This morning, Mr. Johnson’s attention will be focused on the oral arguments in a largely right-wing created tax case, out of California, now before the Supremes.
Many commentators smarter than I am have already suggested it is a… kerfluffle.
It is.
Without a doubt — for over 60 years, under the existing tax code (i.e., after subpart F was signed into law), executives who receive restricted stock in the companies they steward — as part of their compensation… owe a tax when the restrictions lapse, even if they do not sell any of the shares so vested.
That is exactly the sort of supposedly “unrealized” income that the Moores are complaining about.
This is… a case about… nothing.
I’ll ignore it. And while many of us (left and right) think the tax code is unduly convoluted and produces inequitable results (it undoubtedly does — just look at how little Elon Musk and Donald Trump pay in taxes, each year)… this case doesn’t even remotely offer the Supremes an opportunity to “fix it”.
That, as ever, under our system of ordered liberty, remains the duty of the Congress — by passing laws, amending or replacing it.
Sigh.
Ain’t gonna’ happen.
Here is just a bit of the 33 pages of very well stated IRS response — to the Moores’ largely trivial bleating:
…For over a century, the Court held that “direct taxes, within the meaning of the Constitution, are only capitation taxes * * * and taxes on real estate.” Springer v. United States, 102 U.S. 586, 602 (1880). Then, in Pollock v. Farmers’ Loan & Trust Co., 158 U.S. 601 (1895), the Court held that a tax on income from real and personal property also qualified as a direct tax. Id. at 618.
In 1913, the Sixteenth Amendment was ratified to “overturn[]” Pollock. NFIB, 567 U.S. at 571. The Sixteenth Amendment provides that “Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.” U.S. Const. Amend. XVI. Nothing in the Amendment’s text refers to the concept of realized gains.
In 1962, Congress enacted Subpart F of the Internal Revenue Code, which requires U.S. shareholders of certain foreign corporations to pay taxes on their pro rata shares of the corporations’ foreign income. See Revenue Act of 1962, Pub. L. No. 87-834, § 12, 76 Stat. 1006-1031. Before Subpart F’s enactment, U.S. shareholders of foreign corporations were generally taxed on the earnings of those corporations only if the earnings were distributed to U.S. shareholders as dividends….
First, “[w]hether the taxpayer has realized income does not determine whether a tax is constitutional.” Pet. App. 12 (citing Helvering v. Horst, 311 U.S. 112, 116 (1940)). Second, “[w]hat constitutes a taxable gain is also broadly construed.” Ibid. (citing Helvering v. Bruun, 309 U.S. 461, 469 (1940)). And third, “there is no blanket constitutional ban on Congress disregarding the corporate form to facilitate taxation of shareholders’ income.” Id. at 13.
Applying those principles here, the court of appeals determined that the MRT is a permissible income tax under the Sixteenth Amendment. “[T]here is no dispute,” the court explained, “that KisanKraft actually earned significant income.” Pet. App. 13. And even “[b]efore the MRT, U.S. persons owning at least 10% of a CFC were already subject to certain taxes on the CFC’s income.” Id. at 14. “The MRT,” the court reasoned, simply “builds upon these U.S. persons’ preexisting tax liability attributing a CFC’s income to its shareholders” by “assign[ing] only a pro-rata share of that income to the [petitioners]….”
Out.
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