Most constitutional arguments happen in law schools and appellate briefs. This one happened in my clients’ portfolios.
Moore v. United States, decided by the Supreme Court in June 2024, asked a question that sounds technical and isn’t: can the federal government tax income that has never been received? The case involved Charles and Kathleen Moore, who held a minority stake in KisanKraft Machine Tools Private Limited, an American-controlled corporation based in Bangalore, India.
They had never received a dividend, never repatriated a dollar, never seen the earnings in their bank account. Under the 2017 Tax Cuts and Jobs Act’s Mandatory Repatriation Tax, Congress deemed those retained foreign earnings to have been distributed anyway and taxed the Moores on income they hadn’t actually received. The Moores argued that the Sixteenth Amendment only authorizes taxation of realized income — money actually received — and that taxing unrealized, undistributed corporate earnings exceeded Congress’s constitutional authority.
The Court ruled seven to two against them. Justice Brett Kavanaugh, writing for the majority, held that the Sixteenth Amendment permits taxation of an individual’s pro-rata share of corporate income, realized or not, when Congress so directs. Justices Clarence Thomas and Neil Gorsuch dissented, arguing that the majority had effectively blessed a wealth tax without saying so, and that the constitutional line between an income tax and a direct tax on property, which the Sixteenth Amendment was designed to address, had been quietly erased.
Eisner v. Macomber (1920) established that income, for Sixteenth Amendment purposes, requires something received — not paper appreciation in an asset still held. That realization requirement has governed federal tax law for over a century. Moore upheld a specific tax on attributed corporate earnings but declined to confirm the realization requirement survives future proposals. That silence is the problem.
California’s 2026 Billionaire Tax Act qualified for the November ballot with 1.6 million signatures. New York’s Senate Bill S165 would impose annual mark-to-market taxation on residents worth $1 billion or more. Both states are reading Moore’s silence as permission. Their proposals are constitutionally questionable for exactly the reason the Thomas dissent identified: the line between an income tax and a direct tax on property was left undrawn.
SpaceX’s May 2026 S-1 targeting a $2 trillion valuation makes the problem concrete. Elon Musk has held his stake for over two decades. Under a mark-to-market regime, he would have owed annual taxes on paper appreciation that didn’t become cash until the IPO. The same logic applies to every early investor and every venture fund with a private position. A fund can’t sell one holding to pay a tax on the others.
Thomas’s dissent put it precisely. If Congress can tax Moore on earnings the corporation retained, it can tax any shareholder on any corporate earnings whether distributed or not. The line between an income tax — authorized without apportionment by the Sixteenth Amendment — and a direct tax on property — which Article I requires to be apportioned — has no clear content after Moore. California and New York are already testing it. The federal case is coming.
THE YEAR THAT BROKE THE CONSTITUTION
The Court had the opportunity to answer it. Seven justices chose not to.
My clients are watching the next case. So am I.
Jay Rogers is a financial professional with more than 30 years of experience in private equity, private credit, hedge funds, and wealth management. He has a BS from Northeastern University and has completed postgraduate studies at UCLA, UPENN, and Harvard. He writes about issues in finance, constitutional law, national security, human nature, and public policy.