The Moores' big tax case quickly deflated once the Supreme Court heard it
Justice Sam Alito, who refused to recuse himself from hearing the case, was virtually alone with Justice Neil Gorsuch in advancing the extreme claims on Tuesday.
Justice Sam Alito wants everyone to know that he is an impartial, unbiased jurist who is carefully considering the issues in Moore v. United States, the income tax case the justices heard oral arguments in on Tuesday — despite only actually expressing skepticism of the government’s arguments in his questions.
While, on the surface, a case over a one-time tax levied against Americans with interests in foreign businesses as part of the Trump tax bill, the question presented in the case has far broader implications: whether there is an unwritten limit within the 16th Amendment allowing federal income taxes only to be applied to “realized” sums. That decision, in turn, would then require the court to define “realization,” as a constitutional matter, with dramatic potential consequences for many areas of current tax law — as covered at Law Dork over the weekend.
Charles and Kathleen Moore are making the argument that realization is required for income taxes allowed under the 16th Amendment and that the mandatory repatriation tax (MRT) they are challenging fails that test. Alito and Justice Neil Gorsuch were the primary, and nearly lone, defenders of that extreme argument on Tuesday.
In addition to the trio of Democratic appointees — Justices Sonia Sotomayor, Elena Kagan, and Ketanji Brown Jackson — clearly opposing the Moores’ position, Justices Brett Kavanaugh and Amy Coney Barrett were skeptical of the Moores’ arguments. Chief Justice John Roberts and Justice Clarence Thomas even questioned the furthest reaches of the Moores’ claims.
After more than two hours of arguments, the justices appeared almost certain not to rule in favor of the Moores’ most extreme arguments — with even Gorsuch acknowledging by the end of arguments that a “narrow” decision is possible in the case.
The reason why Alito might have decided he could not recuse himself became apparent fairly early in the day’s arguments: He might be the most extreme voice — and vote — on the court on this question.
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Alito’s questioning at arguments on Tuesday revealed that he is — at least on the surface — cognizant of the criticism of his decision to stay on the case. His questions also, however, revealed that there was virtually no chance that he was going to drop out of these arguments.
While repeatedly parroting language announcing his interest in exploring all sides of the case, Alito only asked probing questions to Solicitor General Elizabeth Prelogar, representing the government in its defense of the MRT, with a stated purpose of understanding “the breadth of your argument,” as he put it.
“I am quite concerned by the potential implications of [the Moores’] argument, and you stress that in your brief. … And I think that’s a fair argument,” Alito insisted. “But I think it’s also a fair argument to do the same thing with your position, and I want to understand the limits of your position.”
It was an incredibly, repetitively performative display like that virtually every time Alito spoke up in the case. And yet, he asked no questions about his purported “concern[s]” regarding the Moores’ argument.
In all, depending on how you count it, Alito asked nearly two dozen questions of Prelgoar during her argument — delving into “Professor Fiss's volume in the Oliver Wendell Holmes Devise of the Supreme Court” and so much more throughout the morning.
In contrast, Alito only spoke 10 words during the argument of the Moores’ lawyer, BakerHostetler partner Andrew Grossman, who went first on Tuesday. And those words were to ask Grossman yes-no questions about the question presented in the case and whether Grossman believed the government had preserved an argument discussed on Tuesday in the courts below.
For his part, Gorsuch was adamant that Eisner v. Macomber, a 1920 case over stock dividends in a stock split situation, set a realization rule that applies broadly and remains good law.
Prelogar — and, at points, other justices — detailed why that was not so, highlighting, for example, cases in which the court has said as much in the century since that decision.
In a sign of how unbalanced arguments got, there were points where Kavanaugh asked a follow-up question to cabin an Alito set of questions and where Barrett followed up to cabin a Gorsuch set of questions.
After Tuesday’s arguments, it seems likely that the court won’t even reach the question presented — whether “realization” is required under the 16th Amendment to levy a tax without apportionment among the states — as Jackson pointed out during Prelogar’s argument.
Instead, the justices appeared likely to skip past that by ruling that realization happened here — the foreign business made money and it could be attributed to the Moores — so the court need not answer the question of whether realization is required under the 16th Amendment.
The Democratic appointees, along with Kavanaugh and Barrett, appeared likely open to that. It’s possible Roberts and Thomas even could be open to that given the facts of this case. The debate coming out of arguments, it appeared, will be in crafting a majority opinion for how that is decided.
Prelogar suggested that decision is best decided as a due process question, giving the government a wide range under which to act so long as their attribution decision is a “rational” one, while Grossman pressed that those questions have been generally considered under the 16th Amendment directly in the past.
Once it became clear that the argument had gotten away from him and Alito, Gorsuch appeared, initially, to be seeking a way to keep the case from being resolved at all.
He pressed Prelogar with questions about the fact that, he argued, the government made no argument that “there was realization here to the taxpayer.” After refusing to accept Prelogar’s multiple answers as to how the attribution could be considered — including concessions from the Moores as to why other taxes potentially at risk would be allowed even if the Moores won — Gorsuch said, “Let’s just say I don't see that argument. Then what do you want me to do?” Prelogar responded one final time, highlighting another argument made for affirming the decision below, and punctuating her point: “So we did make this argument, Justice Gorsuch.”
In his final chance to question her, though, even Gorsuch appeared to admit (at least partial) defeat, saying, “I do think there is room for some narrow ground, as Justice Sotomayor suggested.” He then went through a series of questions, seeking to establish findings that the court could say would be sufficient, though none individually necessary, to make that attribution — or “constructive realization,” as the Moores put it.
Even there, though, it looked like Gorsuch could be trying to at least establish a test for limiting income tax powers going forward, while Prelogar made the argument that the best answer is not to have a test, concluding her final back-and-forth with Gorsuch by saying that, at “a 30,000-foot level,” she “would urge the Court not to try to set down an explicit set of principles to govern all cases.”
At the end of the day, we will wait down here on the ground for a decision in the case, likely to come by the end of June 2024.
But, in the meantime, I continue to wonder why the Supreme Court took the case at all. None of the ordinary reasons for hearing a case applied. The lower court struck down no federal law; it upheld the MRT. There is no circuit split. The lower court’s ruling changed nothing regarding the application of any laws today.
And yet, at least four justices voted in late June to grant review of the Moores’ challenge to the MRT.
After Tuesday’s arguments, it’s still not exactly clear why the justices took the case — although it is almost certain that Alito and Gorsuch were among the justices who voted to hear the case.
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