THE REALIZATION RULE AS A LEGAL STANDARD 

 
Sloan G. Speck* 

 
Abstract 

 
The realization “rule” in tax law is better characterized as a legal standard. This 

characterization matters after the Supreme Court’s decision in Moore v. United States, 
which sets the stage for future courts to decide that the Constitution mandates realization—
an identifiable event before accrued income is reportable by taxpayers. The stakes of a 
constitutional realization requirement are underappreciated. Because current statutory 
law embeds realization as a background principle, a constitutional realization requirement 
would operate as a taxpayer-initiated antiabuse doctrine—a sword that taxpayers could 
use selectively to invalidate parts of the Internal Revenue Code and Treasury Regulations. 
This novel constitutional tool has adverse, and underappreciated, implications for the U.S. 
tax system’s structure and complexity. 

Through the lens of the longstanding academic literature on legal rules and 
standards, the dangers of a constitutional realization requirement extend beyond top-down 
risks to individual Internal Revenue Code provisions or, as the Moore majority posited, 
entire taxing regimes. Instead, a constitutional realization requirement threatens to erode 
federal income tax law from the bottom up, through incremental public and private 
challenges to the fundamental mechanics of taxation. Realization and nonrealization 
permeate business entity taxation in deeply technical ways. In these areas, a constitutional 
realization requirement may facilitate aggressive private planning, undermine the law’s 
coherence, and dampen reform efforts. Even Moore’s whisper of a constitutional 
realization requirement ventures into poorly charted territory, with potentially detrimental 
consequences that may prove difficult to unwind. 

Moreover, a constitutional realization requirement portends increased complexity 
in tax law. Government-asserted antiabuse doctrines constrain complexity by allowing 
lawmakers to write simpler rules that cover high-frequency transactions. Low-frequency 
transactions, including those that reflect inappropriate tax planning, are addressed 
through (and discouraged by) open-ended standards in the enforcement process. As a 
taxpayer-initiated antiabuse doctrine, a constitutional realization requirement would have 
the reverse effect, increasing complexity by increasing the frequency of tax-planned 
transactions, encouraging more costly government responses to taxpayer abuse, and 
changing the dynamics of enforcement. The resulting complexity would be systemic—and 
could increase over time. 

 
 
 
 
 
 
 

 

 
* Associate Professor of Law, University of Colorado Law School. Thanks to Sam Astorga, Rabea 
Benhalim, Jonathan Booth, David Elkins, Ari Glogower, Kate Goldfarb, Amanda Parsons, Blake 
Reid, and participants at the Sixth Annual UCI Law–Taylor Nelson Amitrano LLP Tax Symposium 
and National Tax Association’s 117th Annual Conference on Taxation for helpful comments and 
discussion. 



2 COLUMBIA JOURNAL OF TAX LAW [Vol. 16:1 
 
I.    INTRODUCTION ...................................................................................................3 
II.  REALIZATION’S PAST, PRESENT, AND FUTURE ....................................................9 
      A.  The Past: Burying Macomber ....................................................................10 
      B.  The Present: Decisions and Indecision ......................................................16 

1. Realization in Moore ............................................................................17 
2. The Moore Opinions ............................................................................19 

      C.  The Future: Circuit Courts and Certiorari ..................................................21 
III. CONSTITUTIONAL REALIZATION AS AN ANTIABUSE DOCTRINE ........................23 
      A.  Realization’s Facts and Circumstances ......................................................24 

1. Constructive Sales ................................................................................24 
2. Gift Loans ............................................................................................27 
3. Debt Modifications ...............................................................................30 
4. Conclusion ...........................................................................................33 

      B.  Realization’s Doctrinal Elements ..............................................................33 
1. Context and Realization .......................................................................34 
2. Abuse and Antiabuse ............................................................................35 
3. Line-Drawing and Realization .............................................................36 
4. Conclusion ...........................................................................................38 

      C.  Realization as an Antiabuse Doctrine ........................................................38 
IV. THE HOLLOWING-OUT OF TAX LAW ................................................................39 
      A.  Bottom-Up Challenges to the Tax System ................................................40 
      B.  Examples from Partnership Taxation .........................................................43 
      C.  Examples from Corporate Taxation ...........................................................45 
V.  COMPLEXITY AND THE REALIZATION REQUIREMENT .......................................46 
      A.  Government Responses: Promulgation ......................................................47 
      B.  Taxpayer Responses: Compliance .............................................................48 
      C.  Government Responses: Enforcement .......................................................50 
VI. CONCLUSION ....................................................................................................50 
 

 
  



2024] REALIZATION RULE AS A LEGAL STANDARD 3 
 
I. INTRODUCTION 

 
 Although often styled as a “rule,”1 the realization requirement in federal 

income tax law is better characterized as a legal standard.2 Realization—the idea 
that a “taxable event” fixes the timing and amount of income reportable by a 
taxpayer3—ultimately turns on the bespoke facts of each situation, as interpreted ex 
post in the enforcement process.4 This characterization matters in the context of the 
Supreme Court’s opinion in Moore v. United States, which considers (but does not 
decide) whether the Sixteenth Amendment mandates realization for income taxes 
exempt from the Constitution’s limitations on direct taxes.5 Because the Internal 

 
1 See, e.g., Deborah H. Schenk, A Positive Account of the Realization Rule, 57 TAX L. REV. 355, 
355 (2004); cf. Alice G. Abreu & Richard K. Greenstein, It’s Not a Rule: A Better Way to 
Understand the Definition of Income, 13 FLA. TAX REV. 101, 132 (2012) (“It is not surprising that 
in the unrelenting deluge of apparent commandments many tax scholars and other professionals 
have come to assume that all of the tax law is composed of rules.”).  
2 The academic literature on rules and standards is large and long-standing. This Article defines 
rules as legal directives with greater ex ante content and standards as directives with more content 
developed ex post. In constructing laws, the stakes principally involve the costs of compliance and 
administration. See Louis Kaplow, Rules Versus Standards: An Economic Analysis, 42 DUKE L.J. 
557, 562-63 (1992). In taxation, private planning looms large in accounting for these costs. See 
David A. Weisbach, Formalism in the Tax Law, 66 U. CHI. L. REV. 860, 868-69 (1999); see also 
infra Part V. Other approaches to the rules-standards debate exist. See, e.g., Colin S. Diver, The 
Optimal Precision of Administrative Rules, 93 YALE L.J. 65, 72 (1983) (approaching regulatory 
precision from an efficiency perspective); Pierre J. Schlag, Rules and Standards, 33 UCLA L. REV. 
379, 381 (1985) (arguing that conventional debates about rules and standards lack a cogent 
normative underpinning). In tax law, see, e.g., Alice G. Abreu & Richard K. Greenstein, Defining 
Income, 11 FLA. TAX REV. 295, 331 (2011) (evaluating the aptness of rules and standards by “the 
ratio of easy to controversial applications”); David Elkins, Rules, Standards, and the Value of 
Certainty in Tax Law, 22 BERKELEY BUS. L.J. (forthcoming 2024) (arguing against standards in tax 
law because low audit rates create inequitable outcomes across taxpayers), 
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4782454 [https://perma.cc/3JJY-YD4J]; 
Andrew T. Hayashi, A Theory of Facts and Circumstances, 69 ALA. L. REV. 289, 292 (2017) (taking 
a game-theoretic approach to rules and standards where parties have private information). 
3 Classically, realization involves a “sale or other disposition of property.” See I.R.C. § 1001(a) 
(1986). Henceforth, all “I.R.C. §” references are to the Internal Revenue Code of 1986, as amended 
(26 U.S.C.), and all “Treas. Reg. §” references are to the Treasury Regulations (26 C.F.R.). For a 
discussion of dispositions in the realization context, see Jeffrey L. Kwall, When Should Asset 
Appreciation Be Taxed?: The Case for a Disposition Standard of Realization, 86 IND. L.J. 77 (2011).  
4 Although transactions are structured ex ante, advisors typically give legal advice based on probable 
outcomes in litigation before a hypothetical court that considers the relevant issues and possesses a 
comprehensive set of facts. See Linda Galler, Tax Opinion Policies and Practices, 75 TAX LAW. 
443, 454 (2022); see also infra Part IV. 
5 See Moore v. United States, 144 S. Ct. 1680 (2024). In Moore, the Ninth Circuit found that a 
constitutional realization requirement did not exist. See Moore v. United States, 36 F.4th 930, 935 
(9th Cir. 2022) (“Whether the taxpayer has realized income does not determine whether a tax is 
constitutional.”). Then, the Supreme Court held in the government’s favor on other grounds. See 
Moore, 144 S. Ct. at 1685. Moore has generated a large volume of academic and practitioner 
commentary. See, e.g., Hank Adler & Madison S. Spach, Jr., More on Moore, 180 TAX NOTES FED. 
2079 (Sept. 18, 2023); John R. Brooks & David Gamage, Moore v. United States and the Original 
Meaning of Income (Fordham L. Legal. Stud. Res. Paper No. 4491855, 2023); Lee A. Sheppard, 
Supreme Court Urged to Rule on TCJA Transition Tax, 179 TAX NOTES FED. 2113 (June 26, 2023). 
In addition, Moore has received extensive coverage in the popular press. See, e.g., Ian Millhiser, 
Billionaires Had a Surprisingly Bad Day in the Supreme Court Today (Dec. 5, 2023), VOX, 

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4782454


4 COLUMBIA JOURNAL OF TAX LAW [Vol. 16:1 
 
Revenue Code (Code) and Treasury Regulations (Regulations) embed realization 
as a background principle,6 a constitutional standard for realization would operate 
as a taxpayer-initiated antiabuse doctrine—a novel constitutional device that 
taxpayers could deploy selectively to erode the fundamental structure of the current 
Code and Regulations. This new device has adverse—and underappreciated—
consequences for the structure and complexity of tax law going forward.7 

 From an economic perspective, rules and standards differ in how precisely 
their legal content is specified before the objects of this content take action.8 Rules, 
such as numeric speed limits, provide greater specificity ex ante. By contrast, 
standards, such as laws prohibiting reckless driving, acquire their principal content 
ex post.9 Identical legal content may be expressed through rules or standards.10 
Either design strategy may prohibit speeding, but rules contain specific up-front 
content, while the precise parameters of standards emerge through enforcement. In 
the tax context, many day-to-day questions of realization are uncontroversial, 
making many ex ante determinations relatively straightforward.11 Just beyond the 

 
https://www.vox.com/scotus/2023/12/5/23989306/supreme-court-wealth-tax-billionaires-moore-
united-states-elizabeth-warren [https://perma.cc/K9HN-CU8R]; Alan Rappeport, How a Legal 
Fight Over a $15,000 Tax Bill Could Upend the U.S. Tax Code (Dec. 5, 2023), N.Y. TIMES, 
https://www.nytimes.com/2023/12/05/us/politics/supreme-court-corporate-taxes-explainer.html 
[https://perma.cc/S3HM-LXFE]; Richard Rubin & Jess Bravin, One Supreme Court Case Could 
Mess Up Chunks of the Tax Code (Dec. 3, 2023), WALL ST. J., https://www.wsj.com/us-
news/law/one-supreme-court-case-could-mess-up-chunks-of-the-tax-code-680a9ba6 
[https://perma.cc/9XY9-36Z4]; Mark Joseph Stern, Sam Alito’s Lonely Fight to Defend His 
Friend’s Harebrained Anti-Tax Scheme (Dec. 5, 2023), SLATE, https://slate.com/news-and-
politics/2023/12/sam-alito-moore-arguments-tax-scheme.html [https://perma.cc/Y3LB-ABF7].  
6 This statement is not controversial as a positive matter. See Boris I. Bittker et al., Bittker, 
McMahon, & Zelenak: Federal Income Taxation of Individuals § 3.2, Westlaw (database updated 
Apr. 2024) (“[R]ealization is nevertheless so basic to the taxing structure of existing law that the 
general principle is simply not challenged.”). As a normative matter, the Code and Regulations’ 
reliance on realization has provoked a large (and largely critical) academic literature. See, e.g., 
Zachary Liscow & Edward Fox, The Psychology of Taxing Capital Income: Evidence from a Survey 
Experiment on the Realization Rule, 213 J. PUB. ECON. 104714 (2022) (exploring public perceptions 
of the realization requirement); David M. Schizer, Realization as Subsidy, 73 N.Y.U. L. REV. 1549, 
1552 (1998) (noting critiques and arguing that statutory realization operates as a subsidy for capital 
investment). Perhaps the most famous characterization of realization is as the “Achilles’ Heel” of 
the income tax system. William D. Andrews, The Achilles’ Heel of the Comprehensive Income Tax, 
in NEW DIRECTIONS IN FEDERAL TAX POLICY FOR THE 1980S 278, 280 (Charles E. Walker & Mark 
A. Bloomfield eds., 1983).  
7 This Article does not consider whether current law that does not satisfy a constitutional realization 
requirement could survive as an excise tax not subject to apportionment. See John R. Brooks & 
David Gamage, Taxation and the Constitution, Reconsidered, 76 TAX L. REV. 75, 109-11 (2022) 
(describing the pre-Macomber case law addressing federal excise taxes). 
8 See Isaac Ehrlich & Richard A. Posner, An Economic Analysis of Legal Rulemaking, 3 J. LEGAL 
STUD. 257, 258 (1974).  
9 See Louis Kaplow, supra note 2, at 559-60. These categories operate as a continuum, with some 
legal commands as rule-like and others as standard-like. For example, custom and practice may 
permit drivers to exceed speed limits by five miles per hour under certain conditions. Id.  
10 See id. (distinguishing an economic approach to rules and standards from jurisprudential 
approaches).  
11 Many sales are easily identified as realization events. See Treas. Reg. § 1.1001-1(e)(2), ex. 1-4 
(2017) (analyzing immediate and complete transfers of property in exchange for cash). Indeed, 
standards may become more rule-like over time, as iterative enforcement adds precision to the 



2024] REALIZATION RULE AS A LEGAL STANDARD 5 
 
quotidian, however, lies significant uncertainty,12 and the essential inquiry retains 
a standard’s fuzzy penumbra and after-the-fact adjudication.13 

 Realization’s standard-like aspects emerge in relatively mundane 
situations.14 Imagine a sale of Equipment from Owner to User. Sales are 
prototypical realization events, and Owner presumptively realizes (and takes into 
income) any gain or loss with respect to the Equipment.15 Alternatively, Owner 
could lease the Equipment to User for a fixed term. Although not formally 
structured as a sale, this lease also may constitute a realization event for Owner.16 
Under the lease, the present value of all rental payments sum to the Equipment’s 
current fair market value, and, when the lease terminates, the Equipment has no 
residual value.17 In effect, Owner has sold the Equipment to User.18 Under both 
scenarios, additional facts—or small variations in the given facts—may yield the 
opposite result.19 In realization’s open inquiry into the facts and circumstances, 

 
standard’s content. See Kaplow, supra note 2, at 578-79; see also Schlag, supra note 2, at 428-29 
(“Standards tend to become concretized by means of specific rules.”). These emergent rules, of 
course, remain subject to challenge based on the underlying standard. Id. at 429 (“Rules tend to 
yield specific exceptions that are generated by appeal to other standards.”); Kathleen M. Sullivan, 
Foreword: The Justices of Rules and Standards, 106 HARV. L. REV. 22, 96-97 (1992) (discussing 
cyclical evolution in rules and standards). 
12 See, e.g., Cottage Savings Assn. v. Comm’r, 499 U.S. 554, 560 (1991).  
13 See Richard L. Bacon et al., American Bar Association Section of Taxation Task Force Report on 
Prop. Regs. § 1.1001-3: Modifications of Debt Instruments (pts I-V), 47 TAX LAW. 987, 1010 (1994) 
(“[T]he definition of a realization event has been chiefly a judicial function.”).  
14 This claim is distinct from the empirical observation that most questions of realization are easily 
resolved, either under the relevant legal precedent or because the issue simply is not scrutinized. See 
Abreu & Greenstein, supra note 2, at 336-39 (describing realization as rule-bound). The crucial 
point is that uncertainty about realization emerges in situations that are neither particularly exotic 
nor artificially constructed. See Weisbach, supra note 2, at 879 (noting that standard-based antiabuse 
rules operate more effectively when they do not “create uncertainty outside their intended scope”).  
15 See I.R.C. § 1001(a) (defining realization); I.R.C. § 1001(c) (defining recognition). 
16 See Starr’s Estate v. Comm’r, 274 F.2d 294, 295 (9th Cir. 1959) (holding that a lease involving a 
built-in sprinkler system was, in substance, a sale).  
17 For lease-versus-sale treatment, the tax stakes are subtle. If the transaction is a lease for tax 
purposes, Owner has income equal to User’s rental payments and recovers all basis in the Equipment 
through statutory depreciation deductions, while User can deduct rent paid to Owner under the lease. 
If the transaction is a sale, Owner recovers all basis in the Equipment and has gain or loss based on 
the sale price, while User has statutory depreciation deductions equal to the sale price. Although 
Owner and User generally have the same net income under either treatment, the timing and character 
of this income depends on myriad factors, such as the Equipment’s useful life, the availability of 
expensing, the applicability of I.R.C. § 453A to any installment sale payments, the applicability of 
I.R.C. § 467 to any rental payments, and each party’s tax position exclusive of the transaction. See 
Adam J. Kolber, Smooth and Bumpy Laws, 102 CALIF. L. REV. 655, 666-68 (2014) (distinguishing 
the rules-standards inquiry from “input-output” relationships); cf. Starr’s Estate, 274 F.2d at 296-
97 (noting that, after accounting for depreciation deductions and interest, “the attack on many of 
these ‘leases’ may not be worthwhile in terms of revenue”). 
18 More precisely, the lease changes Owner’s legal and economic relationship to the Equipment in 
a manner that replicates a conventional sale. See Cottage Savings Assn. v. Comm’r, 499 U.S. 554, 
566 (1991) (examining legal entitlements to determine realization under the Code).  
19 For example, Owner might sell the Equipment to User subject to a right to repurchase after a fixed 
term, or Owner might lease the Equipment to User for a term shorter than the Equipment’s useful 
life, an amount less than the Equipment’s fair market value, or subject to informal understandings 
that negate the economics evidenced by formal documentation. Cf. Rev. Proc. 2001-28, 2001-1 C.B. 
1156; Rev. Proc. 2001-29, 2001-1 C.B. 1160 (both providing advance IRS ruling guidance for 



6 COLUMBIA JOURNAL OF TAX LAW [Vol. 16:1 
 
transaction-specific inputs dominate, leaving taxpayers to rely on their advisors’ 
judgment or adjudicators’ discretion.20 In this sense, realization represents a 
quintessential legal standard, even for transactions as superficially straightforward 
as sales or leases under state law.21 

 By framing realization as a standard, this Article reveals novel stakes for 
constitutionalizing the principle.22 Taxpayers and their advisors could leverage a 
constitutional realization requirement as a type of taxpayer-initiated antiabuse 
doctrine. That is, taxpayers could treat portions of the Code and Regulations as safe 
harbors, rather than as binding, with an open and inchoate option to challenge—
and perhaps invalidate—these rule-bound regimes on a constitutional basis.23 These 
mechanics run parallel to longstanding government-asserted antiabuse doctrines in 
tax law,24 which also provide a standard-based backstop for the predominately rule-
bound Code and Regulations.25 During the enforcement process, the government 
asserts conventional antiabuse doctrines to disregard the Code’s literal language or 
operation, instead substituting a tax result that better comports with broader 
values.26 By contrast, taxpayers generally are bound by their return positions.27 A 

 
leasing transactions).  
20 See Elkins, supra note 2, at 49 (arguing that taxpayers “are ordinarily free to ignore [standard-
based antiabuse doctrines], or at least interpret them as leniently as possible”). 
21 Other stakes for this inquiry involve arbitrage between nontax legal categories (such as a sale or 
lease under state law) and tax treatment (which typically requires a more holistic legal and factual 
analysis). See generally Victor Fleischer, Regulatory Arbitrage, 89 TEXAS L. REV. 227 (2010).  
22 For constitutional approaches to tax law, see Bruce Ackerman, Taxation and the Constitution, 99 
COLUM. L. REV. 1 (1999); Reuven Avi-Yonah, Should U.S. Tax Law Be Constitutionalized? 
Centennial Reflections on Eisner v. Macomber (1920), 16 DUKE J. CONST. L & PUB. POL’Y 65 
(2020); Brooks & Gamage, supra note 7; Ari Glogower, A Constitutional Wealth Tax, 118 MICH. L. 
REV. 717 (2020); Erik M. Jensen, Did the Sixteenth Amendment Ever Matter? Does It Matter 
Today?, 108 NW. U. L. REV. 799 (2014); Marjorie E. Kornhauser, The Constitutional Meaning of 
Income and the Income Taxation of Gifts, 25 CONN. L. REV. 1 (1992); Henry Ordower, Revisiting 
Realization: Accretion Taxation, the Constitution, Macomber, and Mark to Market, 13 VA. TAX 
REV. 1 (1993).  
23 For a rules-standards analysis of government-created safe harbors, see Susan C. Morse, Safe 
Harbors, Sure Shipwrecks, 49 U.C. DAVIS L. REV. 1385 (2016).  
24 The substance-over-form doctrine, for example, derives from the well-traveled Second Circuit 
and Supreme Court opinions in Gregory v. Helvering. Helvering v. Gregory, 69 F.2d 809, 810 (2d 
Cir. 1934); Gregory v. Helvering, 293 U.S. 465 (1935). See generally Bittker et al., supra note 6, at 
§ 1.14 (“These presuppositions or criteria are so pervasive that they resemble a preamble to the 
Code, describing the framework within which all statutory provisions are to function.”). 
25 For a framing of antiabuse doctrines in terms of the choice between legal rules and standards, see 
Weisbach, supra note 2.  
26 See Noël B. Cunningham & James R. Repetti, Textualism and Tax Shelters, 24 VA. TAX REV. 1 
(2004). 
27 This principle sometimes is referred to as the Danielson doctrine, though its reach greatly exceeds 
the facts in that Third Circuit case. Commissioner v. Danielson, 378 F.2d 771 (3d Cir. 1967), cert. 
denied, 389 U.S. 858 (1967); see Bittker et al., supra note 6, at § 1.19 (“[I]t is easier for a camel to 
pass through the eye of a needle, than for a taxpayer to disavow the form of his own transaction.”). 
Some standard-driven analyses, such as the twenty-factor distinction between employees and 
independent contractors, may involve substance-based determinations that either taxpayers or the 
government may assert. See Bartels v. Birmingham, 332 U.S. 126 (1947) (allowing taxpayers to 
disavow a standard employment agreement when the substance of the arrangement was an 
independent contractor relationship); see generally Emily Cauble, Reforming the Non-Disavowal 
Doctrine, 35 VA. TAX REV. 439 (2016); Robert Thornton Smith, Substance and Form: A Taxpayer’s 



2024] REALIZATION RULE AS A LEGAL STANDARD 7 
 
constitutional realization requirement would flip the “one-way street” of 
conventional antiabuse doctrines on its head, giving taxpayers a unique tool against 
the government.28 Because realization undergirds much of the current Code and 
Regulations, these challenges could be pervasive. 

 Justice Kavanaugh, writing for the majority in Moore, expressly recognized 
the potential “blast radius” of a broad constitutional realization requirement—the 
issue’s potential to wreak “fiscal calamity” on the federal government.29 Although 
Kavanaugh’s opinion worked to minimize such havoc, there remains a strong 
possibility that the Court (or a U.S. Circuit Court of Appeals) will find a 
constitutional realization requirement in the future.30 The resulting doctrinal shift 
would have systemic ramifications beyond those identified by Kavanaugh, who, 
like the parties and amici in Moore, focused on “top-down” threats posed by a 
constitutional realization requirement. These threats include the possible 
constitutional infirmity of both specific Code provisions and entire taxing regimes, 
such as those applicable to partnerships or S corporations. The at-risk list is long.31  

 But a constitutional realization requirement also presents a “bottom-up” 
threat, linked to the operation of a constitutional realization requirement as a 
taxpayer-initiated antiabuse rule. Realization and nonrealization are intertwined 
deeply with the current Code and Regulations. These principles constitute essential 

 
Right to Assert the Priority of Substance, 44 TAX LAW. 137 (1990).  
28 See Jamie Brown, The State of the Non-Disavowal Principle After Complex Media, 183 TAX 
NOTES FED. 1201, 1209 (May 13, 2024) (citing Higgins v. Smith, 308 U.S. 473 (1940)). This 
mechanic is, of course, how constitutional rights operate.  
29 Moore v. United States, 144 S. Ct. 1680, 1693, 1696 (2024).  
30 The Court did not expressly disavow Eisner v. Macomber, 252 U.S. 189 (1920), and, based on 
the opinions in Moore, at least four justices support a constitutional realization requirement (Barrett, 
Alito, Thomas, and Gorsuch). See infra Part II.C. 
31 In Moore, Kavanaugh lists I.R.C. § 305(c), I.R.C. § 446, I.R.C. § 448, I.R.C. § 951A, I.R.C. 
§ 1256(a), I.R.C. § 1272(a), and all of subchapter K (partnership taxation, I.R.C. §§ 701-761), 
subchapter S (small business corporations, I.R.C. §§ 1361-1379), subpart F (antideferral for income 
earned by controlled foreign corporations, I.R.C. §§ 951-964), and the entire gift tax regime in I.R.C. 
§§ 2501-2524. As adduced by amici and commentators, the full at-risk list includes the corporate 
alternative minimum tax in I.R.C. § 55(b)(2); the rules applicable to stock dividends in I.R.C. 
§ 305(b); the percentage completion method for long-term contracts in I.R.C. § 460; mark-to-market 
accounting for securities dealers and traders in I.R.C. § 475(a); the taxation of certain foreign 
intangible assets in I.R.C. § 367(d); the personal holding company rules in I.R.C. §§ 541-547; the 
grantor trust rules in I.R.C. §§ 671-679; mark-to-market accounting for life insurance companies in 
I.R.C. § 817A, the expatriation tax in I.R.C. § 877A; the branch profits tax in I.R.C. § 884; the global 
intangible low-taxed income rules in I.R.C. § 951A; the wash sale rules in I.R.C. § 1091; 
constructive sales in I.R.C. § 1259 (see infra Part III.A.1); and the passive foreign investment 
company rules in I.R.C. §§ 1291-1297. See Brief of American College of Tax Counsel as Amicus 
Curiae Supporting Respondent at 18-25, Moore, 144 S. Ct. 1680 (No. 22-800); Brief of American 
Tax Policy Institute as Amicus Curiae Supporting Respondent at 20-26, Moore, 144 S. Ct. 1680 
(No. 22-800); Brief of Reuven Avi-Yonah et al. as Amici Curiae Supporting Respondent at 5-18, 
Moore, 144 S. Ct. 1680 (No. 22-800); Brief of National Taxpayers Union Foundation as Amicus 
Curiae Supporting Neither Party at 22-27, Moore, 144 S. Ct. 1680 (No. 22-800); Brief of Tax Law 
Center at NYU Law et al. as Amici Curiae Supporting Respondent at 23-25, Moore, 144 S. Ct. 1680 
(No. 22-800); Brief of Theodore P. Seto as Amicus Curiae Supporting Respondent at 16-26, Moore, 
144 S. Ct. 1680 (No. 22-800). As this Article elaborates, these lists are incomplete. See, e.g., infra 
Part III.A.2 (discussing I.R.C. § 7872 and gift loans). 



8 COLUMBIA JOURNAL OF TAX LAW [Vol. 16:1 
 
administrative infrastructure,32 and revisiting realization in light of a constitutional 
requirement risks a sort of “hollowing out” of the existing income tax system. Each 
taxpayer action—each step taken, each move made—must be tested against the 
constitutional threshold for realization.33 To the extent that the constitutional 
threshold controls (or is treated as controlling), the current Code and Regulations 
are eroded incrementally.34 Realization is not just the pragmatic bedrock on which 
federal income taxation rests. In some sense, the U.S. income tax system, especially 
as it applies to businesses and high-income taxpayers, is realization questions all 
the way down. 

 More broadly, the ultimate stakes of a constitutional realization requirement 
involve the long-term structure and complexity of the U.S. tax system.35 The 
heavily rule-bound Code and Regulations are notoriously complex—perhaps 
irreducibly so.36 Conventional antiabuse doctrines tend to constrain this complexity 
by allowing lawmakers to write (simpler) rules that address only high-frequency 
fact patterns. Then, the enforcement process addresses low-frequency occurrences, 
including those that reflect inappropriate tax planning, through standard-based 
antiabuse doctrines.37 As a taxpayer-initiated antiabuse doctrine, a constitutional 
realization requirement would have the opposite effect on complexity. Among 
other things, a constitutional realization requirement would lower the expected 
costs of tax planning that leverages a literalist reading of the Code and 
Regulations.38 For this reason, even a whisper of a constitutional realization 
requirement ventures into poorly charted territory, with potentially detrimental 
consequences that may prove difficult to unwind.39 

 This Article proceeds as follows. Part II outlines the past, present, and 
 

32 See Bittker et al., supra note 6, at § 3:2 (“[U]nrealized appreciation is treated as income only in 
very limited circumstances under very specific statutory provisions.”). This infrastructure, of course, 
may not be necessary—at least not when cutting from whole cloth. See William D. Andrews, A 
Consumption-Type or Cash Flow Personal Income Tax, 87 HARV. L. REV. 1113, 1129-31 (1974) 
(“The problems of defining realization and prescribing non-recognition would obviously disappear 
under either a true accretion-type or a pure consumption-type tax.”). 
33 This testing may occur through litigation or through the positions taken by taxpayers in 
consultation with their expert advisors. See infra Part IV. 
34 This erosion may be good or bad, depending on the content of a constitutional realization 
requirement. Because that content is not specified ex ante (and because the current tax system is 
imperfect), normative claims are difficult to make. See infra Part V. 
35 These stakes differ from those typically associated with realization, which involve the 
effectiveness (or ineffectiveness) of taxes on capital income. See Ari Glogower, Taxing Capital 
Appreciation, 70 TAX L. REV. 111, 117 (2016).  
36 See Boris I. Bittker, Tax Reform and Tax Simplification, 29 U. MIAMI L. REV. 1, 2 (1974); see 
also David A. Weisbach, The Irreducible Complexity of Firm-Level Income Taxes: Theory and 
Doctrine in the Corporate Tax, 60 TAX L. REV. 215, 215 (2007) (arguing that firm-level income 
taxes increase complexity by “creat[ing] the possibility of multiple realizations of the same 
economic income); Stanley S. Surrey, Complexity and the Internal Revenue Code: The Problem of 
the Management of Tax Detail, 34 L. & CONTEMP. PROBS. 673, 702 (1969) (“The conclusion seems 
inescapable that the federal income tax system will require and involve a large mass of complex 
detail.”). 
37 See Weisbach, supra note 2.  
38 See infra Part V. 
39 As commentators emphasized when the Court took Moore on certiorari, the reasoning in Moore 
matters more than the nominal outcome. See Daniel J. Hemel, The Low and High Stakes of Moore 
v. United States, 180 TAX NOTES FED. 563 (July 24, 2023).  



2024] REALIZATION RULE AS A LEGAL STANDARD 9 
 
possible future of the constitutional question presented by the taxpayers in Moore. 
Part III argues that, as a legal standard, a putative constitutional realization 
requirement would operate as a taxpayer-initiated antiabuse doctrine. Part IV 
outlines how a constitutional realization requirement could “hollow out” existing 
tax law, including examples not previously discussed in the literature. Part V details 
how a constitutional realization requirement could affect the overall complexity of 
the tax system. Part VI concludes. 

 
II. REALIZATION’S PAST, PRESENT, AND FUTURE 

 
 In the United States, realization’s constitutional basis stems from the 

Supreme Court’s well-traveled 1920 decision in Eisner v. Macomber.40 In 
Macomber, an individual shareholder received a stock-on-stock dividend that did 
not affect the shareholder’s proportionate legal interest in the underlying 
corporation.41 The shareholder challenged recently enacted legislation that included 
the stock dividend’s market value in income.42 Writing for the Court, Justice Pitney 
invalidated the statute, concluding that the Constitution did not permit income 
taxation of “a true stock dividend made lawfully and in good faith.”43 For the 
Macomber court, income famously comprised “the gain derived from capital, from 
labor, or from both combined,” and “[n]othing else answers the description.”44 A 
significant academic literature mines Macomber’s holding and dicta, as well as 
subsequent judicial opinions, to discern realization’s ongoing constitutional 
significance.45 

 
40 252 U.S. 189 (1920). 
41 Id. at 203. The Court also takes as fact that the value of the shareholder’s holdings did not change 
as a result of the stock dividend, in which one share of new stock was distributed with respect to 
every two shares of old stock (a 3:2 stock split). See Marjorie E. Kornhauser, The Story of 
Macomber: The Continuing Legacy of Realization, in BUSINESS TAX STORIES 93, 101 (Paul L. 
Caron ed., 2003) (noting that the government essentially conceded this valuation issue). This factual 
conclusion requires some rounding, since the stock’s trading price dropped by slightly less than the 
expected one-third as a result of the dividend. An empirical literature in finance finds, however, that 
stock splits increase share value (including over the long run) by increasing those shares’ liquidity, 
signaling managers’ optimism about the company, and targeting the optimal “tick size” for a stock 
(the ratio of the smallest allowable change in market price to the stock’s per-share trading price). 
See, e.g., Patrick Dennis, Stock Splits and Liquidity: The Case of the Nasdaq-100 Index Tracking 
Stock, 38 FIN. REV. 415 (2003) (liquidity); Robert M. Conroy & Robert S. Harris, Stock Splits and 
Information: The Role of Share Price, 28 FIN. MGMT. 28 (1999) (signaling); James J. Angel, Tick 
Size, Share Prices, and Stock Splits, 52 J. FIN. 655 (1997) (tick size). 
42 Macomber, 252 U.S. at 201 (challenging Revenue Act of 1916, Pub. L. No. 64-271, § 2(a), 39 
Stat. 756, 757 (1916)). Macomber, like Moore, reflects cause lawyering. The dollar stakes in 
Macomber were small, and the case moved speedily through the federal court system. The taxpayer 
was represented by leading attorneys of the time. Kornhauser, supra note 41, at 99-100. 
43 Macomber, 252 U.S. at 219 (1920). Courts later discerned a number of exceptions to this rule, 
and Congress adopted the Macomber outcome (and many of these exceptions) in § 305(a) and (b). 
See Patricia Ann Metzer, The “New” Section 305, 27 TAX L. REV. 93 (1971) (discussing the history 
of, and revisions to, I.R.C. § 305 from 1954 to 1969). 
44 Macomber, 252 U.S. at 207-08. 
45 Compare Henry Ordower, supra note 22, at 56 (describing Macomber as recognizing “a 
fundamental realization principle in the Sixteenth Amendment”), with Alex Zhang, Rethinking 
Eisner v. Macomber, and the Future of Structural Tax Reform, 92 GEO. WASH. L. REV. 179, 228 
(2024) (concluding that, among five possible readings, Macomber should be read as finding an 



10 COLUMBIA JOURNAL OF TAX LAW [Vol. 16:1 
 

 Before the Court’s decision in Moore, the dominant view among scholars—
and in casebooks and tax treatises authored by those scholars—was that, between 
1940 and the mid-1950s, the Court effectively vitiated Macomber’s constitutional 
significance without expressly overruling the decision. Under this view, realization 
became a convention of “administrative convenience” that Congress and Treasury 
could deploy or abrogate on a pragmatic basis.46 Hegemonic and little-challenged 
for seven decades,47 this discourse helps to explain why the Court’s grant of 
certiorari for Moore stirred so much discord among academic and other 
commentators.48 This Part adduces the historical origins of the consensus around 
Macomber’s obsolescence (the past), the Moore Court’s engagement with 
Macomber and a constitutional realization requirement (the present), and the 
potential, after Moore, for courts to find (or affirm) a constitutional realization 
requirement (the future). 

 
A.  The Past: Burying Macomber 
 
 Macomber’s precipitous decline came less from Supreme Court 

pronouncements, which remained resolutely vague about realization as a 
constitutional principle, and more from an academic consensus that emerged two 
decades after the Court’s 1920 decision. This consensus reflected work by a few 
well-known policy entrepreneurs—Stanley Surrey, Erwin Griswold, and Boris 
Bittker—in the context of three intersecting dynamics in 1940s. First, the Court 
issued a series of decisions that transparently loosened Macomber’s constraints on 
the definition of income. Second, revenue needs in World War II cemented the 
federal income tax’s transformation from class tax to mass tax. This shift created 
new exigencies of administration to ensure that high earners contributed a fair 
share. Third, in law school curriculum, taxation grew to encompass the planning, 
administrative, and technical topics—all decidedly nonconstitutional—that define 
the subject’s contours today. Overall, this context shows an academic movement, 
motivated by changes in the tax system, to refocus doctrinal questions away from 
the Constitution and, specifically, Macomber. These policy entrepreneurs’ work, 
more than the Court’s scattershot tax jurisprudence, effectively buried Macomber 
as a doctrinal matter for decades. 

 The academic movement to bury Macomber began in 1941, when Stanley 
Surrey disavowed Macomber’s constitutional holding in a law review article.49 

 
absence of income, rather than an absence of realization).  
46 Helvering v. Horst, 311 U.S. 112, 116 (1940). See John R. Brooks & David Gamage, supra note 
7, at 126-34. 
47 In a statutory interpretation case, the Supreme Court supported the “administrative convenience” 
view. Cottage Savings Assn. v. Comm’r, 499 U.S. 554, 559 (1991). 
48 See Andrew Velarde, Supreme Court to Hear Transition Tax Case with Vast Implications, 180 
TAX NOTES FED. 125 (July 3, 2023).  
49 Stanley S. Surrey, The Supreme Court and the Federal Income Tax: Some Implications of the 
Recent Decisions, 35 ILL. L. REV. 779 (1941) [hereinafter Surrey, Supreme Court]. See also 
Ordower, supra note 22, at 8-9 (summarizing Surrey’s conclusions, which “[c]ommentators almost 
universally accept[ed]”); Lawrence Zelenak, Stanley Surrey and Taxing Unrealized Appreciation, 
86 LAW & CONTEMP. PROBS. 153, 161 (2022) (“Surrey was the first commentator to declare the 
death of Eisner v. Macomber, way back in 1941.”). Perhaps with some tongue in cheek, Surrey 



2024] REALIZATION RULE AS A LEGAL STANDARD 11 
 
Surrey argued that, in the two decades since the Court decided Macomber, the tax 
system had evolved such that “the formalistic doctrine of realization . . . is not a 
constitutional mandate.”50 Indeed, Surrey contended that “the Sixteenth 
Amendment [itself] is an historical relic,”51 no longer necessary to sustain income 
taxation. According to Surrey, “the Congressional architects may proceed to build 
a sensible tax structure without any fear that it will later be destroyed by attacks 
based on constitutional grounds.”52 The “tax Tower of Babel” constructed on 
Macomber’s realization “cornerstone” had been dismantled in favor of an edifice 
more conducive to revenue collection in a burgeoning administrative state.53 Under 
this view, Congress’s lawmaking authority was virtually unfettered when dealing 
with taxation.54 

 Surrey grounded his “sound conclusion” about Macomber’s constitutional 
relevance in the Court’s 1940 decisions in Bruun55 and Horst.56 In Bruun, the Court 
addressed a landlord’s consequences from improvements constructed by a tenant 
on leased land. Justice Roberts, writing for the Court, found that, on the tenant’s 
termination of the lease, the landlord had income equal to the value of those 
improvements at the time of termination.57 For Surrey, the landlord’s receipt of 
possession of the land and improvements—a realization event, for the Bruun 
Court—was “hardly very significant” and simply represented an administrable 
alternative to other possibilities “differing only slightly in degree.”58 As long as “a 
recognizable variation [was] present,” Congress and Treasury could impose tax, 
perhaps based on whichever facts presented “fewer difficulties.”59 From this 
perspective, Bruun “mark[ed] the end of one era in our tax history” and left 

 
described his article as “clearly one of the best [he] had written” and lamented his failure to publish 
the paper with the Harvard Law Review. STANLEY S. SURREY, A HALF-CENTURY WITH THE 
INTERNAL REVENUE CODE: THE MEMOIRS OF STANLEY S. SURREY 46 (Lawrence A. Zelenak & Ajay 
K. Mehrotra eds., 2022). 
50 Surrey, Supreme Court, supra note 49, at 791. 
51 Id. at 792.  
52 Id. at 813-14. 
53 Id. at 782.  
54 Surrey argued in 1941 that, “[if] there be any constitutional issue in an income tax case today, it 
should be one of due process.” See id. at 793. In Moore, the Court arguably revived substantive due 
process claims outside of contentions against retroactivity. See Moore v. United States, 144 S. Ct. 
1680, 1697 (2024) (“To be clear, . . . the Due Process Clause proscribes arbitrary [income] 
attribution.”). 
55 Helvering v. Bruun, 309 U.S. 461 (1940).  
56 Helvering v. Horst, 311 U.S. 112 (1940). Surrey also rooted his conclusions about the scope of 
tax law in a broader sense of the Court’s jurisprudence. See Surrey, Supreme Court, supra note 49, 
at 813-16. 
57 Bruun, 309 U.S. at 466-67. The land almost certainly had depreciated during the lease’s term, and 
so the landlord’s net economic gain on termination likely was negative. See infra note 61. 
58 Surrey, Supreme Court, supra note 49, at 784. The Bruun Court faced essential difficulties in 
determining the amount and timing of income. The taxpayer’s income could be measured by 
subjective or objective value and calculated either for the improvements or the real property as an 
integrated whole. Any income could be taken into account at the start or end of the lease, or spread 
evenly or otherwise over the lease’s term. This range of outcomes emphasizes the standard-like 
nature of realization, as well as the policy factors that favor determinations based on administrative 
convenience. Cf. infra Part III.A.2. (discussing similar parameters for gift loans). 
59 Surrey, Supreme Court, supra note 49, at 784. 



12 COLUMBIA JOURNAL OF TAX LAW [Vol. 16:1 
 
realization “no more than a recognition of an expedient procedure.”60 Surrey 
emphasized that the taxpayer’s long-term economic interest in the land and 
improvements did not change when possession reverted.61 By allowing the 
imposition of tax, the Court had effected “a complete denial of the doctrine that is 
the heart of Eisner v. Macomber.”62 By looking to changes in legal relationships, 
Bruun abrogated Macomber’s emphasis on income’s economic origins. 

 In Horst, the taxpayer detached and gave some of a negotiable bond’s 
interest coupons to his son, who redeemed those coupons for cash within the same 
year.63 Justice Stone, writing for the Court, held that the interest income from the 
detached coupons was taxable to the donor, rather than his son.64 Surrey notes that 
the Court eliminated “a rather neat [tax avoidance] device” to assign income among 
individuals with affective relationships.65 The opinion, however, reaches further in 
its reasoning. For Surrey, Stone’s choice to couch his opinion in terms of realization 
“has implications whose effect is not confined to the assignment cases.”66 But 
Stone’s opinion treads perilously close to incoherence, implying that gifts 
constitute realization events to the extent of personal “satisfactions” derived from 
directing income to others and muddling assignment-of-income principles.67 In 
clear dicta, Stone posits that realization is “founded on administrative 
convenience.”68 Surrey juxtaposes this statement with Bruun, stating that “[t]he 
Horst decision thus supplies the theoretical justification for the Bruun case” to 
vitiate Macomber.69 Neither decision, of course, expressly repudiated Macomber, 
and both decisions could be read to support the decision’s continuing vitality under 
the doctrine of stare decisis.70 But the stage was set for academics to coalesce 
around Surrey’s categorical proclamation.71 

 
60 Id. at 783.  
61 Id. at 784 (“If increase in value of property be conceded income in the economic sense the decision 
not to tax that increase for one reason or another is simply a decision to base the income tax for the 
time being on something less than a taxpayer’s total income.”). Bruun’s facts arose in the midst of 
the Great Depression. Bruun, 309 U.S. at 464. In Bruun, the tenant’s abandonment of the lease 
reflected the property’s probable decline in aggregate value at termination. Although not discussed 
explicitly in Bruun, the landlord presumably could have leased the property to another tenant at a 
lower amount of rent (an implicit loss), and the landlord had legal recourse to recover damages from 
the former tenant under the lease agreement (a recovery of some of this implicit loss). These 
subsequent events yield a fuller accounting of the economic gain or loss for the taxpayer in Bruun—
and emphasize the imperfections of a realization-based regime. 
62 Surrey, Supreme Court, supra note 49, at 783. 
63 Helvering v. Horst, 311 U.S. 112, 114 (1940). 
64 Id. at 120. Section 1286 currently addresses the tax treatment of “stripped” bonds through a 
bifurcation approach. See I.R.C. § 1286(b). 
65 Surrey, Supreme Court, supra note 49, at 787, 791.  
66 Id. at 791.  
67 Horst, 311 U.S. at 116-17. Commentators typically read Horst as prohibiting taxpayers from 
directing the taxability of current-year income (the coupons) with respect to a retained capital 
investment (the bond). See, e.g., Jerome M. Hesch & David J. Herzig, Helvering v. Horst: Gifts of 
Income from Property, 42 ACTEC L.J. 35, 38-39 (2016). 
68 Horst, 311 U.S. at 116.  
69 Surrey, supra note 49, at 791. 
70 Cf. Zelenak, supra note 49, at 161-62. 
71 Philip E. Heckerling, The Death of the “Stepped-Up” Basis at Death, 37 S. CAL. L. REV. 247, 
264 (1964) (“[T]he tax law academicians appear to divide only on the question of which of the post-
Eisner v. Macomber decisions held unrealized appreciation constitutionally taxable.”). 



2024] REALIZATION RULE AS A LEGAL STANDARD 13 
 

 Subsequent work followed Surrey’s lead. In 1945, Roswell Magill of 
Columbia Law School published a revised edition of his treatise, Taxable Income, 
that drew on Bruun and Midland Mutual Life Insurance72 to argue that the Court 
would permit Congress to tax unrealized appreciation.73 Midland Mutual lent 
indirect support to an administrative convenience understanding of realization, 
stating that “[i]ncome may be realized upon a change in the nature of legal rights 
held, though the particular taxpayer has enjoyed no addition to his economic 
worth.”74 Surrey served as a research assistant on the 1945 revision of Magill’s 
book, and his imprint is clear.75 Then, in 1951, Erwin Griswold of Harvard Law 
School described Macomber’s “problems of realization” as “unduly 
conceptualistic.”76 Like Surrey, Griswold favored realization as a pragmatic 
concession to administrative considerations.77 And Boris Bittker, in 1952, argued 
that, despite Macomber, taxpayers could be taxed annually on certain gains or 
losses without realization.78 These positions emerged in the authors’ three law 
school casebooks, which loomed large in the postwar tax curriculum.79 

 To some extent, these scholarly claims about Macomber’s demise are 
incongruous with the Court’s decisions after Surrey’s 1941 pronouncement.80 In 
Griffiths81 and Sprouse,82 both decided in 1943, the government twice asked the 
Court to overrule Macomber, and the Court expressly declined. Each case involved 
common-on-common stock dividends, similar to the facts in Macomber.83 
Congress had amended the Code to tax stock dividends except “to the extent that 

 
72 Helvering v. Midland Mut. Life Ins. Co., 300 U.S. 216 (1937) (holding that a lender had interest 
income when purchasing property out of foreclosure for the debt’s principal amount, plus accrued 
and unpaid interest).  
73 See ROSWELL MAGILL, TAXABLE INCOME 119-20 (rev. ed. 1945) (arguing that, after Bruun and 
Midland Mutual, “the adoption by Congress of a general plan for taxing appreciation on an inventory 
basis [that is, mark-to-market] would probably be upheld”). 
74 300 U.S. at 225.  
75 Other portions of the book argue for Macomber’s continuing vitality. See MAGILL, supra note 73, 
at 44. 
76 Erwin N. Griswold, Charitable Gifts of Income and the Internal Revenue Code, 65 HARV. L. REV. 
84, 86 (1951).  
77 Griswold conceded that realization formed part of the positive structure of income taxation. Erwin 
N. Griswold, In Brief Reply, 65 HARV. L. REV. 1389, 1389 (1952) (“[E]ven though [realization] may 
not necessarily be a constitutional requirement, it is a practical conclusion.”).  
78 Borris I. Bittker, Charitable Gifts of Income and the Internal Revenue Code: Another View, 65 
HARV. L. REV. 1375, 1380 (1952). See also Heckerling, supra note 71, at 270.  
79 See BORIS I. BITTKER, FEDERAL INCOME TAXATION CASES AND MATERIALS (1954); ERWIN N. 
GRISWOLD, CASES AND MATERIALS ON FEDERAL TAXATION (1940); STANLEY S. SURREY & 
WILLIAM C. WARREN, FEDERAL INCOME TAXATION: CASES AND MATERIALS (1953).  
80 See, e.g., Patricia Ann Metzer, The “New” Section 305, 27 TAX L. REV. 93, 107 (1971) (“The 
constitutional significance of the opinion in Eisner v. Macomber has been abrogated by subsequent 
Supreme Court decisions.”); see also Zhang, supra note 45, at 185-86 (citing Griffiths). 
81 Helvering v. Griffiths, 318 U.S. 371, 404 (1943).  
82 Helvering v. Sprouse, 318 U.S. 604, 607 (1943), rev’g 124 F.2d 315 (2d Cir. 1941). Sprouse 
consolidated a third case, Strassburger v. Commissioner, 124 F.2d 315 (2d Cir. 1941), that involved 
a distribution of preferred stock with respect to common stock. The Second Circuit held for the 
government in Strassburger and was reversed by the Court. Sprouse, 318 U.S. at 607. The 
transaction in Strassburger was addressed in 1954 by I.R.C. § 306. 
83 Sprouse involved a distribution of nonvoting common stock with respect to voting and nonvoting 
common stock. Sprouse, 318 U.S. at 606. 



14 COLUMBIA JOURNAL OF TAX LAW [Vol. 16:1 
 
[such dividends did] not constitute income to the shareholder within the meaning 
of the Sixteenth Amendment.”84 The IRS imposed tax on these common-on-
common stock dividends, then asked the Court to reverse Macomber and clarify 
that the Constitution did not mandate realization in such circumstances. In both 
cases, the Court held that Congress intended to crystalize the Sixteenth 
Amendment’s scope as reflected by Macomber’s outcome.85 These stock dividends 
were not income under the Code, leaving no need to revisit constitutional questions 
of realization. At least as a formal matter, Macomber still stood. 

 In Griffiths, the government’s brief spoke to the systemic upheaval faced by 
the federal tax system during the Second World War. For the government, 
Macomber impeded the equitable imposition of taxes at a time of exigent revenue 
needs—“considerations of great public importance” that “require[d]” the Court to 
revisit the constitutional realization requirement associated with Macomber.86 As 
in Macomber, the problem involved the timing of taxes on corporations and 
shareholders. In 1936, Congress enacted an additional tax on corporations’ retained 
earnings as a proxy for the taxes those corporations’ shareholders would owe on 
those undistributed profits, if paid to shareholders.87 Treasury estimated that these 
retained earnings totaled more than $4.5 billion in 1936—an implied revenue loss 
of more than $1.3 billion in shareholder-level taxes.88 Under Macomber, 
corporations could not pay stock dividends to eliminate retained earnings and avoid 
additional corporate-level tax,89 and these corporations complained that the choice 
between shouldering an additional tax burden or foregoing the reinvestment of 
retained earnings was “unsound from a business point of view.”90 The government 
contended that Macomber precluded “a much more complete and less circuitous 
solution” of taxing shareholders directly on retained corporate earnings. To placate 
corporate interests and advance “fundamental equity,” the government asked the 
Court to abrogate Macomber and permit, essentially, mark-to-market taxation for 
corporate stock.91 The Court refused,92 leaving the wartime fiscal system to rely on 
corporate excess profits taxes, wage withholding, and individual surtaxes to fill 
revenue gaps.93 Macomber’s in terrorem presence deterred direct congressional 

 
84 Revenue Act of 1936, I.R.C. § 115(f)(1). 
85 Griffiths, 318 U.S. at 394-95 (“[W]hen these dividends were received Eisner v. Macomber fixed 
the meaning contrary to the Government’s position.”).  
86 Brief for Petitioner at 27, Helvering v. Griffiths, 318 U.S. 371 (1943) (No. 467).  
87 Revenue Act of 1936, I.R.C. § 14. 
88 Brief for Petitioner, supra note 86, at 31. See also Gary E. Bashian, Stock Dividends and Section 
305: Realization and the Constitution, 1971 DUKE L.J. 1105, 1148 (1972) (“The statute and 
budgetary need of 1936 were [ ] conducive to rejection of the Eisner v. Macomber doctrine.”)  
89 See Brief for Petitioner, supra note 86, at 31. Under the Code, such distributions were tax-free, 
consistent with Macomber.  
90 Brief for Petitioner, supra note 86, at 35. 
91 Brief for Petitioner, supra note 86, at 30-32. 
92 Louis Eisenstein, Some Iconoclastic Reflections on Tax Administration, 58 HARV. L. REV. 477, 
516 (1945) (noting that the Court “refused to inter Eisner v. Macomber”).  
93 Taxation of shareholders on retained earnings would have advanced Roosevelt’s goals of 
progressive taxation and loophole-closing. See Joseph J. Thorndike, Timelines in Tax History: From 
“Class Tax” to “Mass Tax” During World War II, TAX NOTES: TAX HISTORY PROJECT (Sept. 19, 
2022), https://www.taxnotes.com/tax-history-project/timelines-tax-history-class-tax-mass-tax-
during-world-war-ii/2022/09/16/7f3s2 [https://perma.cc/3F55-J8CX].  



2024] REALIZATION RULE AS A LEGAL STANDARD 15 
 
action to tax returns to capital investments.94 

 Despite the government’s failed “frontal assault” on Macomber in the early 
1940s,95 commentators coalesced around the views of Surrey, Griswold, and 
Bittker that denigrated Macomber’s prominence in the realization canon.96 This 
literature openly touted Macomber’s “downfall.”97 Indeed, some read Griffiths’s 
refusal to repudiate Macomber as clear evidence that Macomber was, in fact, a dead 
letter: “[T]he [Griffiths] opinion leaves small room for doubt that the entire Court 
agreed that Eisner v. Macomber is wrong and that there is no constitutional 
prohibition against taxing any stock dividend as income.”98 The Macomber 
decision was rendered “a somewhat lonely, but somehow wonderfully defiant 
figure” in the canon of academic commentary.99 All of this movement occurred 
before Glenshaw Glass,100 which commentators read (again, despite language that 
income had to be “clearly realized”101) as standing for the end of Macomber’s 
constitutional restrictions on the definition of income.102 

 Notwithstanding an emerging academic consensus against Macomber’s 
constitutional realization requirement, tax practitioners generally (and 
unsurprisingly) viewed Macomber as an ongoing constraint on Congress’s power. 
Robert Miller, “the dean of the tax bar,” took realization as a background 
requirement in his 1951 exchange with Griswold in the Harvard Law Review.103 
Lawyers Edward and Sheila Roehner also argued in favor of a constitutional 
realization requirement, and Macomber’s vitality, in the Tax Law Review.104 These 
perspectives gained little traction against the “host” of academic proponents of 
Macomber’s demise, which stood “monolithic in their unanimity.”105 In effect, 
there emerged a largely academic consensus that Macomber mattered not simply 
less in light of subsequent caselaw, but really not at all. 

 Finally, the early 1940s marked a transition in law schools’ pedagogical 

 
94 The Moore opinion similarly may chill congressional efforts to tax wealth. See Robert Goulder, 
Losing the Battle, Winning the War: Making Sense of Moore, 115 TAX NOTES INT’L 15, 18-19 (July 
1, 2024); see generally Ari Glogower, Taxing Inequality, 93 N.Y.U. L. REV. 1421 (2018) 
(introducing a combined tax on wealth and taxable income through a “wealth annuity”). 
95 James S. Eustice, Corporations and Corporate Investors, 25 TAX L. REV. 509, 538 (1970). 
96 See Henry Rottschaefer, Present Taxable Status of Stock Dividends in Federal Tax Law, 22 N.C. 
L. REV. 85, 85 (1944) (“The preponderant view seems to be that [Macomber] would be overruled 
[by the Court]. The attempt to do so is certain to encounter strenuous opposition from taxpayers and 
their counsel.”).  
97 Charles L.B. Lowndes, The Taxation of Stock Dividends and Stock Rights, 96 U. PA. L. REV. 147, 
170 (1947). 
98 Id. at 149. See also Rottschaefer, supra note 96, at 85. 
99 Joseph T. Sneed, A Defense of the Tax Court’s Result in Prunier and Casale, 43 CORNELL L.Q. 
339, 348 (1958).  
100 Comm’r v. Glenshaw Glass Co., 348 U.S. 426 (1955).  
101 Id. at 431. 
102 Macomber’s academic downfall paved the way for a movement towards “accretionism” that 
began in the 1970s. See generally Edward A. Zelinsky, For Realization: Income Taxation, Sectoral 
Accretionism, and the Virtue of Attainable Virtues, 19 CARDOZO L. REV. 861 (1997).  
103 Erwin Griswold, Charitable Gifts of Income and the Internal Revenue Code, 65 HARV. L. REV. 
84, 86 (1951).  
104 Edward T. Roehner & Sheila M. Roehner, Realization: Administrative Convenience or 
Constitutional Requirement?, 8 TAX L. REV. 173 (1953).  
105 Sneed, supra note 99, at 351.  



16 COLUMBIA JOURNAL OF TAX LAW [Vol. 16:1 
 
approaches to tax law.106 Erwin Griswold’s casebook turned away from the 
constitutional issues of prior decades to the more granular details of how income 
taxation worked. At Yale Law School, Gerald Wallace developed a tax class based 
principally on administrative materials—again, focused on the tax system at an 
operational level. Wallace later joined the faculty at NYU School of Law, where he 
helped build the institution’s storied tax law program.107 These shifts made the turn 
away from constitutional issues convenient and appropriate under what would grow 
into today’s contemporary income tax system.108 The training of tax professionals 
largely minimized constitutional questions in favor of the pragmatic design issues 
faced by lawyers, lawmakers, and regulators. Through the intellectual work of legal 
academics, structural changes to the U.S. tax system, and pedagogical shifts in legal 
education, Macomber was buried by the mid-1950s. By the end of the 1960s, few 
commentators—even among practitioners—gave significant credence to 
realization as a constitutional backstop.109 

 
B.  The Present: Decisions and Indecision 
 
 The constitutional outcome in Moore seemed largely predetermined after 

oral arguments.110 There, the Justices highlighted definitional issues associated 
with the realization doctrine. Justice Thomas asked the first question of the 
taxpayers’ counsel: “When you say ‘realization,’ what—do you have a definition 
for that or an explanation as to exactly what it is . . . ?”111 Thomas reprised his query 
as the Solicitor General’s first question.112 Prudently, neither lawyer offered a 
generalizable answer.113 Justices Jackson and Kagan expressly pressed the Moores’ 
counsel on Thomas’s query.114 Justice Sotomayor also returned to Thomas’s topic, 
stating that “a word like ‘realization’ [requires] a working definition that applies to 
every piece of property and every way in which people gain wealth.”115 But, 

 
106 See Leo A. Diamond, Book Review, 19 U. CHI. L. REV. 147, 148 (1951) (reviewing STANLEY S. 
SURREY & WILLIAM C. WARREN, FEDERAL INCOME TAXATION: CASES AND MATERIALS (1950) and 
WILLIAM C. WARREN & STANLEY S. SURREY, FEDERAL ESTATE AND GIFT TAXATION: CASES AND 
MATERIALS (1950)) (noting “the ‘new look’ in law school teaching”).  
107 Boris I. Bittker, Woodworth Lecture November 1, 1996 Federal Income Taxation—Then and 
Now, 23 OHIO N.U. L. REV. 617, 617-19 (1997). 
108 See Kornhauser, supra note 22, at 21 (“The motivating force for this abandonment [of 
Macomber] lies in the fact that a narrow interpretation of ‘income’ would cause the Court to be 
called upon constantly to decide whether a particular provision fell within that narrowly prescribed 
definition of income.”). 
109 This trend largely held through the Court’s turn toward textualism in the 1980s. See Ordower, 
supra note 22, at 3-4. 
110 See Goulder, supra note 94, at 16 (“Consider the oral arguments from last December. Certain 
things were telegraphed, early on, in the verbal exchanges.”). Indeed, a substantial portion of 
Moore’s oral argument addressed attribution of income, which Kavanaugh relied on in the Moore 
majority opinion. Transcript of Oral Argument passim, Moore v. United States, 144 S. Ct. 1680 
(2024) (No. 22-800). 
111 Transcript of Oral Argument at 5, Moore, 144 S. Ct. 1680 (No. 22-800). 
112 Id. at 57-58. 
113 Id. at 5-6. Taxpayer’s counsel, Mr. Grossman, gave several examples of realization. Solicitor 
General Prelogar called the facts in Moore “a paradigmatic case of realization.” Id. at 58. 
114 Id. at 36-39.  
115 Id. at 18.  



2024] REALIZATION RULE AS A LEGAL STANDARD 17 
 
according to Sotomayor, to “announce what realization is out of context” would be 
both illogical and “dangerous.”116 Later, Sotomayor quipped, “I guess the tenor of 
the questions is that nobody’s happy with anybody’s definition of anything, 
okay?”117 

 This definitional dissatisfaction highlights the standard-like features of the 
oft-maligned but omnipresent realization requirement.118 As the Justices noted, the 
concept resists ex ante specification and begs for ex post elaboration—a task that 
seven out of nine Justices avoided in Moore. Instead, the five-Justice Moore 
majority found unequivocal realization by a legal entity owned by the taxpayers, 
coupled with permissible attribution of this realized income from the entity to the 
taxpayers that owned stock in the entity. The Justices left open realization’s 
constitutional status. This Section establishes the facts in Moore and why those 
facts implicated realization.119 Then, this Part discusses the Moore opinions, in 
which four—and perhaps more—Justices clearly support a constitutional 
realization requirement in some form.120 

 
1. Realization in Moore 

 
 In Moore, the question presented asked “[w]hether the Sixteenth 

Amendment authorizes Congress to tax unrealized sums.”121 Although Moore held 
that the taxpayers clearly realized income (and thus did not reach the constitutional 
question presented), the loose and easy reasoning in the Moore majority opinion 
belies the fact that the existence of realization or nonrealization under Moore’s facts 
was a difficult question for the Court as a whole.122 In large part, this question’s 
difficulties arise from the fact that realization, as a standard-like concept, is not 
well-defined at its edges.123 Because Macomber’s presumed demise yielded 

 
116 Id. at 18.  
117 Id. at 105. Justices Alito, Barrett, Gorsuch, and Kavanaugh asked questions that touched on the 
definition of realization. Although Chief Justice Roberts did not directly interrogate the parameters 
of realization, he presumably was familiar with the concept’s vagaries. In 1991, Roberts argued for 
the government as Acting Solicitor General in Cottage Savings Assn. v. Comm’r, 499 U.S. 554 
(1991), which addressed realization outside of the constitutional context. Transcript of Oral 
Argument at 1, Cottage Savings, 499 U.S. 554 (No. 89-1965). 
118 See Lily Batchelder et al., The Moores Lost Their Claim and Moore, 184 TAX NOTES FED. 1509, 
1510 (Aug. 19, 2024) (“[T]he concept of realization defies a clear definition.”).  
119 The Court presumably took Moore on certiorari because the Ninth Circuit stated that Macomber 
was no longer good law, even though the Court has never expressly overruled the case. See Moore 
v. United States, 36 F.4th 930, 935-38 (9th Cir. 2022), cert. granted, 143 S. Ct. 2656 (2023), aff’d, 
Moore v. United States, 144 S. Ct. 1680 (2024). The Ninth Circuit’s view reflected the general 
consensus among legal academics prior to Moore, and this consensus had a strong basis in 
subsequent Supreme Court cases. By expressly overruling Macomber, however, the Ninth Circuit 
may have overstepped its authority, at least from the Supreme Court’s perspective. 
120 The contours of any constitutional realization requirement remain inchoate. See Batchelder, 
supra note 118, at 1512 (“[T]he Moores failed to offer a workable constitutional realization rule, 
and it is unclear if there is one.”). 
121 Petition for Writ of Certiorari at i, Moore, 144 S. Ct. 1680 (No. 22-800). 
122 In Moore, the majority opinion was joined by five Justices, with two concurring in the result and 
two dissenting. See discussion infra Section II.B.2. 
123 See Moore, 144 S. Ct. at 1704 (Barrett, J., concurring) (“Our cases describe many ways income 
might be realized; a rigid definition does not capture them all.”). This feature is, of course, classically 



18 COLUMBIA JOURNAL OF TAX LAW [Vol. 16:1 
 
substantial discretion to Congress in stipulating realization’s parameters, these 
definitional edges remain significant. 
  The facts in Moore are as follows. The taxpayers in the case, the Moores, 
acquired an 11% interest in KisanKraft, an Indian company that supplied 
agricultural machinery, for an investment of $40,000 cash in 2005. Between 2005 
and 2017, KisanKraft earned profits but distributed no money or property to its 
shareholders, and the Moores had no U.S. tax liability with respect to any of 
KisanKraft’s profits.124 Under this regime, the Moores had no income until 
KisanKraft distributed profits, and taxation on their share of KisanKraft’s profits 
was deferred until that time. 

Then, in 2017, Congress enacted the Tax Cuts and Jobs Act (TCJA),125 
which, among other things, transitioned the United States from taxing worldwide 
income to a quasi-territorial business tax system that effectively exempted some 
foreign earnings.126 As part of this transition, the TCJA imposed a one-time tax, 
known as the mandatory repatriation tax (MRT), on the accumulated profits of 
certain foreign corporations with U.S. shareholders.127 The MRT taxes these 
accumulated profits at highly preferential rates—as low as 8% for reinvested 
earnings, and only 15.5% for earnings held in cash—and, at taxpayers’ election, on 
a deferred basis.128 The MRT applies only to U.S. shareholders that do not receive 
distributions of cash or property out of these accumulated profits.129 

 The Moores took the position that the MRT does not satisfy an implicit 
realization requirement in the Sixteenth Amendment, which authorizes Congress to 
tax incomes without apportionment based on states’ population.130 One tension in 
Moore—and the factor that proved determinative in the case’s outcome—is that the 
Moores’ tax consequences were largely inextricable from those of KisanKraft. 
While the Moores did not receive distributions from KisanKraft, the company itself 
realized profits over more than a decade. These company-level profits established 
a pool of potential taxable income for KisanKraft’s U.S. shareholders, which 
included the Moores. From this perspective, the Moores’ contentions revolved 
around the timing of income, rather than the existence of any income at all.131  

 The facts and doctrinal elements involved in this timing question are, 
however, open-ended. The source and uses of KisanKraft’s profits, the composition 

 
standard-like. 
124 Moore, 36 F.4th at 932-33. 
125 Tax Cuts and Jobs Act of 2017, Pub. L. No. 115-97, 131 Stat. 2054.  
126 See I.R.C. § 245A (applying to domestic corporations that own 10% or more of certain foreign 
corporations).  
127 See I.R.C. § 965.  
128 For individual shareholders that structured their ownership appropriately, the deferral could be 
indefinite. See I.R.C § 965(h), (i). The Moores, obviously, did not avail themselves of this statutory 
benefit, which would have mooted the issue in Moore.  
129 See I.R.C. § 965(d).  
130 See U.S. CONST. art. I, §§ 2, 9 & amend. XVI. The Moores, of course, relied on Macomber for 
their position. See Brief for Petitioners at 16, 40, Moore v. United States, 144 S. Ct. 1680 (2024) 
(No. 22-800). 
131 The Moores did not press due process arguments, which might have implicated which of 
KisanKraft’s shareholders—past or current—were properly taxable on the company’s profits. See 
Moore, 144 S. Ct. at 1686 (Kavanaugh, J.); see also Moore v. United States, 36 F.4th 930, 938-39 
(9th Cir. 2022) (finding no due process violation). 



2024] REALIZATION RULE AS A LEGAL STANDARD 19 
 
of KisanKraft’s ownership in 2017,132 and the Moores’ historical ownership of 
KisanKraft all matter under the MRT—and could matter under any constitutional 
realization requirement. In addition, adjudication could turn on the presence or 
absence of various doctrinal elements, such as the degree of actual control or 
influence exerted by the Moores over KisanKraft, the existence of tax avoidance or 
abuse (defined objectively or subjectively), or the scope of transactions that 
generate realization at the entity level. These facts and doctrinal elements, to the 
extent relevant, also could affect the amount of income taxable to the Moores.133 
These uncertainties—implicated by the Justices in oral arguments and alluded to in 
the Moore opinions—show that, when the question turns to realization, the inquiry 
is inchoate in terms of both the relevant facts and doctrinal elements involved. The 
specific content of any constitutional realization requirement is left to enforcement 
and adjudication—a quintessential legal standard. 

 
2. The Moore Opinions 

 
 The Moore opinions establish a much more fragile dynamic than the 7-2 

outcome might suggest.134 In Moore, a five-justice majority held in favor of the 
government, with Justice Kavanaugh writing the opinion.135 Justice Barrett 
concurred in the result but disagreed significantly in her reasoning, and Justice Alito 
joined this concurrence. Finally, Justice Thomas, joined by Justice Gorsuch, 
dissented, with reasoning that largely aligns with Justice Barrett’s concurrence. 
Taken together, the Barrett and Thomas opinions strongly support a constitutional 
realization requirement, while the Kavanaugh majority avoids taking a position on 
the issue.136 Only Justice Jackson’s concurrence takes a clear position against 
constitutional realization, and the absence of other Justices joining her opinion 
emphasizes the Court’s instability on the issue. 

 In the majority opinion, Kavanaugh argues that “the precise and narrow 
question” in Moore is “whether Congress may attribute an entity’s realized and 
undistributed income to the entity’s shareholders or partners.”137 For Kavanaugh, 

 
132 For example, if a domestic corporation owned 10% of KisanKraft but U.S. shareholders did not 
own more than 50% of KisanKraft. See I.R.C. §§ 951(b), 957(a) (defining United States 
shareholders and controlled foreign corporations).  
133 For example, the Moores could be taxable on KisanKraft’s 2017 income but not on prior years’ 
income. Transcript of Oral Argument at 29-31, 49, 98, Moore, 144 S. Ct. 1680 (No. 22-800). 
134 Some commentators argue that Moore demonstrates the continued strength of a norm of 
congressional deference. See Batchelder et al., supra note 118, at 1510 (arguing that “four is not 
five”); see also infra Part II.C (discussing the four-justice threshold for certiorari). To the extent 
there is not complete deference to Congress, constitutional realization likely has the “bottom up” 
effects described in this article. See infra Part IV.A. 
135 Moore, 144 S. Ct. at 1697 (Kavanaugh, J.) (affirming the Ninth Circuit’s judgment). 
136 Although the majority opinion declares that income taxes are indirect taxes (and not subject to 
apportionment), the majority opinion leaves open the possibility that realization is essential to the 
existence of income—and a tax without realization would remain a direct tax on property (and 
subject to apportionment). See id. at 1688; see also Batchelder et al., supra note 118, at 1512-13 
(arguing that Moore “partly overruled” Pollock). The majority’s declaration further unsettles the 
scope of any constitutional realization requirement, since such a requirement might not be tied to 
the Sixteenth Amendment’s text (specifically, the use of the word “derived”). 
137 Moore, 144 S. Ct. at 1688. 



20 COLUMBIA JOURNAL OF TAX LAW [Vol. 16:1 
 
lawmakers face a choice in business entity taxation. With respect to undistributed 
but realized earnings, Congress may treat these entities either as taxpayers 
themselves or on a pass-through basis.138 Either an entity reports its own income, 
or the entity’s owners report income that is attributed to them.139 Congress cannot, 
however, choose both instruments, which Kavanaugh terms “double taxation.”140 
Presumably, a distribution of earnings represents a second realization event on 
which Congress may impose another round of tax; this well-pedigreed mechanism 
is fundamental to classical corporate taxation.141 Critically, however, Kavanaugh 
states that Macomber “has no bearing on the attribution issue” raised in Moore.142 
For this reason, Kavanaugh’s opinion does not reach the status of any putative 
constitutional realization requirement.143 

Justice Barrett, concurring in the result, argues that the Constitution clearly 
requires realization, and that the Moores realized no income from KisanKraft 
directly.144 Barrett concludes, however, that the Moores conceded the MRT’s 
constitutionality when they allowed that the MRT’s structural antecedent, subpart 
F, was constitutional.145 In addition, Barrett complicates the broad discretion that 
Kavanaugh’s opinion gives to Congress in taxing business entities.146 Barrett 
essentially constructs Kavanaugh’s attribution theory as an inquiry into economic 
substance as that doctrine apples to realization.147 The substance of the Moores’ 
relationship with KisanKraft might indicate that any income realized by KisanKraft 
was actually realized by the Moores.148 Indeed, subpart F does this work through 
statutory rules: the regime targets abusive arrangements and mechanically taxes 
owners on income earned through controlled foreign corporations.149 These types 
of substance-oriented inquiries are inherently standard-like.150 

 
138 Id. at 1690. Although Kavanaugh describes pass-through taxation as based on owners’ “pro rata 
share of the entity’s undistributed income,” id., the Constitution presumably permits other economic 
arrangements. 
139 See id. at 1697 (arguing that taxation of an entity and its shareholders on undistributed income 
“would not simply be a traditional pass-through”). The limitation on attribution is due process. See 
id. at 1691 n.4. 
140 Id. at 1691. 
141 Less clear is whether Congress could tax entities on a pass-through basis and impose a second 
tax on distributions of cash from the entity. Similarly, Kavanaugh’s opinion draws into question 
layered rates, such as ordinary taxes and surtaxes, which have the same effect as the type of entity-
level and shareholder-level taxation that Kavanaugh finds objectionable. See id. at 1688, 1691.  
142 Id. at 1691. 
143 Id. at 1697 (“To decide this case, we need not resolve that [constitutional] disagreement over 
realization.”).  
144 See id. at 1702, 1704 (Barrett, J., concurring). 
145 See id. at 1709. Whether this analogy works is less clear, given the somewhat distinct antiabuse 
purposes of subpart F and the MRT. One way to reconcile Barrett’s conclusory reasoning is to treat 
deferral of any kind as intrinsically abusive, which seems like a stretch. 
146 Id. at 1700 (“I think the issue is more complex than the Court lets on.”). 
147 See id. at 1704. 
148 See id. at 1704-05 (“As I understand our precedent, it leaves room for Congress to disregard the 
corporate form in some circumstances.”). 
149 See I.R.C. §§ 951-965. 
150 See Moore, 144 S. Ct. at 1707 (Barrett, J., concurring) (arguing that Congress’s ability to attribute 
an entity’s income to shareholders “depends on the relationship between the shareholder and the 
income.”). 



2024] REALIZATION RULE AS A LEGAL STANDARD 21 
 

Similarly, Barrett’s construction of constitutional realization emphasizes 
the inquiry’s broad, contextual nature. Barrett draws on Bruun and Horst, the same 
authorities cited by Surrey to bury Macomber. For Barrett, these cases simply 
rejected overly narrow constructions of the still-vital constitutional concept.151 
Although Bruun expanded the category of realization events, “[n]one of that 
remotely suggests that realization is not required or (relatedly) that appreciation 
counts as taxable income.”152 And, while Horst indicates that “[r]ealization does 
not depend on how the user chooses to enjoy the income,” the decision does not 
change Macomber’s essential edict that realization is constitutionally mandated.153 
For Barrett, “[o]ur cases describe many ways income might be realized; a rigid 
definition does not capture them all.”154 This analysis potentially presages the open-
ended, standard-driven analysis that the Court might apply to a constitutional 
realization requirement. 

Justice Thomas, dissenting, argues that the Constitution requires realization, 
and that the Moores did not realize income from KisanKraft under any theory of 
the concept.155 For Thomas, realization is formalistic except (perhaps) in cases of 
abuse, and, under the facts in Moore, any attribution theory fails rational basis 
review. Like Barrett, Thomas treats Kavanaugh’s permissive attribution doctrine as 
“an unsupported invention.”156 Thomas’s dissent previews the ways in which a 
categorical realization requirement would create “constitutional quicksand” that 
could envelop much of the current tax system.157 

Finally, Justice Jackson, concurring in the majority opinion, argues that the 
Constitution does not require realization.158 Instead, “in matters of tax policy, 
Congress’s view [is] controlling” with only narrow constitutional limitations.159 
Jackson’s concurrence aligns with the postwar academic consensus about 
Macomber, stating that the case “has long been deemed outmoded, if not 
overruled.”160 No other Justices join Jackson in this position, leaving four possible 
additional supporters of a constitutional realization requirement, only one of which 
is needed for a five-Justice majority. In this way, Jackson’s concurrence emphasizes 
the tenuous ties holding together Kavanaugh’s five-Justice majority. 

 
C.  The Future: Circuit Courts and Certiorari 
 

The Moore opinions are relevant to future challenges aimed at establishing 
 

151 See id. at 1703 (“What we have done is reject efforts to narrow what it means to realize income.”). 
Again, this perspective broadens the standard-like inquiry into realization. 
152 Id. 
153 Id. at 1704. Barrett’s emphasis on Horst’s “satisfactions” language implies that any gift of 
appreciated property could represent a realization event for the donor. This outcome would break 
significantly from current understandings of the realization requirement.  
154 Id. (adding that “realization may take many forms”). 
155 Id. at 1709 (Thomas, J., dissenting).  
156 Id. at 1710.  
157 Id. at 1726.  
158 Id. at 1698 (Jackson, J., concurring). 
159 Id. at 1697-99 (“[T]his Court’s role in [policy-driven tax] disputes should be limited.”). 
160 Id. at 1698 (citing Comm’r v. Obear-Nester Glass Co., 217 F.2d 56, 60 (7th Cir. 1954); United 
States v. James, 333 F.2d 748, 752 (9th Cir. 1964); Prescott v. Comm’r, 561 F.2d 1287, 1293 (8th 
Cir. 1977)).  



22 COLUMBIA JOURNAL OF TAX LAW [Vol. 16:1 
 
realization’s constitutional status unambiguously. At least four Justices in Moore 
support a constitutional realization requirement,161 which is enough for a grant of 
certiorari in a future case.162 Practitioners and commentators generally seem 
comfortable that, given appropriate facts (without, for example, the complications 
caused by subpart F in Moore), the Court could find a constitutional realization 
requirement.163 Finally, the Moores came to the Court through an express political 
project to revive a version of the Macomber holding that mandates realization under 
the Constitution, and the Court left this question unanswered. In this context, 
commentators anticipate further action at the Court with respect to the question 
presented (but not decided) in Moore.164 

Federal circuit courts seem likely to accelerate the Court’s return to 
realization as a constitutional issue. Activist litigation has leveraged judge-
shopping and various circuits’ polarization to create circuit splits and present the 
Court with compelling certiorari petitions. More critically, circuit courts offer 
opportunities for taxpayers to wreak havoc with respect to the existing tax system. 
As this Article emphasizes, an asymmetry exists for taxpayers and the government 
with respect to cases that assert a constitutional realization requirement as a tax-
reduction mechanism. To win, taxpayers only need circuit courts to affirm 
Macomber as establishing a constitutional realization requirement—a relatively 
uncontroversial reading of the decision.165 By contrast, circuit courts would need to 
distinguish Macomber to break with a constitutional realization requirement, and 
such courts may be loath to risk reversal in this way, especially after Moore. This 
asymmetry illustrates how the issue could foment legal activity involving 
constitutional realization—and potentially sow chaos as lower courts decide cases 
on the topic. 

The reasons to be skeptical of this trajectory are similar to those raised by 
Griffiths in 1943: Then, academic prognosticators anticipated that the Court would 
quickly overturn Macomber “on the first opportunity,” with the constitutional issue 
squarely presented.166 The important questions (similar to those addressed in this 

 
161 These Justices are Barrett and Alito in concurrence, and Thomas and Gorsuch in dissent. See 
Moore, 144 S. Ct. 1680, 1683. 
162 See Joan Maisel Leiman, The Rule of Four, 57 COLUM. L. REV. 975, 975 (1957). This future case 
may have facts that are more favorable than those in Moore. 
163 See Reuven S. Avi-Yonah, Taxation with Realization After Moore, 115 TAX NOTES INT’L 25, 25 
(July 1, 2024) (“The same organized groups that brought us Moore are likely to try again, and at 
some point, they may succeed.”); Jasper L. Cummings, Jr., Moore: Macomber Was Wrongly 
Decided and Other Considerations, 180 TAX NOTES FED. 2307, 2307 (Sept. 25, 2023) (“If the 
Supreme Court reverses the Ninth Circuit in Moore, or even if it affirms, the opinion likely will state 
grounds that will enmesh the income tax in a series of constitutional controversies not seen for a 
century.”); Goulder, supra note 94, at 15 (“When a more suitable case comes along, those who favor 
limitations on the congressional taxing power may find themselves quite pleased.”). A change in the 
Court’s membership also could make this outcome more or less likely. See Joshua David Odintz et 
al., Moore Thoughts: An Incremental Opinion from the U.S. Supreme Court, Holland & Knight 
Alert (June 26, 2024), https://www.hklaw.com/en/insights/publications/2024/06/moore-thoughts-
an-incremental-opinion-from-the-us-supreme-court [https://perma.cc/JC4A-3SNK]. 
164 See Reuven S. Avi-Yonah, What Is the Best Candidate For a Post-Moore Constitutional 
Challenge?, 113 TAX NOTES INT’L 17 (Jan. 1, 2024) (discussing I.R.C. § 877A). 
165 But see Zhang, supra note 45, at 186 (reading Macomber to permit Congress to tax unrealized 
accretions to wealth). 
166 Rottschaefer, supra note 96, at 111.  



2024] REALIZATION RULE AS A LEGAL STANDARD 23 
 
Article) involved broader implications flowing from “the reasoning [in] the 
overruling decision.”167 The Court, obviously, did not revisit Macomber for more 
than eight decades, and, during this period, the government did not pursue the issue 
of constitutional realization through litigation with any degree of fervor.168 As in 
Griffiths, the Moore Court demurred to address realization in the constitutional 
context, while leaving ample breadcrumbs to imply the potential for future success 
in better-framed cases. After Moore, however, the situation is somewhat 
different—a public-private asymmetry in litigation incentives. Taxpayers, not the 
government, would litigate in favor of a constitutional realization requirement, and 
there are more groups and more potential controversies that might fuel this project. 
Even if only one such effort succeeds, that success may implicate constitutional 
realization across broad swaths of the Code and Regulations. This context implies 
a much higher likelihood of the Moore project proving successful in an ultimate 
sense and leading to a revitalized constitutional realization requirement. 

 
III. CONSTITUTIONAL REALIZATION AS AN ANTIABUSE DOCTRINE 

 
 Seven decades after Macomber’s interment, the Moore opinions, taken 

together, raise the specter of a constitutional realization requirement. Although the 
precise substantive contours of a constitutional realization requirement remain 
relatively uncertain,169 this Article gauges the effects of such a requirement by 
examining its form and function as operationalized by taxpayers in their annual 
reporting to the IRS and as potential litigants in future tax controversies. This Part 
frames a constitutional realization requirement as a taxpayer-initiated antiabuse 
doctrine. Such a requirement allows taxpayers to assert, to the IRS or in court, that 
a specific portion of the Code or Regulations is constitutionally infirm and 
unenforceable—a prerogative traditionally reserved for the government in 
evaluating taxpayers’ positions under the Code and Regulations. This framing—
and the novel legal tool that constitutional realization gives taxpayers—has 
important implications for how an emergent constitutional realization requirement 
would affect the Code and the Regulations going forward. 

 This Part establishes realization’s standard-like features, including the 
nuanced factual inquiries implicated by realization,170 as well as the difficulty of 

 
167 Id. 
168 After the Second World War, Congress flirted with direct contraventions of realization, see 
Michael J. Graetz, Taxation of Unrealized Gains at Death—An Evaluation of the Current Proposals, 
59 VA. L. REV. 830, 830 (1973); Jerome Kurtz & Stanley S. Surrey, Reform of Death and Gift Taxes: 
The 1969 Treasury Proposals, the Criticisms, and a Rebuttal, 70 COLUM. L. REV. 1365, 1365 
(1970), and Treasury expanded regulations that skirted strict interpretations of realization. Among 
academics and other policy-oriented experts, debates largely abandoned tethers to realization. See 
David Elkins, The Myth of Realization: Mark-to-Market Taxation of Publicly-Traded Securities, 10 
FLA. TAX REV. 375, 376 (2010); Zelinsky, supra note 102, at 861-62. Perhaps wisely, however, 
administrative actors did not press to overturn Macomber through the court system. 
169 After Commissioner v. Glenshaw Glass, 348 U.S. 426 (1955), judicial opinions on realization 
took a statutory approach. See Cottage Sav. Ass’n v. Comm’r, 499 U.S. 554, 554-55 (1991). 
Constitutional issues in this period tended to focus on Fifth Amendment due process. See, e.g., 
Estate of Whitlock v. Comm’r, 59 T.C. 490, 507 (1972) (dismissing an argument that subpart F 
violated due process). 
170 See infra Section III.A.  



24 COLUMBIA JOURNAL OF TAX LAW [Vol. 16:1 
 
identifying which doctrinal factors bear on questions of realization.171 Then, this 
Part argues that policy values traditionally associated with realization—
administrative ease and efficiency—shed little light on the nature of a constitutional 
realization requirement.172 Finally, this Part delineates how a constitutional 
realization requirement would operate as a taxpayer-initiated antiabuse doctrine.173 

 
A.  Realization’s Facts and Circumstances 
 
 Any realization requirement must distinguish between facts that yield a 

“taxable event” and facts that do not.174 This inquiry is open-ended, and the breadth 
of facts and circumstances relevant to realization generally precludes rigorous ex 
ante specification.175 As a concept, realization requires myriad inputs to construct 
a binary output, and the relationship between inputs and output emerges only 
afterwards, on case-by-case basis. Even relatively common fact patterns require 
textured distinctions to determine realization: the delineation between sales and 
various combinations of financial instruments, such as leases, loans, and more 
complex products176; transactions involving parties with preexisting family, social, 
or legal relationships177; and changes in contractual or legal rights, such as 
modifications to an agreement or the division of property among co-owners.178 
Examples from each of these categories illustrate the standard-like nature of 
realization,179 as well as how current law might diverge from a newly invigorated 
constitutional realization requirement. 

 
1. Constructive Sales 

 
The Code establishes a framework for determining when taxpayers account 

 
171 See infra Section III.B.  
172 See infra Section III.B.  
173 See infra Section III.C.  
174 Realization is inextricably linked to the definition of ownership for tax purposes, which also 
depends heavily on factual context. See Alex Raskolnikov, Contextual Analysis of Tax Ownership, 
85 B.U. L. REV. 431, 431-32 (2005). 
175 This Article does not define rules and standards based on adjudicators’ “discretion.” See Sullivan, 
supra note 11, at 57-58 (defining rules and standards by reference to discretion); see also Schlag, 
supra note 2, at 406-07 (arguing that discretion emerges whether directives are framed as rules or 
standards). Instead, this Article looks to when legal precepts acquire definitive content. 
176 See, e.g., Rev. Proc. 2001-28, 2001-1 C.B. 1156; Rev Proc. 2001-29, 2001-1 C.B. 1160 (each 
establishing facts required by Treasury for advance rulings on the characterization of certain leasing 
arrangements). See generally Reid Thompson & David Weisbach, Attributes of Ownership, 67 TAX 
L. REV. 249 (2014) (developing a series of examples involving ownership of financial instruments). 
177 See, e.g., Friedland v. Comm’r, 82 T.C.M. (CCH) 492, T.C.M. (RIA) 2001-236 (2001) (finding 
no realization on a father-guarantor’s transfer of stock in satisfaction of a debt owed by his son’s 
wholly owned corporation to a third party); I.R.C. § 267(f)(2) (deferring losses on sales among 
members of a controlled group). 
178 See, e.g., Treas. Reg. § 1.1001-3(c), (e) (as amended in 2011) (defining a “significant 
modification” for debt instruments). 
179 Other examples run throughout the Code. See, e.g., I.R.C. § 165(g) (addressing the timing of 
worthlessness for securities); I.R.C. § 631 (allowing taxpayers to treat the cutting of timber as a 
sale). Any accounting for the bargain component in below-market sales also implicates realization. 
See, e.g., Treas. Reg. § 1.1001-1(e) (computing gain on sale transactions with gift components).  



2024] REALIZATION RULE AS A LEGAL STANDARD 25 
 
for income on appreciated financial positions in the absence of an unambiguous 
realization event.180 For these assets, constructive sales occur, and income is 
accounted for, when taxpayers enter into contractual arrangements that “reduce or 
eliminate [those taxpayers’] risk of loss (and opportunity for gain)” with respect to 
an appreciated financial position.181 These offsetting positions encompass various 
financial instruments—short sales, notional principal contracts, and futures or 
forward contracts—that involve the same appreciated financial position or 
something “substantially identical.”182 Multiple offsetting positions may be 
aggregated to yield a constructive sale for one financial asset, and a single offsetting 
position may trigger a constructive sale for only a portion of a financial asset.183 
Making these fact-intensive determinations requires as much art as science, and, 
within the predominantly rule-bound Code, the constructive sale regime acquires 
much of its legal specificity ex post during the interpretive or enforcement 
processes.184 In this sense, constructive sales represent a prototypical legal 
standard.185 

 Constructive sales have a fraught relationship with the legal concept of 
realization.186 The House report on the constructive sale regime states that 
“[t]ransactions designed to reduce or eliminate risk of loss on financial assets 
generally do not cause realization.”187 This statement presumably refers to the 

 
180 See I.R.C. § 1259(a), (c). “Appreciated financial positions” are any interest, including futures or 
forward contracts, shorts sales, or options, with respect to stock, certain debt instruments, and 
partnership interests, if realization with respect to that interest would result in gain. I.R.C. § 1259(b).  
181 H.R. REP. NO. 105-148, at 439 (1997). For example, consider a taxpayer that owns ten shares of 
stock in Company X. The taxpayer enters into a “short against the box,” in which the taxpayer 
borrows ten shares of Company X from a third party (with a promise to repay in-kind), then sells 
those borrowed shares for cash (a short sale). Because the taxpayer can repay the third party with 
the already-owned shares of Company X (which are in the “box”), the taxpayer no longer is subject 
to fluctuations in value with respect to Company X stock. Under I.R.C. § 1259, this type of 
transaction results in gain as if the taxpayer sold the already-owned Company X shares. 
182 See I.R.C. § 1259(c)(1)(A)-(D); see also David M. Schizer, Hedging Under Section 1259, 80 
TAX NOTES 345, 346-47 (1998) (describing constructive sales as “a hybrid that triggers recognition 
of gain, but not loss”). Section 1259 uses similar qualifiers to define forward contracts and offsetting 
notional principal contracts. See I.R.C. § 1259(d)(1)-(2). This language also is used in the wash sale 
rules, though loss disallowance may not have constitutional implications under the legislative grace 
doctrine. See I.R.C. § 1091(a). In the wash sale context, the underspecified content of “substantially 
identical” has motivated significant tax planning. See Paul Kiel & Jeff Ernsthausen, How the 
Wealthy Save Billions in Taxes by Skirting a Century-Old Law, PROPUBLICA (Feb. 9, 2023), 
https://www.propublica.org/article/irs-files-taxes-wash-sales-goldman-sachs 
[https://perma.cc/6Z7T-Z7YN]. 
183 H.R. REP. NO. 105-148, at 440-41 (1997).  
184 See Andrea S. Kramer & William R. Pomierski, New Constructive Sale Rules Make It Tougher 
to Avoid Tax on Built-In Gain, 25 EST. PLAN. 291, 300 (1998).  
185 In addition, the constructive sale regime operates within a network of provisions that target 
abuses involving financial instruments. See, e.g., I.R.C. § 1233(b) (preventing taxpayers from using 
short sales to accelerate losses or manipulate holding periods for capital gains purposes).  
186 For a broader discussion of realization in the context of financial instruments, see David M. 
Hasen, A Realization-Based Approach to the Taxation of Financial Instruments, 57 TAX L. REV. 
397 (2004).  
187 H.R. REP. NO. 105-148, at 438 (1997). See Rev. Rul. 72-478, 1972-2 C.B. 487 (deferring gain or 
loss on a short sale when the taxpayer held the same underlying securities in a separate brokerage 
account).  



26 COLUMBIA JOURNAL OF TAX LAW [Vol. 16:1 
 
Code, not the Constitution, which implies that the Code’s concept of realization is 
more restrictive than any constitutional threshold.188 Alternatively, a constitutional 
threshold for realization may be lower (or functionally nonexistent) in abusive 
situations, such as those expressly targeted by the constructive sale regime.189 For 
these reasons, constructive sales under the Code, or some subset of these 
transactions, may trigger realization under a constitutional standard.190 The 
constructive sale regime, in whole or in part, has plausible routes to survive a 
constitutional realization requirement. 

 Still, the statutory mechanics of constructive sales reflect possible 
congressional concerns about realization. Nomenclature notwithstanding, 
constructive sales themselves do not trigger realization on those terms.191 Instead, 
the Code requires taxpayers to “recognize” income with respect to any 
appreciation,192 then adjust any subsequently (and actually) realized gain or loss 
based on this recognized income.193 Constructive sales essentially bypass the 
Code’s typical two-step mechanic of realization to establish gain or loss followed 
by recognition to bring that gain or loss into income.194 Legislative history affirms 
this idiosyncratic treatment by clarifying that constructive sales are not treated as 
sales for other tax purposes.195 A constructive sale simply generates income on a 
taxpayer’s return, full stop.  

 These statutory machinations emphasize the interpretive difficulties posed 
by a constitutional realization requirement. The constructive sale regime is an 
analytic framework aimed at particular abuses, most prominently “short sale 
against the box” transactions.196 As enacted by Congress, the regime reaches more 
broadly, across several categories of financial products and with some fuzziness to 
anticipate private parties’ permutations in response to the statute.197 But how the 

 
188 When Congress enacted the constructive sale regime as part of the Taxpayer Relief Act of 1997, 
Pub. L. No. 105-34, 111 Stat. 788, the scholarly and judicial consensus treated realization as a matter 
of “administrative convenience”—a very low threshold for constitutionality. Cf. Cottage Sav. Ass’n 
v. Comm’r, 499 U.S. 554, 559 (1991) (citing Horst). 
189 In Moore, various briefs (and portions of oral arguments) focused on realization thresholds in 
abusive situations. See, e.g., Transcript of Oral Argument at 89-90, Moore v. United States, 144 S. 
Ct. 1680 (2024) (No. 22-800) (discussing the constructive sale rules).  
190 No direct authority, including I.R.C. § 1259’s legislative history, speaks to these constitutional 
issues. Cf. Part I.A.  
191 This feature of I.R.C. § 1259 supports an argument that the provision operates as a constitutional 
excise tax, regardless of whether realization is constitutionally required for an income tax. See Avi-
Yonah, supra note 163 (listing provisions where “a good defense” supports excise tax 
characterization). 
192 I.R.C. § 1259(a)(1). 
193 I.R.C. § 1259(a)(2), (e)(1). That is, income from constructive sales does not create basis in an 
asset. This result deviates from fundamental principles of income taxation. Cf. I.R.C. § 1012(a) 
(establishing basis in an asset as a taxpayer’s cost, paid in after-tax dollars).  
194 See I.R.C § 1001(a), (c). 
195 H.R. REP. NO. 105-148, at 440 (1997) (“Except as provided in Treasury regulations, a 
constructive sale would generally not be treated as a sale for other Code purposes.”).  
196 See Thomas J. Brennan, Law and Finance: The Case of Constructive Sales, 5 ANN. REV. FIN. 
ECON. 259 (2013) (discussing high-profile transactions that motivated I.R.C. § 1259). 
197 See Estate of McKelvey v. Comm’r, 906 F.3d 26 (2d Cir. 2018) (concluding that a modification 
of variable prepaid forward contracts constituted a constructive sale based on the probability of their 
exercise). Congress also authorized Treasury to promulgate regulations to expand the constructive 



2024] REALIZATION RULE AS A LEGAL STANDARD 27 
 
constructive sale regime intersects with realization remains unclear.198 When 
combined with an appreciated financial position, offsetting positions change legal 
entitlements with respect to property, and these changes potentially qualify as a 
constitutional realization event, absent any specific statutory authority.199 
Similarly, transactions at the penumbra of constructive sales may trigger 
realization, even if the constructive sale regime itself does not apply.200 And, if the 
constructive sale regime targets abuse, perhaps realization simply is irrelevant, and 
the statutory recognition mechanic governs. The Code sheds only indirect light on 
any constitutional standard for realization. In the context of constructive sales, a 
constitutional realization requirement would require adjudicators to divine the 
appropriate factual inquiry, as well as adduce the proper transactional scope, to 
determine the extent to which Congress’s enactments survive a constitutional 
analysis. 

 
2.  Gift Loans  

 
 Social context also bears on the legal concept of realization. The Code, for 

example, assigns additional income to lenders that charge too little interest, “where 
the forgoing of interest is in the nature of a gift.”201 Typically, these gift loans—
and the “phantom” income they produce—involve members of a family or other 
individuals with deep social ties.202 The statute does not question gift loans’ 
veracity, or the fact that relationships influence these loans’ terms, often to the 

 
sale regime to transactions “hav[ing] substantially the same effect” as transactions enumerated in 
the statute. See I.R.C. § 1259(c)(1)(E). Congress also instructed Treasury to develop “necessary or 
appropriate” regulations under I.R.C. § 1259. See I.R.C. § 1259(f). Treasury has not promulgated 
regulations under either provision. See generally Frank G. Colella, Pinch-Hitting for the IRS: 
Second Circuit Adopts Phantom Regulations to Curb a Monster Abuse of Financial Derivatives, 4 
BUS. ENTREPRENEURSHIP & TAX L. REV. 26 (2020) (critiquing McKelvey as circumventing 
Treasury’s obligation to issue regulations under I.R.C. § 1259); John Kaufmann, Pontifications on 
McKelvey, 155 TAX NOTES 1749 (June 19, 2017) (critiquing the Tax Court’s holding in favor of 
the taxpayer on reasoning similar to the Second Circuit). 
198 For example, McKelvey considers probabilities in determining a constructive sale but not the 
relative magnitudes of possible outcomes. See Thomas J. Brennan & David M. Schizer, 
Transaction-Specific Tax Reform in Three Steps: The Case of Constructive Ownership, 15 COLUM. 
J. TAX L. 1, 49-50 (2024).  
199 See Elkins, supra note 168, at 392 n.29 (“From an economic perspective, short-against-the-box 
transactions look too much like sales for them to be not treated as realization events.”); see also 
Bradford v. United States, 444 F.2d 1133 (Ct. Cl. 1971) (treating a purchase combined with a 
forward contract to sell as a realization event on the date of purchase). 
200 See Anschutz Co. v. Comm’r, 135 T.C. 78 (2010), aff'd, 664 F.3d 313 (10th Cir. 2011) (holding 
that a prepaid variable forward contract, combined with a loan of the underlying securities, 
constituted a sale for tax purposes but not a constructive sale under I.R.C. § 1259); see also 
Progressive Corp. v. United States, 970 F.2d 188 (6th Cir. 1992) (treating the issuance of an in-the-
money call option with respect to stock as a sale of that stock when exercise of that option was 
“virtually certain”); see generally Morse, supra note 23, at 1393 (describing the space between a 
“sure shipwreck” and a “safe harbor” for purposes of I.R.C. § 1259). 
201 I.R.C. § 7872(f)(3).  
202 See Stephen R. Akers & Philip J. Hayes, Estate Planning Issues with Intra-Family Loans and 
Notes, 38 ACTEC L.J. 51, 70 (2012).  



28 COLUMBIA JOURNAL OF TAX LAW [Vol. 16:1 
 
borrower-donee’s benefit.203 Instead, this regime has an antiabuse function.204 For 
gift loans that exceed certain (generous) thresholds,205 the lender-donor must 
include a proxy for forgone interest payments from the borrower-donee. This proxy 
is less than the borrower-donee would pay to an unrelated party but greater than 
zero206—a legislative compromise in the treatment of fundamentally nonmarket 
transactions. 

 Consider Parent, who loans $200,000 cash to Child, interest-free. Child 
invests the cash in assets that yield a simple annual return of 10%, or $20,000 per 
year. If the tax system respects this arrangement, Parent has, in effect, shifted 
$20,000 of capital income to Child, where that income may face lower marginal 
rates or otherwise incur lower tax liabilities. Furthermore, the $200,000 loan is not 
permanent, and Parent can recall the capital on demand or after a term formally or 
informally negotiated with Child.207 The relationship between Parent and Child 
mediates these economic transactions and facilitates joint decision-making about 
which person should report taxable income earned on Parent’s capital. 

 The gift loan rules crimp this flexibility (and combat tax gaming) by 
requiring Parent to recognize interest income based on market yields on U.S. 
Treasury bonds—an interest rate historically treated as connected to (although 
almost certainly less than) the risk-free rate of return to capital.208 Assume, for this 
example, that the assigned interest rate is 2%, or $4,000 per year in interest on the 
$200,000 loan from Parent to Child. Income arises through a pair of constructive 
transactions. Parent is treated as transferring $4,000 to Child (presumably as a gift), 
and Child is treated as paying the $4,000 back to Parent as taxable interest.209 No 
cash, of course, actually changes hands in this round-trip arrangement, but Parent 

 
203 Cf. Rev. Rul. 86-106, 1986-2 C.B. 28 (disregarding a loan between a parent and a trust that 
benefitted the parent’s children).  
204 Indeed, this antiabuse purpose mirrors—and perhaps is more compelling than—that of I.R.C. 
§ 1259. See supra Part III.A.1. 
205 Under I.R.C. § 7872, lender-donors do not have interest income if either (1) the gift loan’s 
principal amount does not exceed $10,000 and the borrower-donee does not use the loan to acquire 
income-producing assets per I.R.C. § 7872(c)(2), or (2) the gift loan’s principal amount does not 
exceed $100,000 and the borrower-donee has no more than $1,000 of annual net investment income 
under I.R.C. § 7872(d)(1). For (2), the lender-donor has interest income only to the extent of the 
borrower-donee’s annual net investment income, if such income exceeds $1,000. Id. See Leigh 
Osofsky & Kathleen Delaney Thomas, The Surprising Significance of De Minimis Tax Rules, 78 
WASH. & LEE L. REV. 773, 833 (2021) (noting the complexity of I.R.C. § 7872’s de minimis rules). 
206 See I.R.C. § 7872(e)(2), (f)(2)(B) (calculating forgone interest for gift loans based on short-term 
applicable federal rates); I.R.C. § 1274(d)(1)(C)(i) (basing applicable federal rates on market yields 
for U.S. Treasury bonds).  
207 In this sense, gift loans are distinguishable from assignment-of-income issues involving gifts of 
property. See Helvering v. Horst, 311 U.S. 112 (1940); Blair v. Comm’r, 300 U.S. 5 (1937). 
208 See Jules H. van Binsbergen, William F. Diamond & Marco Grotteria, Risk-Free Interest Rates 
1-2 (Nat’l Bureau of Econ. Rsch., Working Paper No. 26138, 2019) (finding that government bonds 
slightly understate the risk-free rate of return); see also John R. Brooks, Taxation, Risk, and 
Portfolio Choice: The Treatment of Returns to Risk Under a Normative Income Tax, 55 TAX L. REV. 
255, 292-93 (2013) (describing various proxies for the risk-free return to capital). 
209 I.R.C. § 7872(a)(1)(A), (B) (using the verb “treated” to describe these transactions). This example 
is constructed to avoid various rules that exclude smaller or nonabusive gift loans from this 
treatment. See supra note 206. 



2024] REALIZATION RULE AS A LEGAL STANDARD 29 
 
has $4,000 of ordinary income to report to the IRS on Parent’s tax return.210 

 Gift loans, taken in their factual context, raise questions of realization on 
multiple levels. First, gift loans may or may not be realization events under a 
currently underspecified constitutional standard.211 Although gifts traditionally 
have not qualified as realization events,212 the Code’s construct of gift loans 
illustrates how foregone interest still may represent income to the lender-donor.213 
Gift loans involve an ongoing economic relationship between the two parties with 
affective ties.214 The initial loan of cash, coupled with eventual repayment or 
forgiveness, provide actual acts that support a finding of realization. Borrower-
donees on gift loans may not pay periodic cash interest to lender-donors, but these 
other tangible transactions give ample legal tether for assigning an interest 
component to gift loan arrangements—perhaps based on specific facts or the 
parties’ intent.215 Furthermore, the Code’s gift loan rules operate as a type of safe 
harbor that relieves pressure on more fundamental questions of characterization. If 
a constitutional realization requirement precludes an assessment of interest income 
to the lender-donor, then enforcement may focus on whether these loans are better 
characterized as gifts or other arrangements.216 A constitutional realization 
requirement greatly expands the factual and legal inquiry required for gift loans. 

 Second, a constitutional realization standard may require a different timing 
of income inclusions than the linear annual amounts specified in the Code. Simple 
annual interest represents an administrable solution, but courts may characterize 
interest as prepaid or postpaid, consistent with either the initial loan of cash or the 
loan’s eventual resolution—physical transfers of cash that may provide a 
touchstone for realization. A constitutional realization standard might find Child to 
have prepaid interest on the initial loan, or Parent to have foregone interest up-front. 
Alternatively, this standard might view Child as postpaying interest at the end of 
the loan, or Parent as forgiving accrued interest after-the-fact.217 Finally, postpaid 

 
210 For tax purposes, circular flows of cash generally are disregarded, even if they physically occur. 
I.R.C. § 7872 imposes a constructive transaction that reflects the converse of this principle. 
211 See Kornhauser, supra note 22, at 39 (discussing the income and gift tax treatment of below-
market loans). 
212 See Kwall, supra note 3, at 110 (“Although a gift has not historically been treated as a realization 
event, there is nothing inherently unique about a gratuitous transfer that would preclude Congress 
from treating a gift as a realization event.”). 
213 That is, the gift is the value of the foregone interest, rather than the interest payment itself. This 
construction is consistent with the forgiveness of loans by gift. In these situations, the lender-donor 
is treated as gifting the loan’s principal amount to the borrower-donee, and the borrower-donee is 
treated as repaying the loan in full (that is, there is no cancellation of indebtedness income). See 
Jeffrey H. Kahn & Douglas A. Kahn, Cancellation of Debt and Related Transactions, 69 TAX LAW. 
161, 197-98 (2015) (“If a creditor forgives a debt as a gift to the debtor, the COD is excluded from 
the debtor’s income by section 102.”).  
214 By contrast, constructive sales may involve one or more coordinated or unilateral acts at arm’s 
length. See supra Part III.A.1. 
215 Cf. Diedrich v. Comm’r, 457 U.S. 191, 197 (1982) (holding that a gift conditioned on the donee’s 
payment of the donor’s gift taxes results in income to the donor to the extent the gift tax liability 
exceeds the donor’s basis); see also Kornhauser, supra note 22, at 16-17 (discussing Diedrich in the 
context of the Supreme Court’s avoidance of constitutional tax issues). 
216 For concomitant effects on complexity, see infra Part V. 
217 These timing questions are parallel to those raised by Helvering v. Bruun, 309 U.S. 461, 465-66 
(1940)  (describing alternatives in which a landlord’s income from tenant improvements could be 



30 COLUMBIA JOURNAL OF TAX LAW [Vol. 16:1 
 
interest could be assigned over the loan’s term using the time-value principles 
associated with original issue discount (OID), which would yield gradually 
increasing inclusions over the loan’s term.218 In these ways, a constitutional 
realization requirement unsettles the Code’s clear rules about the timing and 
amount of income. 

 Third, the amount of any income inclusions may depend on the relevant 
constitutional analysis. The statutory gift loan regime uses a below-market rate to 
assign income to the lender-donor. The borrower-donee would pay a higher interest 
rate on a comparable arm’s length loan from an unrelated party, such as a bank, and 
courts might look to this interest rate when assigning income to the lender-donor.219 
On the other hand, a lower rate may better account for the realities of the related-
party arrangement intrinsic to gift loans, where risk of repayment may not factor 
into the decision of whether, or on what terms, to extend credit. No market 
transaction exists. In addition, a gift loan may contemplate that the borrower-donee 
will satisfy the loan’s principal fully with property, forgiveness by the lender-donor, 
or some combination of the two.220 For these reasons, a risk-free rate of return may 
better represent the parties’ underlying economic arrangement. If so, the Code’s 
statutory rate understates the amount of the lender-donor’s true interest income221—
and perhaps survives constitutional scrutiny because of this design choice. More 
broadly, however, gift loans’ facts and circumstances (including the nature of 
family or social relationships222) imply a range of possible income inclusions under 
a realization-oriented constitutional analysis. 

 
3.  Debt Modifications  

 
 Contractual arrangements (and changes to those contracts) can affect 

taxpayers’ relationships to property in ways that implicate realization. These issues 
arise, for example, when holders and obligors agree to modify the terms of a lending 
arrangement evidenced by a debt instrument.223 The debt instrument is property for 

 
taken into account on construction of the improvements or termination of the lease).  
218 For the Code’s treatment of OID, see I.R.C §§ 1272-1275. Courts may apply time-value 
principles differently. 
219 This referent historically has been used in the international tax context to apportion income across 
jurisdictions. See generally Reuven S. Avi-Yonah, The Rise and Fall of Arm’s Length: A Study of 
the Evolution of U.S. International Taxation (John M. Olin Ctr. for L. & Econ., Working Paper No. 
07-017, 2007). 
220 The precise combination may be contingent on when the loan is made. See Rev. Rul. 77-299, 
1977-2 C.B. 343 (finding no loan where there was a prewired intent to forgive).  
221 If I.R.C. § 7872 seeks to deter tax gaming, then this lower rate might be optimal, depending on 
the provision’s effect on tax-motivated transactions. 
222 The scope of familial connections may depend on context. See Cerone v. Comm’r, 87 T.C. 1, 3, 
22 (1986) (outlining a limited role for family discord in determining tax consequences of a stock 
redemption); see also Tessa R. Davis, Mapping the Families of the Internal Revenue Code, 22 VA. 
J. SOC. POL’Y & L. 179, 199 (2015) (using status and contract to illustrate how family relationships 
are deployed by the Code).  
223 Executory contracts and amendments to partnership agreements also raise realization questions. 
For example, the substitution of counterparties (or an assignment by a counterparty) may result in 
realization for the other party to a derivative contract or other ongoing obligation. Alternatively, a 
change in how partners share income may affect the value of their respective interests. Although 
difficult to distinguish conceptually from debt modifications, these types of contractual changes 



2024] REALIZATION RULE AS A LEGAL STANDARD 31 
 
tax purposes, and, individually or cumulatively, modifications to that property can 
yield a new debt instrument. This de facto exchange of old property for new 
property constitutes a realization event. The facts and circumstances that yield 
realization, however, are relatively difficult to discern on any kind of principled 
basis. 224  

 Under current law, arcane Treasury Regulations govern the realization 
threshold for modifications of debt instruments.225 These regulations define an 
exchange to occur when there is a “significant modification” of a debt 
instrument226—two elements that do not emerge from either statutory law or court 
opinions and which have no clear constitutional tether.227 The regulations define 
“significant” and “modification” in technical, quantitative, and rule-bound ways. 
For this purpose, modifications reach broadly: any change in legal rights or 
obligations, unless they occur by the terms of the debt instrument.228 Certain major 
alterations—substitution of obligors, changes in the recourse or nonrecourse nature 
of the debt instrument, conversions of debt into equity for tax purposes, and the 
exercise of certain options—are modifications even if pursuant to contractual 
operations.229 By contrast, significance arises from any of a long list of conditions, 
including changes in yield over numeric hurdles,230 material deferral in the timing 
of payments,231 and adjustments to structural features of debt instruments, such as 
obligors, security, and priority.232 In addition, any “economically significant” 
modification, based on the facts and circumstances, is significant.233 The 

 
typically are not treated as realization events. See, e.g., I.R.C. § 761(c) (allowing modifications to a 
partnership’s allocation provisions after year-end but before the unextended due date for the 
partnership’s return); James M. Peaslee, Modifications of Nondebt Financial Instruments as 
Deemed Exchanges, 95 TAX NOTES 737 passim (Apr. 30, 2002) (discussing realization questions 
involving a range of derivative contracts in the context of Cottage Savings Assn. v. Comm’r, 499 
U.S. 554 (1991)). 
224 See Richard L. Bacon et al., supra note 13, at 1002 (“The special difficulty in dealing with debt 
modifications lies in the fact that these transactions are among a variety of ‘ambiguous transactions’ 
which have no self-evident points that clearly indicate when, or whether, the holder has ‘sold or 
exchanged’ the unmodified debt instrument.”). 
225 For modifications of debt instruments, these regulations represent the exclusive test for 
realization. See Treas. Reg. § 1.1001-3(b). 
226 Id. 
227 See Bacon et al., supra note 224, at 1003 (“[M]any of the proposed distinctions in the proposed 
regulation are the kind that cannot be derived from existing section 1001 or from any judicial 
definition of when a sale or exchange is a ‘realization event.’”). 
228 Treas. Reg. § 1.1001-3(c)(1). 
229 Treas. Reg. § 1.1001-3(c)(2). Debt is recourse if the lender can look to all of the borrower’s assets 
for repayment rather than just the specified security. For purposes of Treas. Reg. § 1.001-3 (and 
unlike other areas of tax law), recourse and nonrecourse status are determined by reference to state 
law. See I.R.S. P.LR. 2023-37-007 (Sept. 15, 2023) (stating that a conversion from an LLC to a 
corporation does not change the recourse nature of the debt when the lenders’ state-law rights under 
the debt instrument do not change). 
230 Treas. Reg. § 1.1001-3(e)(2). 
231 Treas. Reg. § 1.1001-3(e)(3). 
232 Treas. Reg. § 1.1001-3(e)(4).  
233 Treas. Reg. § 1.1001-3(e)(1). See also Rev. Rul. 90-109, 1990-2 C.B. 191 (finding realization “if 
there is a sufficiently fundamental or material change that the substance of the original contract is 
altered”).  



32 COLUMBIA JOURNAL OF TAX LAW [Vol. 16:1 
 
Regulations also specify various rules of application.234 

 The debt modification regulations do not reflect any high theory of 
realization,235 and their mechanical application sometimes meshes poorly with on-
the-ground facts and circumstances. These features of the rule-bound regulations 
reveal the underlying standard-like analysis fundamental to realization.236 Consider 
state-law conversions of legal entities from limited liability companies (LLCs) to 
corporations, and vice versa.237 If the LLC is a disregarded entity for tax purposes 
and the obligor on a debt instrument, then these conversions cause a change in 
obligor from the LLC’s owner to the corporation (or vice versa).238 The IRS, 
however, has ruled privately that such conversions are not realization events, either 
because they are not modifications or not significant—the precise reasoning is 
unclear.239 In these rulings, the IRS relies on the text of state statutes to find that 
the conversions have no effect on the parties’ legal rights and obligations. These 
rulings do not consider the effects of state corporate and LLC law (which differ in 
terms of managers’ fiduciary duties, the availability of distributions, and the ability 
of creditors to pierce owners’ limited liability protections) or any specific terms in 
the corporate charters or LLC operating agreements. Even if irrelevant under 
current regulations, these additional facts might bear on any constitutional 
realization requirement.240 

 Indeed, under a constitutional realization requirement, each of the rule-
bound pieces of the debt modification regulations is subject to constitutional 

 
234 Treas. Reg. § 1.1001-3(f). See also Richard L. Bacon & Harold L. Adrion, Taxable Events: The 
Aftermath of Cottage Savings (Part II), 59 TAX NOTES 1386, 1386-91 (June 7, 1993) (describing 
the proposed debt modification regulations).  
235 See Richard L. Bacon & Harold L. Adrion, Taxable Events: The Aftermath of Cottage Savings 
(Part I), 59 TAX NOTES 1228 passim (May 31, 1993) (critiquing the proposed debt modification 
regulations as unprincipled).  
236 See Schlag, supra note 2, at 422-24 (1985) (questioning the role of polycentrism in determining 
when to use rules and standards). 
237 Similar changes can result from check-the-box elections. See, e.g., Treas. Reg. § 301.7701-3(a), 
(c) (providing that an eligible business entity may elect to change its classification by filing Form 
8832).  
238 See Treas. Reg. § 301.7701-3(a), (b)(1)-(2). 
239 Compare I.R.S. P.L.R. 2023-37-007 (Sept. 15, 2023) (finding that a proposed state-law 
conversion of an LLC into a corporation would not result in a modification of debt), and I.R.S. 
P.L.R. 2003-15-001 (Apr. 11, 2003) (same), with I.R.S. P.L.R. 2006-30-002 (July 28, 2006) (ruling 
that “[t]he conversion of Parent [corporation] into [an] LLC as part of [a] restructuring does not 
result in a significant modification of the [d]ebt” under Treas. Reg. § 1.1001-3(e)), I.R.S. P.L.R. 
2007-09-013 (Mar. 2, 2007) (ruling that the change in classification from corporation to disregarded 
entity will not result in a significant modification of debt), and I.R.S. P.L.R. 2010-10-015 (Mar. 12, 
2010) (finding that the conversion of a corporate subsidiary into an LLC does not result in a 
significant modification of debt). See also C.C.A. 2011-003 (Aug. 26, 2011) (concluding that the 
check-the-box conversion of an insolvent foreign subsidiary of a domestic corporation into a 
partnership under Treas. Reg. § 301.7701-3(c)(1)(i) is not a significant modification of debt).  
240 Other examples of standard-like applications of the rule-bound debt modification regulations 
include the transition away from LIBOR as a benchmark in floating-rate debt, see T.D. 9961, 2022-
3 I.R.B. 352 (Jan. 4, 2022) (finalizing regulations that generally provide for nonrealization across 
an array of financial products), government forbearance programs involving home mortgage loans 
due to the COVID-19 pandemic, see Rev. Proc. 2020-26, 2020-26 I.R.B. 984; Rev. Proc. 2020-51, 
2020-50 I.R.B. 1599, and lending arrangements with multiple borrowers or parties that provide 
credit support, see Luís C. Calderón Gómez, Whose Debt Is It Anyway?, 76 TAX L. REV. 159 (2022).  



2024] REALIZATION RULE AS A LEGAL STANDARD 33 
 
challenge. There is, for example, no clear reason why a 25-basis-point change in 
yield would have constitutional significance.241 Similarly, the regulations generally 
aggregate multiple changes over time to a single contractual term but disaggregate 
simultaneous changes to different contractual terms.242 Again, a constitutional 
realization requirement may look more (or less) holistically. Finally, taxpayers will 
not always favor nonrealization over realization for contractual modifications, and 
the different parties to a debt instrument may have different interests.243 These 
divergent interests provide ample opportunities for constitutional challenges to the 
current debt modification regulations. What would remain after these piecemeal, 
idiosyncratic challenges is virtually impossible to predict. 

 
4.  Conclusion 

 
 As a concept, realization is contextual, based on the facts and circumstances 

specific to the taxpayers and transactions at issue. Constructive sales illustrate that 
establishing the inquiry’s scope is crucial. Gift loans demonstrate how facts that 
trigger realization intersect with determinations of the timing and amount of any 
resultant income. Debt modifications show how ostensibly rule-bound regimes 
bleed into standard-like questions and create uncertainty under a potential 
constitutional realization requirement. These examples emphasize the primacy of 
ex post determinations to realization—the essential feature of a legal standard. As 
discussed in the following Section, these factual determinations interplay with 
uncertainty about the proper doctrinal elements for realization. 

 
B.  Realization’s Doctrinal Elements 
 
 Realization addresses three distinct questions: when is income taken into 

account, how much income is taken into account, and who is taxable on this 
income? To a significant extent, these questions’ answers are interdependent. 
Under realization, a touchstone—a “definite event”—fixes the answers to these 
questions as of a given moment in time.244 The doctrinal elements that implicate 
realization are not transparent, however, especially in the constitutional context. 
For this reason, realization is simultaneously fact-intensive and ambiguous in terms 
of those facts’ doctrinal import. 

 Doctrinally, realization may be different in different contexts, and perhaps 
also different for different purposes.245 As a concept, realization may be shaped by 
notions of abuse and antiabuse,246 as well as the distinction between legal and 

 
241 See Treas. Reg. § 1.1001-3(e)(2)(ii)(A). 
242 See Treas. Reg. § 1.1001-3(f)(3)-(4); see also I.R.S. P.L.R. 2010-10-015 (Mar. 12, 2010) 
(examining separately changes in yield, deferral of payments, and substitution of obligors).  
243 For example, realization may allow holders to claim a loss or impose cancellation of indebtedness 
income on obligors. See I.R.C. §§ 1001; 108.  
244 See Bittker et al., supra note 6, at § 28:2. 
245 Several Justices alluded to this uncontroversial idea during oral arguments. See, e.g., Transcript 
of Oral Argument at 17-18, Moore v. United States, 144 S. Ct. 1680 (No. 22-800). See also Zelinsky, 
supra note 102, at 873 (“[T]he judiciary has grappled with the contours of the realization 
principle.”). 
246 See Mindy Herzfeld, Moore and the History of the Realization Requirement, 180 TAX NOTES 



34 COLUMBIA JOURNAL OF TAX LAW [Vol. 16:1 
 
economic understandings of ownership.247 For this reason, the doctrinal elements 
of realization are uncertain in scope and content—a problem compounded in 
constitutional analysis by a lack of meaningful legal development since the 1950s. 
This Section explores the contextual nature of realization through Supreme Court 
doctrine after Macomber, then discusses antiabuse exceptions to realization and the 
importance of legal relationships to realization.  

 
1. Context and Realization 

 
 The contextual nature of realization is apparent in one of Macomber’s 

doctrinal mainstays, the idea that realization occurs when a taxpayer receives 
something with respect to capital for the taxpayer’s “separate use and benefit.”248 
In Macomber, a stock-on-stock dividend yielded nothing from the company itself: 
“every dollar” of the taxpayer’s “original investment” remained “the property of 
the company, and subject to business risks.”249 Property severed from capital—
sometimes framed using a fruit-tree metaphor—fixed the timing, amount, and 
recipient of income.250 Macomber left underspecified whether severance was either 
necessary or sufficient for realization in different contexts. 

 Subsequent judicial decisions provide little clarity on separation’s doctrinal 
function. As Surrey and others read Macomber out of an evolving tax 
jurisprudence,251 Macomber’s “separation” requirement also fell from prominence. 
In Bruun, the Court found income when a landlord acquired tenant improvements 
after retaking possession of leased property.252 Bruun rejected Macomber’s 
“separation” requirement, describing it as “not controlling.” The taxpayer had 
income, notwithstanding that the tenant improvements had no value separate from 
the leased land and that the combined land and improvements almost certainly 
reflected an overall loss for the taxpayer. Although Congress reversed Bruun’s 
result through legislation,253 the case demonstrates that one of realization’s 
doctrinal elements—separation—is not necessary (but perhaps remains relevant) 
for evaluating whether a transaction results in income.254 

 Then, in Woodsam Associates,255 the Second Circuit held that a cash-out 
nonrecourse borrowing in excess of basis, secured by real property, did not result 

 
FED. 1754, 1754 (Sept. 11, 2023) (noting that Congress and courts “have regularly acknowledged 
the validity of antiabuse provisions” in the realization context). 
247 See Raskolnikov, supra note 174, at 514-16 (“[T]he law of tax ownership is vast, remarkably 
fragmented, and thoroughly confused.”); Thompson & Weisbach, supra note 176, at 249 
(“Ownership apparently has nothing to do with whether you are exposed to an economic position.”). 
248 Eisner v. Macomber, 252 U.S. 189, 211 (1920). 
249 Id. 
250 Indeed, the Barrett and Thomas opinions in Moore rely heavily on the language of separation to 
discuss realization’s boundaries. See Moore v. United States, 144 S. Ct. 1680 (2024) (Barrett, J., 
concurring; Thomas, J., dissenting). 
251 See supra Part II.A. 
252 Helvering v. Bruun, 309 U.S. 461 (1940). 
253 See I.R.C. § 109. 
254 Similarly, the Moore majority opinion does little to abrogate the “separate use and benefit” 
requirement across all contexts. When attributing income from an entity, however, separation clearly 
is not required. See Batchelder et al., supra note 118, at 1511. 
255 Woodsam Assocs. v. Comm’r of Internal Revenue, 198 F.2d 357 (2d Cir. 1952).  



2024] REALIZATION RULE AS A LEGAL STANDARD 35 
 
in income to the taxpayer. The loan held the taxpayer responsible for repayment to 
the extent of the property’s value and not for any excess. Essentially, the taxpayer 
received cash with respect to real property whose value was reduced by that 
amount—a potential separation of liquid cash from illiquid property, in the 
language of Macomber. Under the Code, these facts did not constitute 
realization.256 One commentator argues that Woodsam Associates shows “the 
ambiguous nature of the realization requirement” and “could about as easily have 
gone for the taxpayer as for the Treasury.”257 Not only is separation not necessary 
for realization, but the element also is not sufficient to trigger income.258 

 Although separation is neither necessary nor sufficient for realization, the 
element retains significant staying power—and figured significantly into the 
Barrett and Thomas opinions in Moore, as well as portions of oral arguments.259 
Many conventional realization events, including sales for cash and payments under 
a lease or loan, involve the separation of returns from capital. Separation may have 
relevance in some contexts and not in others. Once a decisionmaker specifies the 
factual predicate in which realization may occur, slotting those facts into an analytic 
framework presents another doctrinal challenge: how to array the facts in a 
framework that provides a path to either realization or nonrealization. These 
challenges, in part, justify courts’ shift in the 1940s and 1950s towards deference 
to Congress on issues of realization. Statutory law is a convenient vehicle for 
crafting complex (and rule-bound) frameworks. Less certain is whether these 
statutory frameworks would survive constitutional scrutiny, in whole or in part. 

 
2. Abuse and Antiabuse 

 
 Efforts to police tax abuse—perhaps keyed to taxpayers’ intent or 

motivation to engage in a transaction—also figure into realization doctrine. Many 
statutory deviations from realization principles reflect efforts to curb tax gaming, 
which, in part, motivated amicus briefs on Moore’s potentially calamitous 
effects.260 For example, section 1256 of the Code requires taxpayers to recognize 
income or loss annually with respect to certain derivative contracts.261 For some 
commodities contracts, section 1256 aligns tax outcomes with market practices, in 
which these contracts clear gains and losses daily for traders.262 Without this 

 
256 Section 111(a) of the Code, as then in effect, required a “disposition,” though this textual analysis 
simply begs the question of whether a separation of cash from property constitutes a disposition. 
See infra Part III.B. 
257 MARVIN A. CHIRELSTEIN & LAWRENCE ZELENAK, FEDERAL INCOME TAXATION 365 (15th ed. 
2023).  
258 Separation’s insufficiency is evident in other contexts, such as the recovery of capital with 
respect to an investment. See Inaja Land Co. v. Comm’r, 9 T.C. 727, 735-36 (1947) (finding no 
income on a payment for an easement with respect to land); I.R.C. § 301(c)(2)-(3) (allowing 
shareholders to recover capital on the receipt of cash from the corporation before recognizing gain 
with respect to stock). 
259 See, e.g., Transcript of Oral Argument at 36-37, Moore v. United States, 144 S. Ct. 1680 (2024) 
(No. 22-800) (concession by taxpayers’ counsel that “the separation concept maybe doesn’t 
necessarily apply in every circumstance”). 
260 See supra note 31 (listing amicus briefs). 
261 I.R.C. § 1256(a)-(b). 
262 For this reason, § 1256 may not deviate from a constitutional realization standard, at least for 



36 COLUMBIA JOURNAL OF TAX LAW [Vol. 16:1 
 
alignment, taxpayers could arbitrage the deferral granted by strict realization and 
the current cash consequences generated by market clearing mechanisms. For 
derivative contracts without periodic clearing, section 1256 opens arbitrage 
between deferred gains and accelerated losses on contracts with correlated 
economic risk.263 Treasury has addressed such abuses of statutory antiabuse rules 
through regulations.264 This example shows the nonlinear relationship between 
realization and antiabuse efforts, which depend on context rather than a one-way 
ratchet to move away from realization in some contexts. 

 Similarly, realization principles may produce collateral consequences that 
themselves lead to abuse. After Macomber declared stock dividends tax-free, some 
corporations took the position that those tax-free dividends also reduced earnings 
and profits, which allowed subsequent cash distributions to qualify as returns of 
capital or exempt distributions out of pre-1913 earnings and profits.265 Although 
Congress closed this loophole by stipulating that tax-free stock dividends do not 
reduce earnings and profits,266 realization as a principle facilitates these types of 
disjunctures. Because realization implicates the Code’s fundamental plumbing, a 
constitutional challenge that expands or contracts realization’s scope can have 
idiosyncratic collateral effects that facilitate abuse by taxpayers and their advisors. 
Doctrinally, the role of abuse and antiabuse remains underdeveloped in the 
realization context, since many realization-oriented antiabuse rules are statutory or 
regulatory. To the extent that the Constitution requires realization, the doctrinal role 
of abuse and antiabuse warrants greater specification. 

 
3. Line-Drawing and Realization 

 
 Realization’s murky contextual and purposive underpinnings place greater 

pressure on principled line-drawing with respect to the factual continuum between 
realization and nonrealization. An element-driven approach may prove uniquely 
unsuited to making these judgments.267 As an alternative,268 courts might consult 
broader values to give content to a constitutional realization principle. Potential 
candidates for these broader values include traditional tax policy norms such as 
equity, efficiency, and administrative ease. Setting aside equity (and its intrinsic 
normativity),269 both efficiency and administrative ease provide prescriptions for 
giving content to a constitutional realization requirement. Under either set of 

 
derivatives traded on markets with similar clearing mechanisms. 
263 See Wright v. Comm’r, 809 F.3d 877 (6th Cir. 2016) (approving a listed transaction that used 
correlated options on foreign currency to generate current losses and future gains). 
264 See Prop. Treas. Reg. § 1.1256(g)-2(a) (reversing the outcome in Wright by eliminating mark-
to-market taxation for certain options on foreign currency). 
265 George F. James, The Present Status of Stock Dividends Under The Sixteenth Amendment, 6 U. 
CHI. L. REV. 215, 231-32 (1939). 
266 I.R.C. § 312(d)(1)(B). 
267 See David A. Weisbach, Line-Drawing, Doctrine, and Efficiency in the Tax Law, 84 CORNELL 
L. REV. 1627, 1633-37 (1999).  
268 Courts’ substantial repudiation of Macomber’s separation requirement indicates that adjudicators 
might take something other than an element-based approach to a constitutional realization 
requirement. 
269 For a brief consideration of equity in this context, see infra Part VI. 



2024] REALIZATION RULE AS A LEGAL STANDARD 37 
 
values, a constitutional approach to realization might look very different from 
current statutory law or judicial interpretation. For this reason, the availability of 
such values in constitutional analysis creates a greater range of ex post outcomes 
for taxpayer-initiated controversies about constitutional realization.270 

 In terms of efficiency, the classic approach is to delineate holding and 
disposing—a basic tenet of realization—so that economically similar transactions 
are taxed the same.271 This approach is inconsistent with both existing law and 
historical interpretations of realization, which take a formalistic approach oriented 
towards legal entitlements.272 Historically, realization has turned on changes in 
taxpayers’ legal relationships to assets, not their economic relationships.273 
Economic relationships may have little to say on how realization works. For 
example, risk operates ambiguously in the realization context, both as a positive 
and normative matter.274 Changes in the expected costs of risk do not have a 
conclusive connection to dispositions in any sense. Similarly, the nature of risk may 
change, but again, has little linkage to dispositions. Finally, risk-based rules may 
fail to specify which assets are subject to any change in risk. A constitutional 
realization requirement could incorporate these efficiency-oriented values in 
analyzing issues of holding and disposing. One explicit aim might be to minimize 
taxpayer game-playing across the line that triggers realization. Such an approach to 
constitutional realization would ameliorate many doctrinal ambiguities but 
simultaneously unsettle vast areas of current law. 

 In terms of administrative ease, the conventional legal wisdom since 1940 
has hewed to the Supreme Court’s dicta that realization is “founded on 
administrative convenience.”275 Realization might defer taxation until taxpayers 
have liquidity, though this rationale is contrary to current statutory and 
constitutional law. If no separation is required, then liquidity cannot always justify 
a realization requirement. Similarly, concerns about the practicalities of valuation 
say little about constitutional realization, which would have to be much narrower 
than current law to avoid valuation issues.276 Finally, realization may reduce 
transaction costs in measuring income, since there already is a taxable event that 
incurs some overlapping costs, though the scope of taxable events is uncertain 
enough that this overlap may be immaterial.277 More generally, administrative 
convenience introduces optionality to the doctrinal analysis of realization, which 
allows for departures from whatever substantive framework applies. This 
optionality adds further contingency to any constitutional realization analysis. 

 
270 References to broader values also are consistent with this Article’s characterization of a 
constitutional realization requirement as a taxpayer-initiated antiabuse doctrine. See infra Part III.C. 
271 See Weisbach, supra note 267, at 1631 (noting that distributional effects—that is, equity—also 
must be accounted for in line-drawing). 
272 See Deborah Paul, Another Uneasy Compromise: The Treatment of Hedging in a Realization 
Income Tax, 3 FLA. TAX REV. 1, 5 (1996) (describing this formalism as “inevitable”).  
273 See generally Thompson & Weisbach, supra note 176 (arguing “the concept of tax ownership of 
fungible securities and other financial products” does not “appear to be based on economics”).  
274 See Paul, supra note 272, at 21. 
275 Helvering v. Horst, 311 U.S. 112, 116 (1940).  
276 For example, in-kind remuneration for services implicates realization for the party making the 
payment with noncash property. See Treas. Reg. § 1.61-2(d)(1). 
277 See Schenk, supra note 1, passim (discussing various rationales for the realization rule).  



38 COLUMBIA JOURNAL OF TAX LAW [Vol. 16:1 
 

 To the extent connected to broader values,278 a constitutional realization 
requirement potentially complicates a traditional element-based approach, even if 
those elements are themselves contingent on context and taxpayers’ intent. Any 
change in economic position, as well as any change in legal relationships, could 
affect a determination of realization or nonrealization. Doctrinally, legal 
relationships matter, and ideas of economic substance make economic relationships 
matter too. This type of layering—riskier in adjudication than administration—
complicates any constitutional concept of realization. 

 
4. Conclusion 

 
 From a doctrinal perspective, realization requires a broad factual inquiry 

with little non-statutory guidance on the elements required for realization. Limited 
authority exists on which elements are constitutionally necessary or sufficient in 
various contexts, and many elements, such as separation, may prove probative 
without being dispositive. The role of tax abuse and nondoctrinal values in this 
analysis is unclear. As a legal standard, realization has few doctrinal touchstones, 
and any constitutional realization requirement must grapple with these questions as 
controversies arise. The next Section explores the consequences of realization’s 
standard-like nature in the enforcement context. 

 
C.  Realization as an Antiabuse Doctrine 
 
 The rule-bound Internal Revenue Code is backstopped by various 

overarching judicial and statutory standards.279 Often denoted as “antiabuse” 
doctrines, these legal standards permit “the government (and only the government) 
to override the literal words of a statute or regulation” to reach a result consistent 
with broader values, such as systemic integrity or legislative purpose.280 Well-
known antiabuse doctrines, which each comprise open-ended tests reliant on a 
holistic evaluation of the facts and circumstances, include the common-law step 
transaction doctrine, the quasi-statutory economic substance doctrine, and 
regulatory interventions such as the general partnership antiabuse rule.281 Although 
antiabuse doctrines operate at varying levels of specification,282 these doctrines 
fundamentally rely on their standard-like characteristics to police taxpayer 
behavior. 

 A revitalized constitutional realization requirement would operate as an 
antiabuse doctrine with a unique—and uniquely destabilizing—characteristic: 
taxpayers, rather than the government, generally would have the “one-way” option 
to assert a constitutional realization requirement to vitiate the textual application of 

 
278 In Moore, Kavanaugh relies heavily on administrative (and revenue) continuity as a norm. See 
Moore v. United States, 144 S. Ct. 1680, 1696 (2024). 
279 See Jonathan H. Choi, The Substantive Canons of Tax Law, 72 STAN. L. REV. 195, 205 (2020). 
For a perspective on how adjudicators should parse these facts and circumstances, see Hayashi, 
supra note 2. 
280 See Weisbach, supra note 2, at 860. 
281 See Cunningham & Repetti, supra note 26. The economic substance doctrine was partially 
codified in I.R.C. § 7701(o) and the partnership antiabuse rule is defined in Treas. Reg. § 1.701-2. 
282 See Choi, supra note 279, at 205.  



2024] REALIZATION RULE AS A LEGAL STANDARD 39 
 
statutory or regulatory rules.283 In the conventional pantheon of antiabuse doctrines, 
courts have circumscribed taxpayers’ use of antiabuse doctrines—most notably, the 
economic substance doctrine.284 These courts hold taxpayers to the terms of their 
agreements, their choice of form, and their in-the-moment interpretations of 
applicable law.285 If applied appropriately, conventional antiabuse doctrines 
operate against game-playing taxpayers and do not offer a tool to generate 
additional games.286  

 For constitutional limitations on Congress and Treasury, similar restrictions 
on taxpayers’ claims do not—and cannot—apply. To the extent that the 
Constitution mandates realization, taxpayers have a choice. Taxpayers can follow 
the dictates of Congress and Treasury, or they can assert, before- or after-the-fact, 
that those dictates fail to meet the Constitution’s requirements. These challenges 
flow directly from the constitutional nature of a Macomber-style realization 
requirement. These alternatives roughly parallel the government’s choices under 
conventional government-initiated antiabuse doctrines, where government sets the 
rules then can disclaim their application in a specific situation. Under a 
constitutional realization requirement, taxpayers can arrange their affairs to 
minimize taxes, then can disavow their choice of form in favor of a better outcome 
under the Constitution. 

 Two important differences emerge when juxtaposing conventional 
antiabuse doctrines and this Article’s characterization of a constitutional realization 
requirement as a taxpayer-initiated antiabuse doctrine. First, realization and 
nonrealization pervade current statutory law, which gives taxpayers many 
opportunities to challenge the current Code and Regulations as violating a 
constitutional realization requirement of uncertain scope and doctrinal content. 
Second, the optionality intrinsic in a constitutional realization requirement foments 
explicit or tacit challenges. Taxpayers (and not Congress or Treasury) can either 
accept or challenge the Code or Regulations’ application of a constitutional 
realization requirement. Taxpayers generally will seek the better outcome for them, 
with a strong likelihood of targeted claims supported by interest groups. Not only 
is a constitutional realization requirement a one-way law in favor of taxpayers, but 
the existence of this taxpayer-initiated antiabuse doctrine also is likely to generate 
significant controversy and aggressive position-taking, which in turn have serious 
implications for the evolution of tax law. 

 
IV. THE HOLLOWING-OUT OF TAX LAW 

 
 For more than a century, the Supreme Court left the Pandora’s box of 

 
283 See Weisbach, supra note 2, at 877-79. 
284 Sheldon I. Banoff & Richard M. Lipton, IRS Will Not Allow Taxpayers to Self-Impose the Anti-
Abuse Rules, 110 J. TAX’N 380, 380-81 (2009). 
285 See Smith, supra note 27, at 146. 
286 For example, consider a taxpayer that chooses an ostensibly tax-advantaged form for a 
transaction. On audit, the IRS disallows the transaction’s purported tax benefits, leveraging 
principles of realization or nonrealization to do so. Then, the taxpayer disavows the transaction’s 
form in favor of a characterization that carries some, but not all, of the expected tax advantages. See 
William S. Blatt, Lost on a One-Way Street: The Taxpayer’s Ability to Disavow Form, 70 OR. L. 
REV. 381 (1991). 



40 COLUMBIA JOURNAL OF TAX LAW [Vol. 16:1 
 
constitutional realization largely closed. After Macomber, commentators read 
subsequent decisions to minimize the case’s constitutional implications in favor of 
an administrative understanding of the realization requirement. Lawmakers, judges, 
and practitioners largely embraced this shift. Although Moore did not address a 
putative constitutional realization requirement directly, the case cracks the lid of 
Pandora’s box. Opening the box fully would require backfilling the content of 
constitutional questions latent across decades of legislation, administrative 
interpretation, and judicial decisions. Ostensibly settled issues may acquire new 
life. 

 For this reason, even Moore’s whisper of a constitutional realization 
requirement risks a sort of “hollowing out” of federal income tax law. Although 
entire statutory schemes might fall,287 this top-down abrogation only captures some 
of the systemic risk posed by a constitutional realization requirement. A 
constitutional realization requirement also would erode the tax system from the 
bottom up, as portions of the plumbing in the Code and Regulations run afoul of a 
reinvigorated constitutional realization requirement. Much of this plumbing relies 
on some statutory or regulatory concept of realization or nonrealization, which 
increases the number and variety of potential targets for invalidation under the 
Constitution. Because a constitutional realization requirement operates (uniquely) 
as a taxpayer-initiated antiabuse rule,288 these targets face a greater number of 
potential challenges. Not every challenge will succeed, but even a limited number 
of bottom-up victories threatens tax law’s systemic integrity. 

 Under a constitutional realization requirement, the hollowing out of tax law 
would occur through the targeted elimination of statutory and regulatory 
mechanics, as well as shifts in taxpayer-government dynamics that result from a 
constitutional realization requirement. This Part elaborates three specific 
mechanisms that facilitate this hollowing out. Then, this Part develops examples of 
how this hollowing out might unfold in partnership and corporate taxation. 

 
A.  Bottom-Up Challenges to the Tax System 
 
 Taxpayers can deploy a constitutional realization requirement to assert 

bottom-up challenges to the tax system through three distinct mechanisms that 
leverage the public-private nature of tax administration, as well as risk-aversion by 
legislators and regulators. These mechanisms involve private interpretations of tax 
law in structuring transactions or taking positions on tax filings, litigation against 
the public enforcement of the Code and Regulations, and government actors’ 
reticence to challenge constitutional boundaries when crafting new laws or rules. 
The effect is piecemeal erosion of tax law’s internal integrity through public and 
private actions and inaction. 

 Most transparently, taxpayers may litigate to invalidate provisions in the 
Code or Regulations under constitutional arguments. In the context of a 
constitutional realization requirement, this litigation would occur on a case-by-case 
basis, and some provisions may survive, while others fall. Because realization 

 
287 See supra note 31 (listing specific statutory provisions threatened by a constitutional realization 
requirement).  
288 See supra Part III.C. 



2024] REALIZATION RULE AS A LEGAL STANDARD 41 
 
operates as a legal standard (and is relatively underdeveloped),289 specific outcomes 
may prove difficult to predict or conceptually inconsistent.290 Human preferences 
and fallibility introduce some uncertainty to judicial decision-making, and not all 
outcomes are high-quality. The structure of U.S. federal courts amplifies these 
concerns. Even if the Supreme Court avoids future cases about constitutional 
realization, Circuit and District Courts are likely to face the issue. As idiosyncratic 
lower-court outcomes proliferate, any structural coherence in the U.S. tax system 
erodes.291 To the extent that the U.S. tax system relies on coherence, the negative 
implications of litigation compound over time. 

 In addition to litigation, taxpayers’ private tax positions may undermine the 
tax system’s fundamental structure. On returns or other filings, taxpayers may 
assert a constitutional realization requirement to avoid the literal application of the 
Code or Regulations.292 Overwhelmingly, these private tax positions do not enter 
the formal controversy process, so they are not vetted to finality in a traditional 
sense.293 For this reason, these private tax positions may stand without government 
scrutiny. Furthermore, these private tax positions may become known among, and 
spread through, professional and business communities.294 Aggressive or outlier 
positions may persuade new adherents and shift community norms over time. 
Through these private routes, a constitutional realization requirement may gain 
purchase—and acquire de facto legal content through the unchallenged advice and 
opinions of taxpayers’ advisors.295 Outside of the conventional controversy 
process, a constitutional realization requirement still threatens the integrity of the 
existing Code and Regulations. 

 Finally, a constitutional realization requirement would dampen legislative 
and regulatory reform efforts. These effects extend beyond the category of wealth 
taxes or mark-to-market taxes for high-income or wealthy taxpayers.296 Technical 
reform proposals may—and typically will—implicate issues of realization and 

 
289 Id. 
290 Cf. Kaplow, supra note 2, at 611-16 (discussing predictability in the development of legal 
standards). 
291 Because tax cases may proceed in District Court, Tax Court, or the Court of Federal Claims, the 
potential for disparate outcomes is greater in tax law. 
292 These challenges could be technical. For example, realization might require accelerated 
depreciation, which would unsettle businesses’ basic calculations of income and loss. See Douglas 
A. Kahn, A Proposed Replacement of the Tax Expenditure Concept and a Different Perspective on 
Accelerated Depreciation, 41 FLA. ST. U. L. REV. 143, 151-56 (2013). 
293 Although audit rates vary substantially by income level and type of filer, they generally average 
under 1%. See Briefing Book: What Is the Audit Rate?, TAX POL’Y CTR. (Jan. 2024), 
https://taxpolicycenter.org/briefing-book/what-audit-rate [https://perma.cc/E535-B36T]; see also 
Elkins, supra note 2, at 50 (“[A]s long as audit rates are low, standard-based [antiabuse doctrines] 
can have little effect on the practical tax base and unfairly discriminate against those whose returns 
happen to be audited.”). 
294 See Sloan G. Speck, Tax Planning and Policy Drift, 69 TAX L. REV. 549, 559-63 (2016) 
(describing public-private “policy communities”).  
295 See id. at 563-66. (describing how private actors have a “first-mover advantage” in interpreting 
tax law); see also Assaf Likhovski, The Duke and the Lady: Helvering v. Gregory and the History 
of Tax Avoidance Adjudication, 25 CARDOZO L. REV. 953, 968-71 (2004) (describing “cycles of 
statutory interpretation”). 
296 See Reuven S. Avi-Yonah, Can Moore Be Limited?, 112 TAX NOTES INT’L 963, 963 (2023) 
(noting that Moore was brought to forestall wealth and mark-to-market taxes). 



42 COLUMBIA JOURNAL OF TAX LAW [Vol. 16:1 
 
nonrealization.297 For example, several recent partnership tax reform proposals 
touted by Sen. Wyden rely on nonrealization principles to shift income among 
partners in tax partnerships.298 These proposals include mandating revaluations for 
partnership property under section 704(b), which would affect partners’ current and 
future net income from the partnership without requiring a partnership-level 
realization event,299 and requiring taxpayers to use the remedial method for 
section 704(c), which creates notional (and offsetting) items of income and loss for 
partners with respect to all property contributed to the partnership. Both of these 
changes ostensibly prevent abuses of optionality under current law. Because these 
reforms bear an uneasy relationship to conventional realization, a constitutional 
realization requirement might give lawmakers an additional reason to reject 
Wyden’s proposals.300 In this way, a constitutional realization requirement could 
shape Treasury’s enforcement strategies and limit Congress’s options for 
legislative reform.301 As a constitutional realization requirement gains content 
through adjudication and private-sector interpretation, such a constraint also 
forestalls reforms that might prevent the tax-system’s erosion from the bottom up. 

 One issue that runs through these concerns involves taxpayer elections into 
a nonrealization regime. Writing for the Court in Moore, Justice Kavanaugh 
expressed skepticism that “shareholder consent” could overcome a constitutional 
realization requirement “and allow Congress to enact an otherwise unconstitutional 
tax.”302 Some Moore amici also argued that such electivity is unconstitutional,303 
while petitioner’s counsel relied heavily on elections to argue that existing law 
would survive a constitutional realization requirement.304 If elections out of 
realization are unconstitutional, then a number of legal regimes would stand on 
uncertain ground, at least for some taxpayers making the elections. These regimes 
range from elective mark-to-market regimes, which apply to dealers in securities,305 
to the check-the-box rules for entity classification, which allow entities to elect 
corporate or partnership treatment.306 If elections are constitutional, two issues 

 
297 See George K. Yin, Crafting Structural Tax Legislation in a Highly Polarized Congress, 81 LAW 
& CONTEMP. PROBS. 241, 270-75 (2018) (describing structural and nonstructural reforms over time 
in various areas of business taxation). 
298 See Monte A. Jackel, New Wyden Partnership Tax Proposals Deserve Consideration, 173 TAX 
NOTES FED. 1709 (2021); see also Walter D. Schwidetzky, The Wyden Proposals on Partnership 
Debt: Step Forward or Back?, 76 TAX LAW. 389, 412 (2023) (discussing § 752).  
299 See Schwidetzky, supra note 298, at 410.  
300 Concerns about constitutionality have affected prior reform efforts, most notably efforts in the 
late 1960s to treat death as a realization event. See supra note 168 (discussing the legislative history 
of the Tax Reform Act of 1969).  
301 See Mark P. Gergen, The Common Knowledge of Tax Abuse, 54 SMU L. REV. 131, 141-43 (2001) 
(discussing abuses involving elective regimes in partnership taxation).  
302 Moore v. United States, 144 S. Ct. 1680, 1695 (2024). See also Simona Grossi, The Waiver of 
Constitutional Rights, 60 HOU. L. REV. 1021 (2023) (suggesting a framework for determining 
whether and how individuals may waive constitutional rights).  
303 See Brief for Tax Law Center at NYU Law et al. as Amici Curiae Supporting Respondent, Moore, 
144 S. Ct. 1680 (No. 22-800).  
304 See Brief for Petitioner at 51-52, Moore, 144 S. Ct. 1680 (No. 22-800).  
305 I.R.C. § 475.  
306 Treas. Reg. § 301.7701-3. For example, nonrealization principles in U.S. partnership taxation 
may preclude foreign entities from electing into such treatment, rather than being taxed as 
corporations under default rules. 



2024] REALIZATION RULE AS A LEGAL STANDARD 43 
 
arise: elections may be compelled, and elections may lack sufficient infrastructure 
to waive constitutional rights. Under current law, qualifying electing fund (QEF) 
elections for passive foreign investment companies (PFICs) are effectively 
compelled, since the default regime is (intentionally) punitive to taxpayers.307 
Similarly, consent dividends to preserve real estate investment trust (REIT) status 
are effectively compelled, since the consequences of lost status are typically 
catastrophic.308 To the extent of taxpayer electivity, the three mechanisms outlined 
in this Section offer greater potential to sow chaos within current tax law. 

 
B.  Examples from Partnership Taxation 
 
 Although the Moore majority effectively blessed pass-through taxation as 

an alternative to entity-level taxation,309 a constitutional realization requirement 
still poses bottom-up threats to pass-through regimes such as subchapter K, which 
governs tax partnerships.310 The risk is less that any form of pass-through taxation 
will fall in its entirety, than that an explicit or implicit realization requirement will 
undermine the structure of these regimes over time. The mechanism for this 
systemic erosion need not be federal courts. Particularly in the context of 
partnership taxation, taxpayers may look to their legal and accounting specialists 
for advice that certain aspects of subchapter K violate a constitutional realization 
requirement. 

 The bottom-up erosion of subchapter K may occur in several areas. In 
certain circumstances, current regulations permit partnerships to revalue their 
property for book purposes but not tax purposes. These revaluations, or “book-ups,” 
are mandatory on the exercise of noncompensatory options.311 In other situations, 
revaluations maintain economic parity among partners within the Regulations’ safe 
harbor regime for partnership allocations—an administrative advantage that may 
advantage some partners while disadvantaging others. This differential treatment 
of partners arises because revaluations create reverse 704(c) allocations, which shift 
income and loss among partners at variance to those partners’ fundamental 
economic sharing arrangement, as embodied by the contractual agreement among 
the partners.312 The events that enable revaluations—such as contributions by a 
partner, distributions to a partner, or the exercise of noncompensatory options—
may not rise to the level of realization, or may not constitute realization for all 
partners or the partnership itself.313 These events, however, operate to fix the 

 
307 I.R.C. § 1295. 
308 See I.R.C. § 856(g)(3) (stating that the lock-out period for REIT status following termination or 
revocation is five years).  
309 See Moore, 144 S. Ct. at 1685 (stating the issue in Moore as one of attribution of realized income). 
310 See I.R.C. §§ 701-771.  
311 See Treas. Reg. § 1.704-1(b)(2)(iv)(f); see generally Daniel S. Goldberg, Partnership 
Revaluations: Book-Ups Are Your Friends (Usually)—Planning with Revaluations and Their 
Interplay with Section 704(c), 74 TAX LAW. 345 (2021).  
312 See Treas. Reg. § 1.704-1(b)(2)(iv)(g). The partners agree on whether to revalue property, if 
elective, and generally agree to comply with subchapter K.  
313 Treas. Reg. § 1.704-1(b)(2)(iv)(f)(5). To the extent that partners’ relative interests in the 
partnership change, “the principles of § 704(c)” may apply to determine the partners’ prospective 
tax consequences. See id. 



44 COLUMBIA JOURNAL OF TAX LAW [Vol. 16:1 
 
income tax consequences for all partners at the time of the revaluation. To the extent 
that revaluations affect partners’ income without a corresponding realization event 
for that partner or the partnership, the revaluation regime may be infirm under a 
constitutional realization requirement. 

 Similarly, the statutory basis adjustments that flow from distributions of 
partnership property may not survive a constitutional realization requirement.314 
These adjustments are required at all points after an initial election,315 as well as in 
contexts that potentially shift losses among partners.316 By affecting the 
partnership’s basis in different assets, these adjustments implicate the sharing of 
net income and loss among all current partners. In-kind distributions of partnership 
property, however, may not constitute a realization event, or may constitute a 
realization event only for the recipient partner. Similarly, any shifting of basis 
among assets may or may not have a constitutional tether that mandates a particular 
set of outcomes.317 These mechanical and computational regimes stretch the idea 
of attribution in ways that implicate realization more generally.318 

 Furthermore, certain “disproportionate distributions” to partners implicate 
a complex regime of deemed exchanges that generally seek to maintain partners’ 
relative shares of ordinary income and capital gain or loss.319 These deemed 
exchanges can accelerate the recognition of income for all partners, even those not 
involved in an actual distribution of property. There is not clear realization event 
for these nonrecipient partners—or the partner that receives an in-kind distribution, 
if such distributions are not realization events.320 As with partner and partnership 
basis adjustments, a court would need to determine whether these rules represent 
appropriate attribution of income or implicate realization principles. In either case, 
a constitutional judgment would apply. 

 Finally, changes in partners’ shares of partnership debt may result in 
deemed distributions and yield partner-level income without an unambiguous 
realization event.321 Changes in debt shares may follow from a new or modified 
contractual agreement, such as a guarantee of partnership debt by a partner, or they 
may result from a repayment of debt by the partnership. The legal question is 
whether these contractual arrangements (or their modification, or debt repayment) 
constitute a realization event. If realization exists, there remains a further question 
of whose income may be affected as a result of that realization. A constitutional 
realization requirement implicates the outcomes of both questions. 

 
314 See I.R.C. § 734 (detailing statutory basis adjustments).  
315 I.R.C. § 754.  
316 These basis adjustments are mandatory when the partnership has a substantial basis reduction. 
I.R.C. § 734(a).  
317 See I.R.S. Notice 2024-54, 2024-28 I.R.B. 24; Rev. Rul. 2024-14, 2024-28 I.R.B. 18 (each 
discussing anti-basis shifting rules).  
318 More generally, subchapter K shifts income (or permits income shifts) among partners in a 
number of ways. See Andrea Monroe, What We Talk About When We Talk About Tax Complexity, 
5 MICH. BUS. & ENTREPRENEURIAL L. REV. 193, 204 (2016). 
319 See I.R.C. § 751(b). This regime is notoriously infirm. See William D. Andrews, Inside Basis 
Adjustments and Hot Asset Exchanges in Partnership Distributions, 47 TAX L. REV. 3 (1991); Karen 
C. Burke, Hot Asset Exchanges: Integrating § 704(c), 734(b), and 751(b), 70 TAX LAW. 711 (2017).  
320 See Brief of Professor Theodore P. Seto as Amicus Curiae Supporting Respondent at 21-22, 
Moore v. United States, 144 S. Ct. 1680 (2024) (No. 22-800). 
321 See I.R.C. § 752.  



2024] REALIZATION RULE AS A LEGAL STANDARD 45 
 

 These disparate regimes compose part of partnership tax’s fundamental 
mechanics. Each regime attempts to ensure that partners’ income properly reflects 
their relationship to the partnership, that subchapter K’s single-level tax operates in 
a coordinated manner, and that taxpayers do not abuse subchapter K’s flexibility. 
Each regime may survive under a permissive attribution of income doctrine, and 
each regime may fall under a constitutional realization requirement. To the extent 
that all or part of these regimes is unconstitutional, subchapter K’s operation is 
impaired, even if pass-through taxation more generally survives. In this way, a 
constitutional realization requirement could eat away at subchapter K from the 
bottom up. 

 
C.  Examples from Corporate Taxation 
 
 Decades of judicial deference to Congress have left many fundamental 

questions of realization unresolved, and those issues’ resolution against the 
government could unravel longstanding mechanics essential to the basic operation 
of tax law. In corporate taxation, the Tax Reform Act of 1986 firmly entrenched, 
as a statutory matter, the repeal of the General Utilities doctrine, which allowed 
corporate taxpayers to avoid recognizing corporate-level gain on certain 
distributions in-kind. Whether in-kind distributions themselves are realization 
events remains an open question.322 To the extent that some or all in-kind 
distributions do not constitute a realization event under the Constitution, one of the 
fundamental antiabuse principles in corporate taxation would be seriously 
impaired. 

 For corporate-level tax, realization may not matter because the tax 
instrument itself is an excise not subject to the apportionment requirement.323 In-
kind distributions may not be excises, however, if they do not involve “doing 
business in a corporate capacity.”324 Furthermore, in-kind distributions generate 
current earnings and profits that may support dividend characterization at the 
shareholder level, or in-kind distributions may constitute a return of shareholders’ 
capital before generating shareholder-level income.325 In any of these cases, a 
constitutional realization requirement would threaten the basic mechanics of 
corporate taxation. 

 These concerns about the General Utilities doctrine are more than merely 
theoretical. In taxable REIT separations, there is a statutory requirement to 
expunge, or “blow out,” the new REIT’s earnings and profits (E&P).326 If the 
integrated business’s operations are distributed as assets (for example, to a 
partnership operations company), the question is whether any entity-level gain 
would increase E&P and thus the amount of income shareholders would recognize 
in the separation. Whether the E&P blow-out includes section 311(b) gain directly 

 
322 See Don Leatherman, The Scope of the General Utilities Repeal, 91 TAXES 235 (2013).  
323 See John R. Brooks & David Gamage, The Original Meaning of the Sixteenth Amendment, 102 
WASH U. L. REV. (forthcoming 2024). 
324 Flint v. Stone Tracy Co., 220 U.S. 107, 146 (1911). 
325 Under current law, such distributions generate income first. See I.R.C. § 301(c).  
326 See I.R.C. § 857(a)(2)(B).  



46 COLUMBIA JOURNAL OF TAX LAW [Vol. 16:1 
 
affects shareholders’ income.327 This type of gain may survive constitutional 
scrutiny as an excise tax, or it may fall as an unconstitutional violation of the 
realization requirement. 

 As in partnership taxation, a constitutional realization requirement 
threatens, or at least draws into question, the basic plumbing in corporate taxation, 
often in highly granular ways. Such a realization requirement would pressure tax 
law’s integrity from the bottom up, as well as from the top down. For this reason, 
the current discourse about systemic concerns seriously understates the havoc that 
a constitutional realization requirement could wreak. 

 
V. COMPLEXITY AND THE REALIZATION REQUIREMENT 

 
 A constitutional realization requirement introduces a novel tool in the 

iterative compliance game between the government and taxpayers. Such a 
requirement would operate as a taxpayer-initiated antiabuse doctrine and generate 
concomitant bottom-up threats to the tax system’s coherence.328 From this 
perspective, a constitutional realization requirement has additional implications for 
the tax system’s complexity. This complexity flows from how Congress, Treasury, 
and taxpayers each respond to a constitutional realization requirement. The central 
insight is that all of these responses are likely to increase the tax system’s 
complexity over time. 

 The model for these interactions is well-established.329 In a rule-bound 
system designed to police common transactions (such as existing tax law), private 
planners have an incentive to seek esoteric structures for their clients that confer 
tax benefits. These structures are definitionally uncommon in the absence of tax 
benefits. But as taxpayers adopt these structures, they become increasingly 
common.330 One solution is more rules that draw finer distinctions to appropriately 
tax these newly common transactions. These rules are (definitionally) more 
complex, since they increase law’s granularity.331 This phenomenon has a 
ratcheting effect in which rule-based complexity increases over time in response to 
iterative tax planning. 

 The conventional solution to this phenomenon is overarching legal 
standards—government-asserted antiabuse doctrines. These doctrines constrain 
rules-oriented planning by muddying the line between permissible and 
impermissible transactions. As long as these antiabuse doctrines are well-targeted, 
uncommon tax-advantageous transactions are deterred, do not become common, 

 
327 See I.R.C. § 312.  
328 See supra Part IV.A. 
329 See Weisbach, supra note 2; see also Surrey, supra note 36, at 707 n.31 (“It is clear that [antiabuse 
doctrines] save the tax system from the far greater proliferation of detail that would be necessary if 
the tax avoider could succeed merely by bringing his scheme within the literal language of 
substantive provisions written to govern the everyday world.”). 
330 This phenomenon is referred to as “the uncommon becoming common.” See Weisbach, supra 
note 2, at 871. 
331 For an overview of the literature on tax complexity, see Kathleen DeLaney Thomas, User-
Friendly Taxpaying, 92 IND. L.J. 1509, 1514-15 (2017) (identifying rule-based, computational, 
structural (or transactional), and compliance complexity). Tax complexity has both procedural and 
substantive elements. See id. at 1516-17. 



2024] REALIZATION RULE AS A LEGAL STANDARD 47 
 
and do not require rule-bound solutions. Tax law can remain less complex.332 

 A constitutional realization requirement flips this strategy on its head. As a 
taxpayer-initiated antiabuse doctrine, a constitutional realization requirement 
allows taxpayers, and generally not the government, to challenge the existing Code 
and Regulations, which rely deeply on concepts of realization and nonrealization. 
These bottom-up challenges may spur responses from the government and 
taxpayers, and these responses have implications—generally negative—for the tax 
system’s complexity. This Part sketches these responses. 

 One additional question is whether a constitutional realization requirement 
might become more rule-like over time, as enforcement produces better delineation 
of the requirement’s relevant facts and doctrinal elements.333 Because the bulk of 
interpretation of any constitutional realization requirement will occur privately, 
enforcement probably will have limited effect in reducing a standard-driven 
analysis to a clear system of rules.334 Indeed, an underdeveloped realization 
requirement may foment widely divergent private positions that never surface in a 
way that settles norms or practice with respect to the issue. For this reason, a 
constitutional realization requirement seems likely to retain its function as a 
taxpayer-initiated antiabuse doctrine for a substantial period of time. 

 
A.  Government Responses: Promulgation 
 
 Tax law has been described as a “paradigmatic system of rules.”335 These 

rules are written ex ante by government actors, principally Congress and Treasury, 
in the context of government-asserted antiabuse doctrines that backstop these rules. 
To the extent that taxpayers can initiate their own antiabuse doctrine by asserting a 
constitutional realization requirement, Congress and Treasury should adjust their 
rulemaking practices to reflect the risk that their rules violate the Constitution. 
Additionally, because a constitutional realization requirement operates as a (largely 
underdeveloped) legal standard, Congress and Treasury lack certainty as to whether 
their rules will survive taxpayers’ challenges. 

 One possibility is that Congress and Treasury will issue fewer rules, leaving 
tax law’s content underspecified relative to Congress and Treasury’s preferences.336 
Some of this space could be filled with “symmetrical” standards that operate in a 
more neutral fashion relative to antiabuse doctrines.337 Examples of symmetrical 
standards include the distinctions between debt and equity and between employees 
and independent contractors. Both of these examples impose notorious compliance 

 
332 The essential insight is that the choice between rules and standards has implications for 
complexity in an iterative format where planning exists. See also Elkins, supra note 2, at 54-55 
(discussing the implications of planning and audit in the context of antiabuse doctrines). 
333 See supra note 11 (discussing the evolution of standards into rules). 
334 This framing highlights the jurisprudential ambiguity in the analysis of rules and standards. See 
Schlag, supra note 2, at 424-25.  
335 Weisbach, supra note 2, at 860. 
336 Taxpayers may diverge on how much content they want Congress and Treasury to specify. For 
this reason, underspecification has distributional effects that are regressive if better-off taxpayers 
prefer underspecification compared to worse-off taxpayers.  
337 See Alex Raskolnikov, Relational Tax Planning Under Risk-Based Rules, 156 U. PA. L. REV. 
1181, 1193-94 (2008).  



48 COLUMBIA JOURNAL OF TAX LAW [Vol. 16:1 
 
costs on taxpayers and adjudicators. Even to the extent that Congress and Treasury 
could promulgate the same legal content in a shift towards symmetrical standards, 
more high-frequency transactions would be governed by standards, which increase 
compliance costs relative to rules.338 

 Alternatively, Congress and Treasury could modify the structure of their 
proposed rules in ways more likely to comport with a constitutional realization 
requirement. For example, assume that Congress prefers Rule A, but Rule A 
arguably is infirm in a constitutional sense. Congress could reduce the odds of 
invalidation (or nonacceptance by taxpayers) through three mechanisms: Congress 
could enact Rules B and C, which together have the same effect as Rule A, wrap 
Rule A inside another policy that mitigates Rule A’s infirmity, or move Rule A 
outside of the tax system.339 

 These workarounds impose costs when lawmakers cannot perfectly 
replicate the effect of Rule A. When attempting to replicate Rule A, there may be 
unavoidable policy changes. Similarly, workarounds risk legislative errors to the 
extent that they are more difficult to execute than Rule A alone. Moreover, 
workarounds may shift compliance costs to taxpayers and adjudicators, even if the 
underlying policy remains the same. For these reasons, workarounds motivated by 
a constitutional realization requirement are likely to be less effective and efficient 
than Congress and Treasury’s preferred rules. Although Congress often deals with 
these types of workaround issues, a constitutional realization requirement would 
increase this type of legislative manipulation.340 

 Finally, Congress may adopt holistic strategies to address constitutional 
concerns about realization. For example, Congress may institute a greater number 
of elective regimes that explicitly do not rely on realization.341 Setting aside 
concerns about compelled elections and the adequacy of any waivers of 
constitutional prerogatives, elective regimes increase transactional and procedural 
complexity. Unsophisticated taxpayers are at a disadvantage in such regimes, with 
adverse equity and distributional consequences. Sophisticated taxpayers tend to use 
elective regimes to their advantage, which can have unintended effects on other 
aspects of the tax system.342 

 
B.  Taxpayer Responses: Compliance 
 
 In general, a constitutional realization requirement is likely to encourage 

 
338 Kaplow, supra note 2, at 577. Implicitly, Congress and Treasury also could rely more heavily on 
antiabuse doctrines, which is discussed below. 
339 For the reverse phenomenon, see NFIB v. Sebelius, 567 U.S. 519, 570 (2012) (holding the 
individual mandate for healthcare constitutional because it was a tax). 
340 This effect could be described as uncommon legislative strategies becoming common, with 
concomitant implications for complexity. 
341 For a discussion of elections under a constitutional realization requirement, see supra text 
accompanying notes 302-08. Another holistic strategy could be to increase substitute taxation of 
counterparties to nonrealization transactions or to disallow losses to curb abuse (which might be 
permissible, if a constitutional realization requirement is asymmetrical with respect to gain and loss). 
342 See, e.g., Steven A. Dean, Attractive Complexity: Tax Deregulation, the Check-the-Box Election, 
and the Future of Tax Simplification, 34 HOFSTRA L. REV. 405, 453-55 (2005); Heather M. Field, 
Checking in on “Check-the-Box”, 42 LOY. L.A. L. REV. 451, 481 (2009). 



2024] REALIZATION RULE AS A LEGAL STANDARD 49 
 
planned transactions. To the extent that these transactions become common, the 
government must enact rules to regulate these transactions or rely on government-
asserted antiabuse doctrines to deter these transactions. If the government generates 
more rules, complexity increases, as do the costs of compliance for taxpayers that 
do not plan but still must learn about the law. If the government presses other 
antiabuse doctrines in enforcement, the costs of enforcement rise.343 This dynamic 
relies on the fact that a constitutional realization requirement operates as a taxpayer-
initiated antiabuse doctrine. 

 Taxpayers, in a sense, act as portfolio managers with respect to their tax 
compliance risk. For tax-planned transactions, a constitutional realization 
requirement gives taxpayers another tool to succeed against the government during 
enforcement proceedings. In addition, taxpayer antiabuse doctrines tend to smooth 
discontinuities in rules from taxpayers’ perspectives only, which allows for 
favorable outcomes, even if taxpayers misjudge any arbitrage points in tax-planned 
transactions. For these reasons, a constitutional realization requirement reduces 
taxpayers’ risk with respect to highly tax-planned transactions, and taxpayers will 
have an incentive to engage in more of these types of transactions. 

 Somewhat counterintuitively, a constitutional realization requirement also 
increases taxpayers’ risk with respect to transactions that do not reflect tax 
planning. Although Treasury may not challenge these everyday transactions on 
audit, other taxpayers, through their use of a constitutional realization requirement, 
may cast doubt on the tax system’s underlying infrastructural rules through the 
“hollowing out” process described in this Article. This manufactured doubt may 
reduce taxpayers’ confidence in how everyday transactions are treated, or how the 
underlying mechanics of the Code and Regulations operate. In this way, a 
constitutional realization requirement rebalances risk across taxpayers’ 
transactions: tax-planned transactions become relatively more attractive, while 
non-planned transactions become relatively less so.344 

  Overall, the use of constitutional realization as a taxpayer-initiated 
antiabuse doctrine leads to uncommon tax-planned transactions becoming more 
common. If Congress and Treasury respond with more rules, the tax system 
becomes more complex—the reverse effect that follows from government-initiated 
antiabuse doctrines. This process may repeat, with a ratcheting effect. One caveat 
is that unsophisticated taxpayers may benefit from a constitutional realization 
requirement, at least to the extent that realization comports with their (uninformed) 
expectations about the content of law. As an antiabuse doctrine, a constitutional 
realization requirement would tend to smooth discontinuities in rules, which could 
in turn alleviate transactional complexity by aligning outcomes with the 
expectations of unsophisticated (or uninformed) taxpayers.345 This benefit, 
however, seems unlikely to outweigh (and perhaps should not normatively 
outweigh) any increased costs due to tax planning and this planning’s ratcheting 
effect on systemic complexity. 

 
 

343 See infra Part V.C. (discussing the government’s enforcement responses). 
344 This shift has distributional effects. 
345 See Emily Cauble, Unsophisticated Taxpayers, Rules Versus Standards, and Form Versus 
Subtance, 52 LOY. U. CHI. L.J. 329, 337 (2021). 



50 COLUMBIA JOURNAL OF TAX LAW [Vol. 16:1 
 

C.  Government Responses: Enforcement 
 
 A constitutional realization requirement could encourage the government to 

increase and broaden its application of government-initiated antiabuse doctrines 
during the enforcement process. For example, if the constructive sale rules of 
section 1259 are constitutionally deficient because they abrogate a realization 
requirement, Treasury or courts may deploy the economic substance doctrine to 
argue that the taxpayer still has income, notwithstanding nonrealization. Similarly, 
if courts abrogate the gift loan rules in section 7872, the government may press for 
a substitute through other judicial doctrines, which themselves are subject to 
significant uncertainty in application. In both cases, the government deploys a 
completing antiabuse rule to combat realization as a taxpayer-initiated antiabuse 
rule. 

 In effect, a constitutional realization requirement encourages Congress and 
Treasury to substitute government-asserted antiabuse doctrines for rule-bound 
regimes in the Code and Regulations. This substitution has normative stakes, in that 
overreliance on antiabuse doctrines may impair the tax system’s overall quality. 
The Code and Regulations stipulate rules for a reason. In addition, this substitution 
may lead to greater uncertainty about the quantitative and qualitative outcomes 
possible through adjudication. While not a direct driver of complexity, uncertainty 
imposes costs on the enforcement process. Dueling antiabuse doctrines may have 
adverse effects on the content of law—and those effects may closely mimic 
complexity. 

 
VI. CONCLUSION 

 
 After eight decades of relative quiescence, a revitalized constitutional 

realization requirement would present serious threats to the current income tax 
system. To the extent that a constitutional realization requirement operates as a 
taxpayer-initiated antiabuse rule, such a requirement risks a hollowing out of 
everyday aspects of the current tax system. What fills these gaps likely will lead to 
increased complexity—a negative outcome on a grander scale than envisioned by 
commentators and the Court in Moore. 

 These mechanisms have further implications for inequity and distribution. 
Realization is notoriously associated with inequitable treatment of taxpayers in both 
a horizontal and vertical sense—the reason for many of the Code’s deviations from 
the realization norm. A constitutional realization requirement would allow well-
advised and well-resourced taxpayers to press further against Congress’s efforts to 
combat realization-oriented abuse. Furthermore, the types of challenges these 
taxpayers bring may hollow out the tax law and lead to increased complexity. These 
emergent infirmities in the Code and Regulations will themselves have adverse 
distributional effects—likely disadvantaging less-savvy taxpayers. Neither of these 
outcomes is desirable.