that was close to the rate of inflation.

[JasonT20]

If they were able to increase their consumption, including the purchase of durable goods, how is that not an economic gain?

I get not wanting to tax something that only has value on paper that may or may not be turned into something tangible in the future. But if the value of something is used in exchange for goods or labor, then that value is no longer just on paper. If it creates an offsetting debt in another part of that person’s ledger, I don't see that as a reason to consider the value still only theoretical. It is just that this new debt is now the thing that only exists on paper. When it gets paid, then it is no longer theoretical as something else of real value was used to make those payments.

[WuzYoungOnceToo]

If they were able to increase their consumption, including the purchase of durable goods, how is that not an economic gain?

“Economic gain” is not a synonym for “income”. If the dollar strengthens vs foreign currencies that increases my ability to consume the imported goods I would otherwise consume in lower quantities/quality, or simply saves me money if I continue to consume at the same level. That’s an economic gain for me. Is that increase in dollar strength “income” for me?

[JasonT20]

Nor did the taxpayers likely realize an economic gain on the increase in the value of their house since A) a significant portion of the increase in value was due to appreciation and B) they would incur similar cost to find replacement house. Therefore no real economic gain realized or unrealized.

This is what I was replying to. Take issue with that, not what I wrote.

[Lee Moore]

The real issue surrounding the idea of wealth taxes is how the very wealthy can increase their wealth and use that increase in wealth to fund their lifestyle without it becoming realized income.

It's not really a mystery is it ? When the wealthy realise income they're taxable on it. Unless they're foreigners without US income, in which case its somebody else's business. Unless one takes the view that the US should tax everyone in the world on everything.

Obviously you can borrow against your assets, which might have unrealised gains on them. But this is not something limited to the very wealthy. Humble you can get a mortgage on your house reflecting current value, not your original cost.In the end though, you or your estate have to pay it back. Ultimately for rich or poor, the music stops.

Like on death. The business where large capital gains disappear on death, or on gift to charities is simply a matter of Congress's whim. They put these "loopholes" in deliberately, and they can take them out any time. I, for one, wish they would. So long as they use the money wisely - eg pay down debt, refinance social security or reduce taxes on productive endeavor, rather than just have another spendathon.

You don't need a constitutionaly dodgy "wealth tax" to get rid of these loopholes.

[JasonT20]

I agree that a wealth tax is far less preferable to income taxes as both a policy matter and constitutional question. (Of course, there are people that don’t like income taxes either and would prefer flat consumption taxes.) what I am saying is that there has been sustained effort from the right for four decades to reduce income taxes, especially on the wealthy, based on supply side theories that don’t have any empirical support, from what I can see. Those loopholes and strategies to avoid having corporate and personal income of the wealthy taxed look very much to be a feature, not a bug, of Republican policy going back to Reagan.

[M L]

I agree it would be important to investigate whether this supposed problem is myth or reality.

Perhaps you could share some of this “news reporting and claimed statistics” regarding taxable income of the rich?

In general, I think the biggest problem is that the government spends far too much money, taxes us WAY too much, has far too much power, including the ability to print money and spend even more, and the government is generally extremely bloated, wasteful, corrupt, inefficient, meddlesome, etc. and should be drastically reduced.

So, I’m generally unsympathetic to arguments that the government needs more tax revenue – I think it should have less tax revenue. Also, I have seen “reporting and statistics” suggesting that even if the government started confiscating all the billionaire’s wealth, it would only be a drop in the bucket to government spending. If that’s how the situation really is, it’s hard to overstate just how utterly delusional these little marxists, “eat the rich” types are. Like lemmings running off a cliff, they are ushering in a totalitarian state without even knowing what they are doing.

I am very sympathetic, however, to arguments that whatever tax burden there is should be fair and equitable and efficient. So, carried interest loophole, and a million other loopholes, maybe cap gains rate vs income rate, are fair debates.

[Randal]

One example is that you can donate unrealized capital gains to charity and then take a tax deduction, potentially offsetting all your actual income, so that you pay no income taxes at all - nothing on what you donated, and then nothing on any other income because of what you donated.

And then the charity gives you paid board seats, or at minimum a lot of "charity gala" events to accentuate your socialite lifestyle.

As Lee said, this is all intentional. Congress really doesn't like taxing property, even capital gains, because property appreciation is how capitalist societies generate wealth. We'd much rather disincentivise property transfer than property ownership.

[Analogia Entis & eggroll]

Even realized income is not protected in some places.

"The Swedish Riksbank was the first central bank to introduce negative rates in 2009 when it imposed a negative deposit rate for commercial bank holdings with the Riksbank until 2010. "

[bernard11]

Are we really using definitions from 1300, or 1600, and a poll from 1913, to define income? That's absurd.

Income over a period is consumption plus increases in wealth.

[Lee Moore]

The relevant time is the adoption of the 16th Amendment, which is the legal provision on which the Moores are relying. So 1913 would be good.

In 16A had been adopted in 1999, we’d be going with that.

The theory is that the constitution is made by the constitutional process and the words are taken for what they meant when they were put into law. As opposed to the contrary theory that Merriam-Webster can change the constitution, edition by edition.

I agree though that financial theory and practice has moved on a bit since 1913, and our greater appreciation that discounted cash flows and NPVs are indifferent to designation as income or capital, gives us a different perspective. But that’s still not a good reason to give Merriam-Webster power over the constitutional amendment process. But it’s a good reason to revisit the 16th Amendment and maybe craft a new one. If folk could agree, of course.

And as I mentioned elsewhere, trying to tax variations in wealth as you go along is a make work scheme for paper pushers. Way too administratively time consuming to consider.

[defaultdotxbe]

"Income over a period is consumption plus increases in wealth."

Assuming you own a home, how do you plan to pay income tax on the increased value? I don't know about you but I certainly can't afford to pay the extra 40-50k I'd end up owing. Neither can most homeowners.

[bernard11]

Assuming you own a home, how do you plan to pay income tax on the increased value? I don’t know about you but I certainly can’t afford to pay the extra 40-50k I’d end up owing. Neither can most homeowners.

Your question is irrelevant to my comment, but I'll answer anyway.

Probably, it would be a hardship for many people, and it would be a bad idea, IMO, to tax that particular gain. Aside from the hardship angle there is the issue of uncertain value, which would complicate things enormously.

[WuzYoungOnceToo]

Aside from the hardship angle there is the issue of uncertain value, which would complicate things enormously.

Apparently you're unfamiliar with the concept of state and local property taxes.

And you don't think there's an issue of "uncertain value" when it comes to securities, whose market values change from one second to the next?

[WuzYoungOnceToo]

Income over a period is consumption plus increases in wealth.

Only if you don't speak English and are high as hell.

If you buy a security for $100 today and at some arbitrary point later that stock has a market value of $110 (which changes from one moment to the next, BTW), you don't have $110. You have the potential opportunity to have $110 IF you sell that stock at the exact moment that there is someone else is willing to pay you $110 for it (and even then you won't have the full $110 if your broker charges you a commission or other fee for the transaction). Unless/until that sale takes place, there is no $10 of income...there is only the potential for $10 of income.

Your and ReaderY's and NOVA's arguments are like claiming that someone who bought a Beanie Baby for $5 in the 1990s and then set it on a shelf suddenly had $995 in taxable income because some idiots were later offering $1,000 to buy the same item, even though the owner never sold it. Hopefully even you three can understand how stupid that would be.

[NOVA Lawyer]

Wuz,

“Your and ReaderY’s and NOVA’s arguments are like claiming that someone who bought a Beanie Baby for $5 in the 1990s and then set it on a shelf suddenly had $995 in taxable income because some idiots were later offering $1,000 to buy the same item, even though the owner never sold it. Hopefully even you three can understand how stupid that would be.”

We’ve discussed this before. This case is nothing like having a $5 tax basis Beanie Baby on the shelf. (To the extent you are including me in this. The others can speak for themselves.)

It’s like if the Moores started a business in India that bought and sold Beanie Babies and they sold the $5 Beanie Baby to some idiot for $1,000. They, in fact, realized $995 of income. This result doesn’t change, under the law at issue, if they set up a foreign corporation (under Indian law) as 13% owners and bought and sold the Beanie Babies. (Under Indian law, presumably, the legal fiction of the corporation is doing the buying and selling.) But it was the very real Moores and their partners who did the actual buying and selling and the U.S. government is fully allowed under the Constitution to treat the Moores' business income (which they claim is only corporate income) as their income on a pro rata basis.

To restate for the umpteenth time, they bought a $5 Beanie Baby and actually sold the Beanie Baby. Get that through your head.

The only question is whether, if they did the buying and selling as 13% owners of a foreign corporation, the money has to be transferred to them individually or the U.S. government can attribute the actual, realized income from the sale of the Beanie Baby to them.

You analogy continues to miss the entire point of the Moore case.

[WuzYoungOnceToo]

To restate for the umpteenth time, they bought a $5 Beanie Baby and actually sold the Beanie Baby. Get that through your head.

How about you get it through YOUR head that I'm responding to the arguments about what "income" actually is, with many arguing that a stock's theoretical market at some arbitrary point (like the close of a tax year) minus what was originally paid for it constitutes "income". I've said nothing at all about the Moore case itself, as the details of that case are irrelevant with regard to the claims being made and that I've responded to.

Try reading what it is you're responding to, as well as what that response is to (for context) before responding. It'll help immeasurably.

[WuzYoungOnceToo]

P.S. You've made those same "income" arguments yourself before, which is why I included you in that list. If you're no longer making that argument then I'll happily pronounce your inclusion in that list to be no longer valid.

[NOVA Lawyer]

"You’ve made those same 'income' arguments yourself before."

No, I haven't.

[WuzYoungOnceToo]

I see you still don't have the balls to acknowledge when you repeatedly screw-up.

[NOVA Lawyer]

Cite where I ever made the argument that fluctuations in potential market value (i.e., the Beanie Baby sitting on a shelf) counts as income. Otherwise, admit that you are full of shit.

[WuzYoungOnceToo]

Sorry, but you're the clueless asshole who went on a long-winded strawman rant responding to something that I never said, and lied about what others have said as well, and are refusing to own up to it. Deal with your own bullshit.

[NOVA Lawyer]

Coward.

Just admit I never made the argument that you said I did. You were wrong.

Your trying to pivot to some other bullshit is pathetic.

[WuzYoungOnceToo]

You truly are a worthless, lying asshole.

[NOVA Lawyer]

Says the lying liar that can't cite any comment where I make the argument the lying liar says I made. Why? Because he's a lying liar who made it up. And then runs away yelling non sequiturs over his shoulder.

You're a joke, Wuz.

[M L]

I agree that income has to "come in" to be income.

However, if I'm not mistaken, the facts of this case involve income that did come in and was realized, only (1) the income was realized by a corporation and was not yet distributed to shareholders, (2) the income was earned overseas.

So, the whole framing of this case seems off to me. But this is just based on reading a few sentences somewhere weeks ago.

[M L]

What is really troubling is to see all of the comments in these posts arguing that yes, Congress could have a wealth tax, a tax on "unrealized gains."

I think Calabresi makes a convincing case that such a thing would be unconstitutional. I'm not just sure that's what happened here.

[NOVA Lawyer]

"What is really troubling is to see all of the comments in these posts arguing that yes, Congress could have a wealth tax, a tax on “unrealized gains.”"

I see only one comment, from ReaderY, suggesting Congress could, categorically, tax "unrealized gains." Most of the other comments are pointing out that, in fact, the gains at issue in this case have very much been realized.

And no one really disputes that. Calebresi and the Moores argue that the realized income can't be taxed as realized by the Moores unless it gets transferred to them. The government argues that it has always been the case that the U.S. government can tax individuals on their pro rata share of undistributed corporate earnings if it so chooses.

What you see a lot of is people claiming that this is about $5 Beanie Babies that someone values at $1,000, but they haven't been sold yet. That is not this case. The income was actually earned.

The only question, and the question on which I am confident the government will win, is whether the 16th Amendment authorizes Congress to tax individuals on the pro rata share of the actual profits of a joint business venture regardless of the foreign corporate form they used for the joint business venture.

[WuzYoungOnceToo]

I see only one comment, from ReaderY, suggesting Congress could, categorically, tax “unrealized gains.”

There have in fact been multiple comments to that effect, or even arguing that such gains have in fact been "realized".

What you see a lot of is people claiming that this is about $5 Beanie Babies that someone values at $1,000, but they haven’t been sold yet.

Not only was there only one comment about that (mine), making you a hypocrite, my comment was in direct response to arguments about what constitutes "income", not about the details of the Moore case itself...which was incredibly obvious if you took the trouble to read what you were responding to, and what you're not making false claims about.

[WuzYoungOnceToo]

what you’re not making false claims about.

Er...what you're "now" making false claims about.

[Joe_dallas]

NOVA Lawyer 3 hours ago
Flag Comment Mute User
“What is really troubling is to see all of the comments in these posts arguing that yes, Congress could have a wealth tax, a tax on “unrealized gains.””

I see only one comment, from ReaderY, suggesting Congress could, categorically, tax “unrealized gains.” Most of the other comments are pointing out that, in fact, the gains at issue in this case have very much been realized.

Nova - you keep making the same idiotic mistake - even after being corrected multiple times. Yes the income has been realized by the foreign corporation that doesnt have US source income. The Moores have not realized that income. Please make an attempt to understand the facts.

[NOVA Lawyer]

"you keep making the same idiotic mistake"

The Supreme Court will make the same "mistake."

"The Moores have not realized that income."

This is pretty central to the question presented, just saying it over and over doesn't make it so. The Supreme Court will tell you who is right and who is wrong.

[WuzYoungOnceToo]

So you're not even going to try to defend your bullshit response to me, or at least acknowledge that it was bullshit? Coward.

[NOVA Lawyer]

"only was there only one comment about that (mine)"

You are the only one who made the specific Beanie Baby example, but surely you have sufficient intelligence to see that plenty of others were making misconstruing the situation in Moore (or others' arguments about income) as indicating that fluctuations in market value count as income. Or do you not have that much intelligence?

"my comment was in direct response to arguments about what constitutes 'income'"

And this thread is about the Moore case. Moreover, you included me in the list suggesting that you completely misunderstand, at the least, my position which is that the Moore case doesn't involve anything like the Beanie Baby hypo and that the Beanie Baby hypo is otherwise not representative of any situation I have ever called taxable income. Others can speak for themselves.

Now, you continue to pretend I have said otherwise. Cite where I did. Or admit you're wrong. Or let the world know that you are the coward.

[Randal]

Don't worry, we already know Wuz is the coward.

[WuzYoungOnceToo]

Doubling down on your dishonest bullshit doesn't make it any less dishonest bullshit. You can go fuck yourself.

[BillyG]

I think you're right. The "real" question here is whether the income has been realized by the parent corporation or not.