By americans. It w brought forward by a plaintiff who objected to a clause in a 2017 change in tax law that would have wired a repatriation tax. This is about two. The court squarely held us much just a few years foowg adoption of the amendment. The the presidt kes easy work of the case. It is undisputed the petiors realize nothing from their stock investment. They were taxed not because they had income but becse in 2017 they happened to own sharein corporation. This is a taxn e ownership of property. Dispensing with the need for realization, the framers regarded this as the essential chec on the power of congress to taxrorty. The government cannot identify a single thing congress could not tax its income under its position realization is unnecessary. Without realization there is no limiting principle. Accepting th government position on income would make a cap hash of the current law. Gateway defition of gross income asserts congresses taxing por der the 16th amendment roh reaching all income from whatever srcderived. If the government possession position in this case is right the current law already requires taxpayers to pay on the valuation of bother assets, corporate earnings, any stocks theywnand any paperains from contracts and loans. Going back to 1913 that is how it has worked. The reason the law does not work that way is obvious. Unrealized gains are not iom the only way to make sense of the income tax as it has existed for a century is to stick with the original meaning of the 16th amendment. The court should reairthere is no income without realization prei wco the courts questions. When you say realizationo you have a definition or explanation as to what it is . How is it different from, say, attribution . Like thank you justice tma realization in the main will be receipts. In other situations it will be other types of enjoent of economic gain such as the taxpayer can put that ge gain it to his or her uses and benefits. That might be forgiveness of a loan or assignment of income to a third party. There is certainly realization here by the corporation, if not the taxpayers. Its t case like appreciation of proptyere nothing has happened. Yobuproperty and you are holding for 20 years and you have not sold it and nothing has happed. Here, something has happened. Income has gone to t corporation. Guess the corporation has income. We dont dispute the corporation realiz iome over the decade plus years taxed by t m. I think it is like the instance of property from the pointf view of the shareholders. The shareholder interestn the corporation is only a capital interest, a property interest. The value of their capital has increased. But shareholders know they have not realized any ince. Tell me, why do we permit taxing of individl rtners when either state law or partnership agrme does not realized t income to them . In many states, a partner does not have personal ownership. Does not get the value of the partnership. That we permitted that tax. Thank you justice sotay. A partnership is a fundamentally different form of ownership nter corporation. E w has always recognized a corporation is a person separate from t shareholders in that corporation and there is not a separate personhood that applies to partnerships. The partnerships are group of people that come together to undertaka siness activity and when they do so the income is there income directly. What do y dwith the ways in which we have attributed corporate inco tindividuals . You dont challenge the constitutionality. That is not an issue in this ca. In your brief you dont appear to be challenging it. We think a of followshe commonly accepted method congress has usedo dress changes when a taxpayer has interposed a Corporate Structure between themselves and income. That is the entire purpose of a Corporate Structure. People do that all the time particularly for that purpose. You dont incorporate unless you nt the corporate shiel you dont incorporate unless you want the benefits of corporate protection. Unr your theory subpart f subpart s these are longstanding taxingecnisms by the government and your theory would uerne those as well. I do not think that is right. Subpart f works on categories of income on an occurrence basis where the categories are properly viewed as being earned by the shareholders due to the nature of the categories of income addressed. You can see subpart f is constitutional. I want tunrstand your answer. We thk e defect of the mrt does not aly to subpart f. Dnot think there is. What is the distinction . Just that other parts to th extent they tax income do it on an annual basis and mrt was a one shot that went backwards . Think that is part of it. Subpart f addresses the fundamenl come shift concept. The mrt does not. Subpart f operates on a current basis while the corporation is subject to the control of the corolling shareholders. And the mrt takes no acun there is noueion you meet the definition of subpart f. At least 10 of a company are and the company has to be owned more than 50 by u. S. Owners. So it is identical in terms of birth the percentage of ownership or the percentage of shares. Right. But subpart f aligns e control and thebity to direct income with the year its applicable to it seems what you are attacking is only a due process issue of how long the tax is for, not the ability to tax. I do not think that is right. I think etr you owned a particular piece of property on a given date, the question the mrt asks. I think that is the synod one nonattacks on property. This looks at income while it comes in while the Controlling Shareholder has the ily to redirect that stream of income. Can we talk about whether it is fair to arite from a due process point of view,he income generated by kaizen craft to the moors, aisnct question of whether there was income within the medium to 16th amendment, right . It comes down to a 16th amendment question. A shareholder interest in a corporation including s income is a capital interest and is therora property interest. If there is a reason to look beyond tt d attribute income to the shareholder, that would raise a question of iom and why it is the shareholder is not beg taxed on what would otheise be a property interest. The court has always addressed this sort of question as a question of income. This includes all of the assignment oinme cases in the court has decided over the years. An go back to first principle . The concept of realization was very wellestablished at the time the 16th amendment wa adopted. But the amendment does not reference realization. All the drafters d do was add the word realizeft inco to collect taxes on inme realized. But they never used the word realize. Then i look at the history both before and after the ratification. As far back as 1864. But so far back. Congress taxed games and pfi of all companies whether incorporated or partnerships. It estimated the annual gains, profit, or income of any person entitled to the same, whether divided or undived 13, just eight months after the ratification oth16th amendment, congress included undistributed cpote earnings to certain shareholders. The brief tries to distinguish all thesthgs. But i come back to t main point. Both sides can point to congressional action. Someidot tax unrealized income. We have examples of congress taxing realized unrealized income. Why dont i take it that the plain text of the amendment does not make reference to realizatio i think there are two central features of t tt of the amendment that reflect tt does apply only to realized gains. The first is simply the use of the word income. I would particularlcoend it to the courts attention the amicus brief filed by the professors of law and linguistics which analyzes the use of the word income in pio texts. Llf this goes back and forth. The government has other definitions. We are back at square one is what we are doing weighing historical definitions. The weighing in this cas your honor, is quite lopsided. The veor relies principally on two definitions put forth b economists in the years follinthe amendments adoptionnd neither of which reflect common understanngf the time. One of the economtsecognized he was simply espousing his own onic views divorced from any question o law or common understanding and theecd economists recognized the common understanding iome is what we say it s,ealized gain. So f, as the common understanding of the term was concerned, the only indication that the court has before it aside from dictionaries which, agn, lopsided lay favor our position, is the corpus linguistics analysis t professors of law and linguistics which looks at how the word was used in everyday language at the time. This concludes unanimously where it is possible to distinguish income meant realized gains. The is also in the amendment the language from whatever source derived. As we pointed out derived was generally meant to refer to ncts like receipts. Indeed, again, the amicus brief of the professors of law and linguistics read recognized that when income was described as derived it was always used in atashion. I thought that was just a response to pollock which distinguished between income on personal property and other forms of income and all of the 16th amendment authors were doing was to say the distinion that pollock drew, we do not approve of tha right. I think that whath16th amendment did was removehe necessity to consider whether income camerom one source, property, versus other types of urces. But in so doing it necessarily required as a president that the as president that the amounts tax to be in and not Something Else. Why should te the common meaning of inme rather than the legal meaning . If the 16th amendment was specifically rpoingo this courts legal president related to the meaning of income, i am curious why you think the common meaning of income is what we should be focused on when we try to understand what the 16th amendmen meant. Tha is certainly the apoa the court typically takesn addressing questions of original meaning. Thatside, that is what the court cases have said for merchant banks andacber again and again. That the 16th amendment is to be construed according to its ordinary meani. If the court were to depart from that and say, for examp, at personal property was not subject to apportionntwhich i take to be the thrust othe questions in this direction, taxes on personal property, th is. That would offend pretty much the whole ion of the courts 16th amendment jurisprudence over the last century. But why, ifhawe do is to think about pticular tax, which seems to be wt we have been doingorears. To see whether that tax is to income as understood by attribution or as an excise tax or by other principles. We would not have to consider each tax on its own form. You are asking us to just announce wt realization is out of context. For the last 100 years we have been studiously avoiding doi that because we recognize its dangerous to do that, to say a rdike realization we then have to come up with a worki definition that applies to every piece ofrorty and every way people regain wealth. It does not seem logical to me. Why do not why dont you just concentrate on White Congress cannot say that ctain situations it will endure the corporate form and attribute to the individual shareholder certain income . That is what it has been doing all along. Here it does not need realization. Because, congress has attributed this to the individual owners of the corporation. Respectfully, t crt has already sa in multiple locationshat realization is in fact ruid for there to be income under the 16th amendment. Its not just macomber. It is also maclachlan versus alliance insurance. It is the safety card heating. Yesonertain types of property. But, not all. T ivan allen. We also said taxes, that partnerships can be taxed individually even when the partners are not receiving the property. We have sub set as and asnd f and s and all different forms of wealth we have interpreted to inviduals rather than to the legal forms of ownership. And all of those taxes rely the principle that the court expresd in cases like horst and banks which income should be taxed to he who earns it and enjoys its benefits. I wonder whether there is any realization requirement atll there is quite a history in this cotrof congress taxing ameran shareholders on their gains from Foreign Corporations and you can see why. The u. S. Government cannot tax foreigcoorations directly. They wanted to make sure amics that have stashed eir money in Foreign Corporations watched their money grow and never pay taxes on them. So, there is a long centuriesold history of these kinds of taxes on gains from your holdings in a Foreign Corporation. Why is this any different . Why shouldnt we understand that to be quite wellsettled, that ngress can ilement those taxes and enforce thoseaxes for those purposes . The taxes in that aa ve typically followed the patterns i described. It simply, a taxpayer interposing a corporation using income that would otherwise be theirs. Thatould fit, isnt it . Is not. These are the shame same shareholders as in subpart f. Those pvions typically address things like passive income and relatedar transactions that are probably attributable to a Parent Corporation. A Parent Corporation could own an income generating assets itself or shift that io corporation, into a Foreign Corporation, thereby avoiding the income. What the laws recognize is just as in cases like horst and banks this is effectively an assignment of income that can be attributed to the Parent Corporation fo that reason. Cae, the Parent Corporation is the one that ctrols the flow of income coming in. The mrt by contrast operates as a tax on property. It does not take account of any power that shareholder had over the income as it was coming into the corporation. It only takes account of ownership. That seems to be an argument outiming. We have realization in this case. The entity realized income. The question then is trution. We have long held that congrs may attribute the income of the company to the shareholders, or the partnership to the partners. And the only real wrinkle icing here is that it goes back and captures priores income. I think there are two wrinkles. One,itrespect to the prior year t statute does not quire the shareholders being taxed had any ability to control the disposition of those income the unfermented those years the seconds. Thats not true for the facts of this case . Its not. But you a sing generally. I thi idemonstrates this is a tax on property. Doou own something on a particular dat as opposed to what did you do in the past . Did you have the power ith past . Provisions tax year by year, would that have been permissible . Know, and that is the second wrinkle. The mrt is the inverse of its predecessors in the statutes. All the predecessors le the Foreign Personal HoldingCompany Provisions as well as subpart s focus subpart f focus on categories oinme and are susceptible to being reassigned into the corra board. Congress has never reached s far to tax the shareholders of Foreign Corporations on the activeusiness income of those corporations. Why is that different analytically . This was part of a big change from a worldwide tax steto a territorial taxes demand this is one piece of that. I am not sure why this issue matters for the ultimate analysis of whether the attribution is the purpose of the law. All the attributions go back to the very beginning that focused on the fraudulent or improper availment of the Corporate Forum to avoid income. They have alwaysonthat historically by focusing on particular categories of income susceptible to that type of abuse. Congre tk that to the max amending subpart f or e years to capture more and more types of that sort of income avoidance. Suart f says you have captured the deal and now lets get Everything Else really Everything Else is the active business income attributle solely for Foreign Corporations or legitimate Business Activities overseas. A shareholder of a foreign corpatns stands in a different sion with respect to the position d a shareholder in microsoft or any her corporation. This is not the type of income that shareholder would in an orna course of affairs, as a matter of reality, be able to shift to a Corporate Forum and thereby avoid reing it themselves. I also want to address the difficulties the governments teretation would raise with respect to the current tax code. I noted, the tax code already reaches the full extent of Congressional Authority under the 16th amendment. And if the government is right, therefore, that certain novel categories of what had heretofore been regarded as unrealized incomer realized appreciation, were subject to taxation under the 16th amendment, those would already be subject to taxation under existing law. Let me ask a question about your argument before you go on wi the government. So, if we agree with y tt the 16th amendment uses income that requires realization mmd, that the m does not me the realization requirement, those are two i think ffent steps of urinalysis. It seems to me all wha done is to mistreat the 1h amendment does not justify the mrt. Dont you still have to demonstrate that the mrt is a direct tax in order to establish athe constitution has been violated . Ithe mrt is not a tax on income i think it stands to reason it would be a tax on the ownership of shares, because otherwise. The government makes another argument in their brief. They offer it could be an eis tax. Five point is dreedany indirect tax, i would think, just has t b uniform under the constitution. It seems if it is more burdened regardless of this issue about realatn to establish that this tax is a direct tain order to sustain your constitutional argument. Am i wro . We le it was a direct tax. The government filed a mioto dismiss and argued it was a tax on income. It did not dpute. I appreciate people have argued this. Wod then send it back to the ninth circuit tdermine whether or not it is a direct tax . Your argument that we c sustain its constitutionality just because we have not had a briefing on this particular aspect of it. I think the court cld enter the question presented. As to whether orot there would be anyinabout the remand it is at the courts discretion whether it wishes to reach the governments excise tax aumt. So far as the argument is concerned, t bear attacks of the statute operates solely based