A Question Important to Investors (Whether They Realize it or Not): Is Realization a Constitutional Requirement for Income Taxation?

Journal of Taxation of Investments, Fall 2013, at 19

Case Legal Studies Research Paper 2014-02

Posted: 24 Jan 2014

See all articles by Erik M. Jensen

Erik M. Jensen

Case Western Reserve University School of Law

Date Written: January 22, 2014

Abstract

This article considers whether realization continues to be a constitutional requirement for an accession to wealth to be included in the base of the federal income tax. Most commentators had thought that the Supreme Court’s 1920 decision in Eisner v. Macomber, which treated realization as central to the meaning of “taxes on incomes” in the Sixteenth Amendment, was deadwood, or close to it. In 2012, however, in his controlling opinion in National Federation of Independent Business v. Sebelius, Chief Justice Roberts cited Macomber favorably on a point critical to the resolution of that case. If realization still has constitutional legs, a number of provisions in the Internal Revenue Code, including those that rely on mark-to-market concepts, are constitutionally suspect.

Keywords: Realization Requirement, Sixteenth Amendment, Eisner v. Macomber, Pollock

JEL Classification: K43

Suggested Citation

Jensen, Erik M., A Question Important to Investors (Whether They Realize it or Not): Is Realization a Constitutional Requirement for Income Taxation? (January 22, 2014). Journal of Taxation of Investments, Fall 2013, at 19; Case Legal Studies Research Paper 2014-02. Available at SSRN: https://ssrn.com/abstract=2383285

Erik M. Jensen (Contact Author)

Case Western Reserve University School of Law ( email )

11075 East Boulevard
Cleveland, OH 44106-7148
United States
216-368-3613 (Phone)
216-368-2086 (Fax)

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