"Narrow" tax, criminal law-related SCOTUS rulings leave key questions unanswered

The Wall Street Journal hyped Moore v. US as a "wealth tax" case. There was no ruling on that, but lots of skepticism. Only Justice Jackson signaled openness.

The watchword was “narrow” at the U.S. Supreme Court on Thursday — at least from the justices. Just beneath that surface, though, is the reality that all four decisions left key questions unresolved.

Although you won’t be able to hear his opinion announcement in Moore v. United States until the fall, much of Justice Brett Kavanaugh’s time announcing from the bench that the Charles and Kathleen Moore’s challenge to the constitutionality of the Mandatory Repatriation Tax had failed on Thursday was spent explaining all that the court did not decide.

The Great Wealth Tax Case of 2023 became, as Kavanaugh wrote for the court, a decision — for now — “limited to: (i) taxation of the shareholders of an entity, (ii) on the undistributed income realized by the entity, (iii) which has been attributed to the shareholders, (iv) when the entity itself has not been taxed on that income.”

Simply put, the MRT — a one-time look-back pass-through taxation of shareholders of closely held American-controlled foreign corporations — was upheld.

To explain the court’s ruling, Kavanaugh detailed how the court has allowed such pass-through taxation in partnerships and closely held corporations many times since the passage of the Sixteenth Amendment. That amendment was prompted by an 1895 Supreme Court ruling in which the court held that many income taxes are direct taxes that, while allowed, are essentially impracticable for the federal government to levy in almost all instances (the “apportionment” requirement). The Sixteenth Amendment made clear what had been clear before the Supreme Court had altered the landscape: Income taxes are not direct taxes.

As Kavanaugh stated repeatedly and Justice Clarence Thomas criticized in dissent, the court avoided and did not decide the question the court had agreed to consider in the case: “Whether the Sixteenth Amendment authorizes Congress to tax unrealized sums without apportionment among the states.”

The court was able to do so because, Kavanaugh explained, the MRT taxed realized gains of the corporations at issue. It just did so with a pass-through tax of the shareholders.

Or, as Kavanaugh wrote, “[T]he precise and narrow question that the Court addresses today is whether Congress may attribute an entity’s realized and undistributed income to the entity’s shareholders or partners, and then tax the shareholders or partners on their portions of that income.”

Even that extremely limited opinion could only manage to secure five votes: Kavanaugh was joined by Chief Justice John Roberts and Justices Sonia Sotomayor, Elena Kagan, and Ketanji Brown Jackson.

Justice Amy Coney Barrett, joined by Justice Sam Alito (who participated in the case in spite of the ethical questions raised about his participation), just barely avoided dissenting in the case. In their opinion “concurring in the judgment,” they stated that they weren’t certain the majority got the law right — and got it wrong in parts — but that concessions by the Moores led them to concur in the court’s decision.

Had the court decided the question presented, Barrett wrote for her and Alito: “The Sixteenth Amendment’s reference to income ‘derived’ from any source encompasses a requirement that income, to be taxed without apportionment, must be realized.”

The pair also disagreed with Kavanaugh’s primary reasoning for how it decided the case — regarding the clarity of the court’s precedents about pass-through taxation — with Barrett writing outright, “I disagree.”

Notably, one aspect of the pair’s opinion — stating that it “would present a different case” if the tax at issue relating to domestic corporations — prompted a rather sharp footnote rebuttal from Kavanaugh:

In other words — and although dicta — the five justices who did join the majority all were willing to make clear that the foreign aspect of the MRT was, legally, irrelevant to their decision.

Thomas, joined by Justice Neil Gorsuch, dissented, declaring that “the majority’s ‘attribution’ doctrine is an unsupported invention.” As with Barrett and Alito, Thomas and Gorsuch detailed how they thought Kavanaugh got the court’s precedents about pass-through taxation wrong.

On the question presented, moreover, Thomas and Gorusch were also unambiguous: “Sixteenth Amendment ‘incomes’ include only income realized the taxpayer.”

In the end, while not deciding the question, only Jackson was willing to declare — in an opinion concurring “in full” with Kavanaugh — that the “alleged” realization requirement “appears nowhere in the text of the Sixteenth Amendment.”

Not only was that not decided on Thursday, but Kavanaugh leaned on “different issues” — in addition to the realization question — that could be raised in other cases. Regarding the hypothetical “wealth tax” that had led The Wall Street Journal editorial board to hype the Moores’ case as a “watershed” one when the court granted review, for example, Kavanaugh wrote:

As to any possible “wealth tax,” then — given the four votes for requiring realization, the Kavanaugh caveat for the other five justices, and Jackson left concurring alone — this current court would almost certainly strike it down.

In short, the Moores lost, but, on the issue the Wall Street Journal editorial board was most concerned about, the editorial board all but explicitly won.

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Section 1983 and expert witness testimony

The justices also handed down three decisions in the criminal law realm on Thursday. They, too, were framed as “narrow” decisions by justices on one side or the other or both of the disputes, with key issues — and in two of the decisions, the case itself — left wholly unresolved.

In two cases, the court sided — on the surface — with people who sued after having criminally charges against them dismissed, raising, respectively, malicious-prosecution and retaliatory-arrest claims under Section 1983, which allows individuals to sue for violations of their rights.

In a malicious-prosecution claim, a person must show that they were charged without probable cause to be able to show an “unreasonable seizure.” In Thursday’s case, the court was faced with a question of what happens when there are multiple charges filed — here, against Jascha Chiaverini, a jeweler in Napoleon, Ohio — and probable cause for some of them but not others.

The court, in a 6-3 decision with the court’s opinion by Kagan, did answer the primary question here — while nonetheless pushing off almost any real implications of the case and issue to another day. As Kagan wrote:

Do the valid charges insulate the official from a Fourth Amendment malicious-prosecution claim relating to the invalid charge? The answer is no: The valid charges do not create a categorical bar. We leave for another day the follow-on question of how to determine in those circumstances whether the baseless charge caused the requisite seizure.

Chiaverini’s case goes back to the U.S. Court of Appeals for the Sixth Circuit that previously ruled against him. Or, as Kagan wrote, “[W]e leave the causation question in the hands of the Sixth Circuit, as it further considers Chiaverini’s Fourth Amendment malicious-prosecution claim.”

In the retaliatory-arrest case, the court — in a per curiam decision, meaning, for the court and, functionally, meaning it is unsigned by any particular justice — held that the U.S. Court of Appeals for the Fifth Circuit did not “properly appl[y]” the test laid out by the court in a 2019 case for considering “a narrow exception” to the general rule that there could not have been probable cause for the arrest at issue to bring a retaliatory-arrest claim.

Sylvia Gonzalez brought a retaliatory-arrest case against the mayor and others in her small city. Gonzalez, arrested under an anti-tampering statute relating to a dispute over a petition she had in her possession that was part of a political fight she had with the city’s manager, did not challenge whether there was probable cause for her arrest. Instead, she presented evidence that no one else had been prosecuted for the law under facts like at issue in her case — sufficient, she believed, to meet the court’s exception in the earlier case.

The court ruled in her favor, but it was, again, a ruling that did not ultimately decide the underlying matter. The Fifth Circuit that got it wrong before still has to decide — applying the test properly — whether she meets the narrow exception to the rule.

In both cases, Thomas dissented, because, as he wrote for himself in the Gonzalez case:

I continue to believe that “plaintiffs bringing a First Amendment retaliatory-arrest claim under §1983 should have to plead and prove a lack of probable cause.” Lozman v. Riviera Beach, 585 U. S. 87, 107 (2018) (THOMAS, J., dissenting).*

What is the asterisk footnote, you ask?

*I also remain “skeptical that 42 U. S. C. §1983 recognizes a claim for retaliatory arrests under the First Amendment.” Lozman, 585 U. S., at 104, n. 2 (THOMAS, J., dissenting).

Or, as he wrote in the first case:

I continue to adhere to my belief that a “malicious prosecution claim cannot be based on the Fourth Amendment.” Manuel v. Joliet, 580 U. S. 357, 378 (2017)(ALITO, J., joined by THOMAS, J., dissenting).

Alito joined him in that dissent.

In short: No Section 1983 claims for anyone!

Gorsuch also dissented, but separately and arguing that there very well might be a Section 1983 claim to be brought for malicious prosecution, but that it “it seems to me only that such a claim would be more properly housed in the Fourteenth Amendment” — and due process — and not in the Fourth Amendment.

In the final case on Thursday, however, Thomas was not dissenting. To the contrary, he wrote the court’s opinion about limits on expert testimony — or, per his decision, a loosening of those limits.

Under the Federal Rules of Evidence, expert witnesses in criminal cases are blocked from testifying about whether a defendant has a certain mental state when that mental state is an element of the crime for which the person is charged.

“By its terms, Rule 704(b)’s exception covers a narrow set of opinions,” Thomas wrote, later adding, “Rule 704(a) further confirms the narrow scope of testimony prohibited by Rule 704(b).”

Here, where Delilah Diaz was pulled over at the border and drugs were found in the door of her car, the question before the court was whether an expert witness could testify about the mental state of “most” similarly situated people.

Thomas ruled for the court that the prosecution’s expert witness testimony that “in most circumstances, the driver knows they are hired … to take the drugs from point A to point B” was allowed under the rule.

Gorsuch, with Sotomayor and Kagan, dissented. And yet, although he initially wrote that, after Thursday, “[t]he government comes away with a powerful new tool in its pocket,” he later discussed the ways in which other rules of evidence could limit the admission of this evidence and ultimately concluded that he was “hopeful [Thursday’s decision] will ultimately prove immaterial in practice.”

That would be … quite narrow.

Notably, Jackson was with Thomas on this decision, writing in a concurring opinion that she “join[ed] the Court’s opinion in full,” but highlighting that, “as Congress designed it, Rule 704(b) is party agnostic.” In other words, “the type of mental-state evidence that Rule 704(b) permits can prove essential not only for prosecutors, but for defendants as well.“ She did not see this as a prosecutor win, but, rather, just a question of what the rules are for both sides.

And, in any event, she wrote, “As the Court explains, Rule 704(b) is narrow.”