In Charles G. Moore v. United States (No. 22-800), petitioners challenged Congress’s authority to tax unrealized gains under the Sixteenth Amendment. The tax at issue was the Mandatory Repatriation Tax (MRT), which is a one-time tax on accumulated but undistributed foreign earnings that was included in the Tax Cuts and Jobs Act of 2017. But the implications of petitioners’ argument extended far beyond the MRT to partnership taxation, S corporation taxation, the taxation of foreign corporations, the taxation of derivatives, mark-to-market rules, original issue discount, the accrual method, and other topics. Generally described, petitioners’ argument threatened aspects of the Internal Revenue Code that result in tax on unrealized income or tax on income not realized by the taxpayer subject to the tax—provisions that account for trillions of dollars in federal tax revenue. Accordingly, Moore was among the most closely watched Supreme Court tax cases in many years. The Supreme Court rejected petitioners’ challenge by a 7-2 margin, but that tally is deceptive. Petitioners scored a shocking result.

The Sixteenth Amendment grants Congress the “power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States.” Petitioners read “from whatever source derived” as requiring a realization event, like a sale or payment of wages, to distinguish a tax on income from a tax on property, which must be apportioned. Petitioners were not shy about trying to head off talk of a wealth tax, but Congress had already enacted many income tax exceptions to realization. The Supreme Court’s majority, in an opinion written by Justice Kavanaugh, expressed skepticism that petitioners could “contain the blast radius of their legal theory.”

The majority was careful to steer clear of any possible detonation. It explained that it did not need to reach the issue of a constitutional realization requirement because the MRT taxes shareholders on income that is clearly realized by a foreign corporation. Thus, the majority disposed of the case on the “precise and narrow question” whether Congress may attribute an entity’s realized and undistributed income to the entity’s shareholders and tax the shareholders on that income. The majority found ample support for this proposition in cases, for example, sustaining the taxation of partners on undistributed income of their partnership or the taxation of U.S. shareholders on the undistributed income of foreign corporations under subpart F. Thus, the majority rejected petitioners’ challenge to the MRT and left “for another day” questions about the contours of Sixteenth Amendment.

In contrast with the majority’s narrow approach, four justices endorsed the existence of a constitutional realization requirement–Justice Barrett, in a concurrence joined by Justice Alito, and Justice Thomas, in a dissent joined by Justice Gorsuch. These justices effectively invite future challenges to Congress’s taxing authority and demonstrate that the current court is at most one vote shy of what Justice Thomas described as a “calamity by building the tax base on constitutional quicksand.” Taxpayers will assuredly answer the call of these justices by raising future challenges designed to reach the Supreme Court. This case will not be the last word on the matter.

Andrew Weiner, JD, LLM, is counsel at Kostelanetz LLP, Washington D.C.