No Court in the land has explicitly ruled on whether the “mark to market” tax under Section 877A is unconstitutional. However, many international tax minds (myself included) have doubted the ability of Congress to levy a tax on unrealized wealth in light of Eisner v. Macomber, 252 U.S. 189 (1920) and the language of the amendment ratified in 1913 to the Constitution.
The 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.
16th Amendment of the Constitution [emphasis added]:
One of the exceptional international tax minds, Professor Reuven S. Avi-Yonah has been writing a lot about this issue after submitting an amicus brief along with Professor Bret Wells to the U.S. Supreme Court (SCOTUS) in the Moore case which was decided last week. Moore v. United States, No. 22-800 (06/20/2024). Moore was not about “expatriation taxes” but rather a “mandatory repatriation tax” (“MRT”) under Section 965.
Moore argued some of the fundamental issues that lie at the core, in my view, of whether Congress has the legal authority to impose taxation (as an income tax) based upon the increased value of assets as of the date, the individual becomes a “covered expatriate”. How does the individual have any income (see, Eisner v. Macomber) by merely holding and having the same assets on the day prior to “expatriation” as the day after? No sales, no exchanges, no dispositions, no transfers, no gifting, etc. – and yet 26 U. S. C. § 877A imposes taxation on “income.”
