Court Opinion

ID: 9363125
Source: CourtListenerOpinion
Date Created: 2023-01-13 18:57:15.962072+00
Date Added: 2024-06-11T17:15:29.084576
License: Public Domain

FOR PUBLICATION
                                                              FILED
                                                              NOV 22 2022
     UNITED STATES COURT OF APPEALS
          FOR THE NINTH CIRCUIT                            MOLLY C. DWYER, CLERK
                                                            U.S. COURT OF APPEALS

                                         No. 20-36122
_CHARLES G. MOORE;
 KATHLEEN F. MOORE,
                                            D.C. No.
              Plaintiffs-Appellants,   2:19-cv-01539-JCC

v.
                                            ORDER

UNITED STATES OF AMERICA,

              Defendant-Appellee.

     Before: Ronald M. Gould, Jacqueline H. Nguyen, and
               Mark J. Bennett, Circuit Judges.

                           Order;
                 Dissent by Judge Bumatay
                       SUMMARY *

                             Tax

    The panel denied a petition for panel rehearing and
denied on behalf of the court a petition for rehearing en banc,
in a case in which the panel affirmed the district court’s
dismissal of an action seeking to invalidate the Mandatory
Repatriation Tax.

    Judge Bumatay, joined by Judges Ikuta, Callahan, and
VanDyke, dissented from the denial of rehearing en banc.
Judge Bumatay stated that the panel erred in disregarding the
realization requirement of the Sixteenth Amendment, by
allowing an unapportioned direct tax on unrealized
income—undistributed earnings of a foreign corporation
owned by a U.S. taxpayer—without offering any other
limiting principle; and that the opinion opens the door to new
federal taxes on other types of wealth and property being
categorized as an “income tax” without the constitutional
requirement of apportionment.

   *
      This summary constitutes no part of the opinion of the
court. It has been prepared by court staff for the convenience
of the reader.
                 MOORE V. UNITED STATES                      1

                          ORDER

     Appellants’      Petition   for   Panel   Rehearing     is
DENIED.

        The full court was advised of the Petition for
Rehearing En Banc. A judge requested a vote on whether to
rehear the matter en banc, and the matter failed to receive a
majority of the votes of the nonrecused active judges in favor
of en banc consideration. Fed. R. App. P. 35. Appellants’
Petition for Rehearing En Banc is also DENIED.

BUMATAY, Circuit Judge, joined by IKUTA,
CALLAHAN, and VANDYKE, Circuit Judges, dissenting
from the denial of rehearing en banc:

    “[T]he ratification of the Constitution was the ultimate
act of popular sovereignty.” Ariz. State Legislature v. Ariz.
Indep. Redistricting Comm’n, 576 U.S. 787, 837 (2015)
(Roberts, C.J., dissenting). Its provisions “reflect[] a
compromise—a pragmatic recognition that the grand project
of forging a Union required everyone to accept some things
they did not like.” Id. And courts have “no power to upset
such a compromise simply because we now think that it
should have been struck differently.” Id. But our court’s
decision does just that.

    Under the original constitutional design, Congress could
only levy “direct taxes” if such taxes were “apportioned
among the several States.” U.S. Const. art. I, § 2, cl. 3. The
apportionment of direct taxes was to be set “in proportion to
the census or enumeration” of the States’ populations. U.S.
Const. art. I, § 9, cl. 4. Thus, at the Founding, for a direct
tax to be constitutional, the federal government had to collect
the proceeds proportionally—meaning if one State had twice
2                MOORE V. UNITED STATES

the population of another, it also had to contribute twice as
much. Given this requirement’s heavy burden on federal
taxing power, the Supreme Court narrowed the definition of
“direct taxes” to encompass only certain taxes, such as
capitations (head taxes), taxes on real property, taxes on
personal property, and taxes on income from personal
property. Nat’l Fed’n of Indep. Bus. v. Sebelius, 567 U.S.
519, 571 (2012) (simplified).

    But the people changed that system. In 1913, the people
created a limited exception to the apportionment
requirement. By ratifying the Sixteenth Amendment, the
people gave Congress the authority to “lay and collect taxes
on incomes, from whatever source derived, without
apportionment among the several States.” U.S. Const.
amend. XVI. So, today, Congress may enact a direct tax on
“incomes”—and only on “incomes”—without apportioning
the tax. The Sixteenth Amendment thus struck a delicate
balance for federal taxing power—freeing Congress from
the unwieldy requirement of apportionment, but only for
taxes on “incomes.” Nothing in the Sixteenth Amendment
relieved Congress of its duty to apportion other forms of
direct taxation, such as a tax on property interests.

     Now, more than a century after its ratification, our court
upsets the balance reached by the people. We become the
first court in the country to state that an “income tax” doesn’t
require that a “taxpayer has realized income” under the
Sixteenth Amendment. Moore v. United States, 36 F.4th
930, 935 (9th Cir. 2022). Instead, we conclude that the
Sixteenth Amendment authorizes an unapportioned tax on
unrealized gains because the “realization of income is not a
constitutional requirement.” Id. at 936. We thus endorse the
constitutionality of a federal tax on the share of undistributed
earnings of a foreign corporation owned by a U.S.
taxpayer—despite (in this case) the U.S. taxpayer being a
                MOORE V. UNITED STATES                    3

minority shareholder of the foreign corporation. In other
words, we allow a direct tax on the ownership interest of a
taxpayer—even when the taxpayer has yet to receive any
economic gain from the interest and has no ability to direct
distribution of gain from the interest.

    Neither the text and history of the Sixteenth Amendment
nor precedent support levying a direct tax on unrealized
gains. Ratification-era sources confirm that the prevailing
understanding of “income” entailed some form of
realization. And a hundred years of precedent establishes
that only realized gains are taxable as “income” under the
Sixteenth Amendment. While the Supreme Court has
allowed flexibility in identifying “incomes,” it has never
abandoned the core requirement that income must be
realized to be taxable without apportionment under the
Sixteenth Amendment. Simply put, as a matter of ordinary
meaning, history, and precedent, an income tax must be a tax
on realized income. And our court is wrong to violate such
a common-sense tautology.

    Worse yet, by dispensing with the realization
requirement for income without offering any other limiting
principle, we open the door to expansion of the federal
taxing power beyond the limits placed by the Constitution.
Indeed, without a realization requirement, it is hard to see
what’s left of the constitutional apportionment requirement.
Now, I fear, any tax on property or other interests can be
categorized as an “income tax” and elude the requirement of
apportionment. While the Sixteenth Amendment expanded
the federal government’s taxing power, it did not dissolve
other constitutional restrictions.

    Because we may not rebalance the limits of federal
taxing power, I respectfully dissent from the denial of
rehearing en banc.
4                MOORE V. UNITED STATES

                              I.

    This case begins with a husband and wife’s investment
in an overseas company formed to empower small-scale
farmers in impoverished regions of India. Charles and
Kathleen Moore own a 13% stake in KisanKraft Machine
Tools Private Limited, a small company headquartered in
Bangalore, India. KisanKraft was formed in 2006 by
Charles’s friend and former coworker, Ravindra “Ravi”
Kumar Agrawal, to import and distribute affordable farming
equipment. Moved by Ravi’s vision for helping farmers, the
Moores invested $40,000 in KisanKraft and retained about
11% of the common shares in the company. Ravi and his
wife moved to India to manage the company’s day-to-day
operations as approximately 80% owners.

    Under Ravi’s leadership, KisanKraft’s revenues grew
each year from 2006 to 2017. True to the original business
plan, Ravi reinvested everything in the company. By 2017,
KisanKraft employed over 300 people across 14 regional
offices, distributing agricultural equipment to thousands of
dealers. The Moores received updates and annual financial
statements, but they never exercised any control over the
company’s earnings or operations, and never received any
distributions, dividends, or other payments. They were
content with supporting their friend’s “noble purpose . . . to
improve the lives of small and marginal farmers in India.”

    As the Moores would find out, no good deed goes
unpunished. In 2018, they learned that under the Tax Cuts
and Jobs Act of 2017, they were on the hook for their share
of KisanKraft’s lifetime earnings and would owe a one-time
tax amounting to $14,729. This surprised the Moores, who
had never received any income from KisanKraft and did not
expect to pay income taxes just for owning a minority
interest in the company. It’s undisputed that the Moores did
                 MOORE V. UNITED STATES                    5

not realize income from KisanKraft and lacked the authority
to compel a dividend payment constituting realized income.
Not only are the Moores minority owners, KisanKraft does
not have sufficient cash to distribute its retained and
reinvested earnings. But nonetheless, under the Act, the
Moores were liable for income tax on income they never
earned.

    This was thanks to the Mandatory Repatriation Tax, a
one-time “transition tax” to facilitate the repatriation of
foreign earnings. See 26 U.S.C. § 965. The Mandatory
Repatriation Tax targeted U.S. shareholders who held 10%
or more in a “controlled foreign corporation”—a foreign
entity with over 50% American ownership, see 26 U.S.C.
§ 967—that retained and reinvested its prior earnings
overseas rather than distributing them to shareholders as
dividends. Moore, 36 F.4th at 933. Previously, those
shareholders would ordinarily only incur a tax liability when
the foreign corporation distributes earnings and the
shareholders repatriate those gains. Id. (citing 26 U.S.C.
§ 951 (2007)). But the Mandatory Repatriation Tax adopted
a “novel” approach—it simply deemed the foreign
corporation’s retained earnings as the shareholders’
“income” and taxed them according to their proportional
ownership stake. Id. at 933–34.

    The Moores sued seeking a refund of their $14,729 tax
payment. Our court affirmed the denial of the refund. We
held that the Mandatory Repatriation Tax did not violate the
apportionment requirement. Moore, 36 F.4th at 935.
According to our court, “[w]hether the taxpayer has realized
income does not determine whether a tax is constitutional.”
Id. Rather, we held that “the Supreme Court has made clear
that realization of income is not a constitutional
requirement.” Id. at 936. Based on the conclusion that
unrealized gains qualify as income, we held that taxing the
6                MOORE V. UNITED STATES

Moores based on their pro-rata share of KisanKraft’s
retained profits was constitutional. Id.

                             II.

    “The Sixteenth Amendment, like other laws authorizing
or imposing taxes, is to be taken as written, and is not to be
extended beyond the meaning clearly indicated by the
language used.” Edwards v. Cuba R. Co., 268 U.S. 628, 631
(1925). It is “settled doctrine . . . that the Sixteenth
Amendment confers no power upon Congress to define and
tax as income without apportionment something which
theretofore could not have been properly regarded as
income.” Taft v. Bowers, 278 U.S. 470, 481 (1929). Our
task is to discern “the commonly understood meaning of
[income] which must have been in the minds of the people
when they adopted the Sixteenth Amendment.” Merchants’
Loan & Tr. Co. v. Smietanka, 255 U.S. 509, 519 (1921); see
also United States v. Safety Car Heating & Lighting Co., 297
U.S. 88, 99 (1936) (“Income within the meaning of the
Sixteenth Amendment . . . [w]ith few exceptions, if any . . .
is income as the word is known in the common speech of
men.”). When searching for an Amendment’s original
meaning, we look to its text, historical context, and early
post-ratification interpretations. See New York State Rifle &
Pistol Ass’n v. Bruen, 142 S. Ct. 2111, 2127–28 (2022).

                             A.

    We start with the history. Before the Sixteenth
Amendment, the Constitution spoke of two categories of
taxes—direct and indirect. Indirect taxes, such as “Duties,
Imposts and Excises,” were to be levied “uniform[ly]
throughout the United States.” U.S. Const. art. I, § 8, cl. 1.
On the other hand, “direct Taxes” were to “be apportioned
among the several States . . . according to their respective
                 MOORE V. UNITED STATES                     7

Numbers.” U.S. Const. art. I, § 2, cl. 3. Thus, “[n]o
Capitation, or other direct, Tax shall be laid, unless in
Proportion to the Census or enumeration herein before
directed to be taken.” U.S. Const. art. I, § 9, cl. 4.

    Understandably, the impracticalities and inequities of the
apportionment requirement made it difficult for the federal
government to impose a direct tax. See Hylton v. United
States, 3 U.S. (3 Dall.) 171, 179 (1796) (Paterson, J.). One
way to deal with the difficulties was to limit the category of
direct taxes. See NFIB, 567 U.S. at 571 (showing the history
of limiting direct taxes to capitations, land taxes, and taxes
on personal property and the income from personal
property).

     The Sixteenth Amendment arose in response to Pollock
v. Farmers’ Loan & Trust Co., 157 U.S. 429 (1895). In that
case, the Supreme Court struck down the income tax
provisions of the Wilson Tariff Act of 1894 as
unapportioned direct taxes. 158 U.S. at 637, 683. The
Pollock decision noted that the “constitution divided federal
taxes into two great classes—the class of direct taxes, and
the class of duties, imports, and excises”—and sought to
determine into which class the taxes on incomes belonged.
Id. at 617–18. Examining the text of the relevant clauses in
the Constitution and the circumstances of their adoption and
ratification, the Court concluded that income taxes on real
estate and personal property were invariably direct taxes
requiring apportionment. Id. at 637. Chief Justice Fuller’s
majority opinion added, “[i]f it be true that the constitution
should have been so framed that a tax of this kind could be
laid, the instrument defines the way for its amendment.” Id.
at 635.

    President William Howard Taft led the public charge for
a constitutional amendment expressly authorizing a federal
8                 MOORE V. UNITED STATES

income tax. In a speech before both houses of Congress, he
characterized the Pollock decision as “depriv[ing] the
National Government of a power” which it “undoubtedly . . .
ought to have” and which “might be indispensable to the
nation’s life in great crises.” William H. Taft, Message
Regarding Income Tax (June 16, 1909). 1 Rather than
passing legislation that would force the Supreme Court to
reconsider its ruling in Pollock, President Taft urged the
House and Senate to “propose an amendment to the
Constitution conferring the power to levy an income tax
upon the National Government without apportionment
among the states in proportion to population.” Id.

     When the Senate was weighing amending the
Constitution to authorize an income tax, one member floated
the possibility of simply striking the apportionment
requirement altogether. 44 Cong. Rec. 3377 (1909).
Instead, the drafters chose language meant to “confine [the
changes] to income taxes alone.” Id. As a leading scholar
of taxation and public finance explained:

    [T]he simplest way out of the difficulty would be
    entirely to eliminate from the constitution the clause
    or clauses referring to direct taxes. [But] Congress,
    however, was unfortunately not much interested in
    the larger question. What gave it immediate concern
    was the disposition of the impending imbroglio. It
    was therefore decided to arrange the matter by an
    amendment to the constitution which would affect
    only the income tax.

__________________
    1
        https://perma.cc/LFL6-AH92.
                MOORE V. UNITED STATES                    9

Edwin R. A. Seligman, The Income Tax: A Study of the
History, Theory, and Practice of Income Taxation at Home
and Abroad 594–95 (1911).

    Eventually, Congress settled on draft language and
proposed the amendment for ratification by the States
through a joint resolution. S.J. Res. 40, 61st Cong. (1909).
After an arduous four-year process and extensive debates in
the state legislatures, the Sixteenth Amendment was ratified
in early 1913.

                            B.

   We turn next to the text. The full text of the Sixteenth
Amendment reads: “Congress shall have the 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.” U.S. Const.
amend. XVI.

    Ratification-era dictionaries suggest that the ordinary
meaning of “income” was confined to realized gains. One
dictionary defined “income” as “that gain which proceeds
from labor, business, property, or capital of any kind.”
Webster’s Revised Unabridged Dictionary (1913) (emphasis
added).       According to another turn-of-the-century
dictionary, “income” meant “[t]hat which comes in to a
person as payment for labor or services rendered in some
office, or as gain from lands, business, the investment of
capital, etc.” The Century Dictionary and Cyclopedia
(1901).

    Ratification-era legal authorities made explicit what
these dictionary definitions conveyed: only realized gains
qualify as taxable income. The 1910 edition of Black’s Law
Dictionary defined “income” to include “that which comes
10                MOORE V. UNITED STATES

in or is received from any business or investment of capital.”
Income, Black’s Law Dictionary (2d ed. 1910) (emphasis
added). And Henry Campbell Black—of Black’s Law
Dictionary fame—addressed the issue in a book-length
commentary published within months of ratification. Black
noted that an income tax “is not a tax upon accumulated
wealth, but upon its periodical accretions.” Henry Campbell
Black, A Treatise on the Law of Income Taxation 1 (1913).
In his view, these accretions occurred only when gains were
realized, not when an asset had merely increased in value:

     When a bond which was purchased at a discount
     reaches par value in the market, the owner cannot be
     properly said to have made a profit; he is in a position
     where he can realize a profit if he sells the bond, but
     not otherwise. If he sells, then the sum gained may
     constitute a part of his income, but it cannot be so
     described while he continues to hold the security.

Id. at 76–77.

   Black rejected the idea of taxing shareholders for
undistributed corporate profits as being “contrary to all the
weight of authority,” explaining:

     In several of the cases on the subject, it is said that
     the word “income” is not broad enough to include
     things not separated in some way from the principal.
     It is not synonymous with “increase.” The value of
     corporate stock may be increased by good
     management, prospects of business, and the like, but
     such increase is not income. It may also be increased
     by the accumulation of a surplus fund. But so long
     as that surplus is retained by the corporation, either
     as a surplus or as increased stock, it can in no proper
                MOORE V. UNITED STATES                        11

   sense be called income. It may become income-
   producing, but it is not income.

Id. at 120. Black concluded that the Sixteenth Amendment
“does not . . . enlarge the power of taxation previously
possessed by Congress, but merely repeals certain parts of
the existing Constitution which imposed a limitation upon
the levying of . . . an income tax.” Id. at 11.

    Other early commentators shared Black’s assessment. In
1919, a well-known authority on income tax and accounting
explained that the Sixteenth Amendment only covered taxes
on realized gains:

   In the circumstances, no apology is needed for a
   close inquiry into the right of Congress or the
   Treasury Department to extend the taxation of
   income—which is permitted under the sixteenth
   amendment—to the taxation of capital—which is not
   permitted. And the inquiry naturally extends itself
   into the right to tax any transaction unless there is an
   actual realization of income, as distinguished from
   the apparent income which may be and often is due
   to the temporary fluctuations in values.”

Robert H. Montgomery, Income Tax Procedure 198 (1919).

    Taken collectively, these sources reinforce the common-
sense notion that “income” refers to the receipt of some
economic benefit. And because this “commonly understood
meaning” was “in the minds of the people when they adopted
the Sixteenth Amendment,” Smietanka, 255 U.S. at 519,
neither Congress nor our court may redefine income to
include unrealized gains. See Burk-Waggoner Oil Ass’n v.
Hopkins, 269 U.S. 110, 114 (1925) (“Congress cannot make
a thing income which is not so in fact.”).
12                MOORE V. UNITED STATES

                              C.

    Supreme Court precedent also confirms that the
Sixteenth Amendment adopted the ordinary meaning of
income—thus, it requires the realization of gain.

    The Supreme Court first interpreted “income” under the
Sixteenth Amendment in Eisner v. Macomber, 252 U.S. 189
(1920). There, the Court addressed whether a stockholder’s
receipt of a stock dividend falls within the scope of
“incomes, from whatever source derived,” for purposes of
the Sixteenth Amendment. Id. at 207–08. After surveying
authorities, the Court defined “income” as “the gain derived
from capital, from labor, or from both combined.” Id. at 207.
The Court further illuminated:

     Here we have the essential matter: not a gain
     accruing to capital; not a growth or increment of
     value in the investment; but a gain, a profit,
     something of exchangeable value, proceeding from
     the property, severed from the capital, however
     invested or employed, and coming in, being
     ‘derived’—that is, received or drawn by the recipient
     (the taxpayer) for his separate use, benefit and
     disposal—that is income derived from property.
     Nothing else answers the description.

Id. at 207 (underline added). To the Court, this meaning was
the “clear definition of the term ‘income,’ as used in
common speech.” Id. at 206–07.

    Applying the definition to a stock dividend, the Court
concluded, “[t]he dividend normally is payable in
money . . . and when so paid, then only . . . does the
stockholder realize a profit or gain which becomes his
separate property, and thus derive income from the capital
                 MOORE V. UNITED STATES                      13

that he or his predecessor has invested.” Id. at 209. Put
simply, Macomber says that stock dividends do not
constitute “income” until “realize[d]” as profit or gain. Id.

    Macomber remains the seminal case establishing the
realization requirement for “income” under the Sixteenth
Amendment. See Edward T. Roehner & Sheila M. Roehner,
Realization: Administrative Convenience or Constitutional
Requirement?, 8 Tax L. Rev. 173, 174 (1953) (“[T]he
Supreme Court has in no post-Eisner v. Macomber case
indicated the slightest relaxation in the rule that realization
is necessary before there can be taxable income.”). And
more recently, the Court recognized Macomber as among its
“landmark precedents on realization” and observed that
Congress codified Macomber’s realization requirement in
the Revenue Act of 1924. Cottage Sav. Ass’n v. C.I.R., 499
U.S. 554, 561–62 (1991).

    Since Macomber, the Court has consistently treated
realization—in some form—as the critical component of
taxable income. Twenty years after Macomber, the Court
reiterated “the rule that income is not taxable until realized.”
Helvering v. Horst, 311 U.S. 112, 116 (1940). There, the
Supreme Court considered the case of a taxpayer who
procured payment of interest as a gift to a family member.
Id. Even though the taxpayer didn’t personally realize
income, the “power to procure the payment of income to
another is the enjoyment and hence the realization of the
income.” Id. at 118 (emphasis added). In other words, the
Court found no exemption from taxation when economic
gain is enjoyed “by some event other than the taxpayer’s
personal receipt of money or property.” Id. at 116.

    In C.I.R. v. Glenshaw Glass, 348 U.S. 426 (1955), the
Court said that punitive damages awards are taxable as
income. Glenshaw Glass observed that Macomber’s
14               MOORE V. UNITED STATES

definition of income “served a useful purpose” by
“distinguishing gain from capital,” but “was not meant to
provide a touchstone to all future gross income questions.”
Id. at 431. But Glenshaw Glass followed Macomber’s lead
in requiring realization—it held that the damages were
taxable income because they were “undeniable accessions to
wealth, clearly realized, and over which the taxpayers have
complete dominion.” Id.

    Six years later, the Court concluded that embezzled
funds are taxable as income to the embezzler. James v.
United States, 366 U.S. 213 (1961). In doing so, it reiterated
that the “full measure” of Congress’s power to tax incomes
“encompass[es] all accessions to wealth, clearly realized,
and over which the taxpayers have complete dominion.” Id.
at 218–19. As the Court explained, “[a] gain constitutes
taxable income when its recipient has such control over it
that, as a practical matter, he derives readily realizable
economic value from it.” Id. at 219 (simplified).

    And until Moore, Ninth Circuit caselaw also treated
realization as a requirement for taxable “income.” Back in
1964, for example, we held that employees realized a taxable
gain when they accepted stock instead of salaries. Comm’r
v. Fender Sales, Inc., 338 F.2d 924, 929 (9th Cir. 1964). In
that case, famous guitar innovator Leo Fender and his
business partner Donald Randall were the sole stockholders
of Fender Sales, Inc. Id. at 925. At a time when Fender
Sales was cash-strapped, Fender and Randall agreed to each
accept additional shares of stock instead of three years’
worth of unpaid salaries. Id. As the company’s “sole
owners,” taking the stock instead of salaries caused Fender
Sales to increase in value for Randall and Fender. Id. at 929.
By “augmenting the intrinsic worth of the capital stock they
held,” Fender and Randall “surely ‘realized’ for their own
benefit the value of the obligations discharged.” Id. In other
                 MOORE V. UNITED STATES                    15

words, we maintained that some form of realization is
required for Sixteenth Amendment purposes. There, we said
that “the issuance of the corporation’s capital stock to the
employee is a payment” that amounts to “realization of
income by the employee in the amount of the fair market
value of the stock.” Id.

    Three decades later, we considered whether Congress
exceeded its authority by enacting a tax on the short-term
capital gains of investors in commodity futures contracts.
Murphy v. United States, 992 F.2d 929, 931 (9th Cir. 1993)
(analyzing 26 U.S.C. § 1256). Before the enactment of
§ 1256, futures traders could defer tax on short-term capital
gains until a later year, when a lower long-term rate would
be applied. Id. Murphy argued that Congress could not tax
his unsold futures contracts, which he alleged were
unrealized gains. Id. at 930. We disagreed because, under
the “marked-to-market” accounting system, futures traders
receive “any gain on [their] position in cash as a matter of
right each trading day.” Id. at 931. Murphy’s ability to
withdraw cash, even if unexercised, meant he effectively
realized his gains, subjecting them to Congress’s power to
tax income. Id. Murphy thus illustrates the continuing
vitality of the realization requirement—even though we
found it satisfied by the right to withdraw funds, rather than
requiring cash receipts; otherwise, realization would not
have been dispositive in our analysis.

                             D.

    Based on text, history, and precedent, our court erred in
disregarding the realization requirement of the Sixteenth
Amendment. Rather than hewing to plain meaning and
Supreme Court rulings, we recast the very meaning of
“income.”     Without the guardrails of a realization
component, the federal government has unfettered latitude
16               MOORE V. UNITED STATES

to redefine “income” and redraw the boundaries of its power
to tax without apportionment.

     The crux of our error is treating Macomber as merely an
advisory example of what “income may be defined as.”
Moore, 36 F.4th at 937. We essentially called Macomber a
dead letter, emphasizing its “limited scope.” Id. While it
may be true that Macomber does not establish a “universal”
meaning of “income” for all situations and all cases, that
does not mean we can disregard the Supreme Court’s core
holding in that case. At bottom, the Court said that “income”
is the “gain derived” from a variety of sources. Macomber,
252 U.S. at 207. While there may be edge cases that test the
outer limits of what constitutes a realized gain, the term
“income” still retains realization as a definitional
requirement. And none of the later decisions that build on
Macomber repudiate the ongoing requirement that gains
must be “realized” in some form before they can be taxed.

    Moore was also wrong to rely on a few words from Horst
to dispense with the realization requirement. 36 F.4th at 936.
While Horst noted that the realization requirement is
“founded on administrative convenience,” 311 U.S. at 116,
those words didn’t open the door for our court to redefine the
meaning of “income.” Indeed, the realization requirement
was assumed in Horst; the Court stated that “[t]he sole
question for decision” was whether the gift of an interest
payment constituted “the realization of income taxable to the
donor.” Id. at 114. So Horst did not reject the realization
requirement; it just held that a taxpayer can’t transfer the
cash receipts to someone else and avoid taxation. Id. at 117.

    Again, it is undisputed that the Moores have received no
return on their investment in KisanKraft, and they have no
power to direct a dividend payment or otherwise realize a
gain. Thus, the Moores had no “control over” the company
                 MOORE V. UNITED STATES                     17

nor any “readily realizable economic value from it.” James,
366 U.S. at 219. Following precedent, we should have
recognized that the Moores had not received “income” from
KisanKraft under the Sixteenth Amendment. Instead, we
embarked on a novel interpretation of the Amendment—one
that seriously undermines the constitutional apportionment
requirement.

    We should have taken this case en banc to correct these
errors.

                             III.

    Our court dislodged settled constitutional limits on
federal taxation by aggrandizing Congress’s power to levy
unapportioned taxes on unrealized gains. This holding
conflicts with the Sixteenth Amendment’s original meaning
and misconstrues binding precedents.               And the
consequences of our decision extend far beyond the
Mandatory Repatriation Tax. Divorcing income from
realization opens the door to new federal taxes on all sorts of
wealth and property without the constitutional requirement
of apportionment. Indeed, without a realization requirement
to cabin the scope of “incomes,” it is hard to see how the
apportionment requirement has any remaining relevance.
And only the people have the power to declare a
constitutional provision a dead letter.

    Because our expansive gloss on the Sixteenth
Amendment thwarts its design and defies longstanding
Supreme Court and Ninth Circuit caselaw, I respectfully
dissent from the denial of rehearing en banc.