Renunciation of U.S. citizenship is no trivial act. For most, it requires leaving the country, appearing before a consular or diplomatic officer, signing an oath of renunciation, paying a $2,350 fee, and being named in the Federal Register. Yet expatriates, ranging from singer Tina Turner to Facebook cofounder Eduardo Saverin, have risen dramatically in number since 2010. Some, like tennis player Naomi Osaka, renounce so they can represent another country in the Olympics. Others, like former Israeli politician Dov Lipman, do so to hold office in a foreign government. But for the purported majority of expatriates, ex-U.S. citizen and former U.K. Prime Minister Boris Johnson expressed their motive well: When asked about paying a tax bill from the IRS, he responded, “[I]t’s absolutely outrageous. Why should I?”
Policymakers have long expressed ire over reports of Americans renouncing citizenship to avoid taxes. Beyond concerns about forgone revenue, these stories often spark indignation since such expatriates presumably valued their citizenship so cheaply to have sacrificed it for pecuniary gain. Congress has consequently sought to deter tax avoidance by abandonment of citizenship, and the same body of law establishing federal taxes — the Internal Revenue Code (I.R.C.) — provides a few tools to this end. For instance, I.R.C. § 877 imposes levies on U.S.-source income of certain high-income or wealthy renunciants for up to ten years after expatriation. Enacted in 1966 as the nation’s first “expatriation tax,” the provision went unenforced for decades before returning to the spotlight when President Clinton read an article about six affluent Americans who had expatriated for tax purposes. Congress accordingly added disclosure obligations and a public-naming system for expatriates in the Code; amended I.R.C. § 877 to presume a tax-avoidance purpose for those above a certain threshold of wealth; and enacted the Reed Amendment, which barred former U.S. citizens from reentering the country if they had renounced citizenship to avoid taxation. However, these renewed efforts still proved largely unfruitful in the battle against tax-motivated renouncements.
Cue I.R.C. § 877A. Enacted under the Heroes Earning Assistance and Relief Tax Act of 2008, this provision establishes a different kind of expatriation tax: treating certain renunciants (generally those passing the same threshold from I.R.C. § 877) as if they had liquidated all of their assets at fair market value on the day before relinquishing citizenship. Whereas the Code usually imposes income taxes only upon some realization event, such as a disposition of property, I.R.C. § 877A embraces an uncommon mark-to-market regime in which assets are deemed sold — triggering taxable gain or loss — despite remaining in the taxpayer’s real-world possession. Among other rationales, the statute is intended to tax appreciation that accrued during U.S. citizenship or residency but might have otherwise gone untaxed.
This linchpin mark-to-market scheme comes at a cost: dubious constitutionality. Shortly after the ratification of the Sixteenth Amendment, which enables federal “taxes on incomes[] from whatever source derived,” the Supreme Court interpreted this phrase to allow only levies involving a realization of changed wealth. While subsequent case law has cast doubt on the validity of such a constitutional realization requirement, the Court has also never expressly overruled this decision. Accordingly, as the Justices gear up to confront the Sixteenth Amendment’s meaning in Moore v. United States, many wonder if statutes relying on broader conceptions of income, such as I.R.C. § 877A, could soon be on the constitutional chopping block.
Such speculation has merit. Even if Moore does not fully revive the realization principle, evidence from the Sixteenth Amendment’s passage and ratification — records persuasive to the increasingly originalist bench — supports circumscribing the constitutional definition of income. Moreover, while Congress generally enjoys broad authority over duties, imposts, and excises, the Court could cite documents from the Founding era to narrowly construe such terms. Under these readings, many taxes relying on expansive notions of income must derive constitutionality from a politically impossible requirement: being apportioned among states according to their respective populations. But despite failing the text of this apportionment requirement, I.R.C. § 877A may still pass muster given ample evidence indicating that the Founders had never intended to bar an expatriate-only levy.
This Note investigates the constitutional prospects for I.R.C. § 877A. Part I chronicles the development of taxing powers and restraints in the Constitution, tracing their origins from the Articles of Confederation through landmark cases and up to Moore’s potential revival of a Sixteenth Amendment–based realization requirement. Part II analyzes the interaction between I.R.C. § 877A and this doctrine, scrutinizing three plausible routes to constitutionality as an income, indirect, or apportioned tax. This Note concludes that even in the worst-case scenario wherein the judiciary reads “incomes” narrowly but “direct taxes” broadly, I.R.C. § 877A should survive challenge through an interpretation of the apportionment rule that incorporates historical context. While leaving little room to support more controversial provisions and proposals, this escape hatch preserves the validity of I.R.C. § 877A via its exclusive application to expatriates — a class raising none of the Founders’ concerns that originally fueled limits on federal taxing power.
I. The Constitutional History of Taxation
Scholars have long debated the most proper theory of constitutional interpretation, and this brief Note cannot meaningfully evaluate the merits of any position amid such extensive discourse. However, given originalism’s proliferation across the federal judiciary, challenges to I.R.C. § 877A will likely address its interaction with the Constitution as originally understood. Indeed, originalist commentators have endorsed some of the narrowest constructions of congressional taxing authority, and the petitioners in Moore heavily cited evidence from the Sixteenth Amendment’s drafting and ratification to support their circumscription of federal income taxes. Especially considering the ambiguity of constitutional taxing powers based on their text alone, proper scrutiny of I.R.C. § 877A requires surveying the Constitution’s context. To that end, this Part summarizes salient discourse and case law on the constitutionality of federal taxation, focusing largely on the Constitutional Convention and the Sixteenth Amendment’s enactment and ratification. Such historical inquiry not only offers the best opportunity to glean how a lot of judges will assess this provision, but also elucidates the jurisprudential landscape most adverse to I.R.C. § 877A’s constitutionality.
A. The Taxing Clause and Uniformity
Although there has been rekindled interest in the topic of late, the United States’s struggle for taxing power predates the Constitution. Among its now-notorious constraints on central government, the Articles of Confederation denied the Confederation Congress meaningful authority to raise taxes; rather, it could merely issue requisitions for revenue “in proportion to the value of all land within each state.” These requests nominally imposed binding obligations, but in practice, the states treated themselves as independent sovereigns that could disregard such fundraising. Accordingly, the Founders sought to rectify this issue during the Constitutional Convention by empowering Congress to levy taxes itself. They eventually reached a general grant of taxing authority in the first enumerated power of Article I, the Taxing Clause: “The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises . . . .” Recognizing the potential abuse of this expansive language, however, the Founders added several caveats.
Indeed, one such limit resides in the same sentence. Requiring that “all Duties, Imposts and Excises shall be uniform throughout the United States,” the Uniformity Clause establishes a relatively clear-cut restriction on these three indirect taxes: Congress may impose such levies so long as they “operate[] with the same force and effect in every place where the subject of [them] is found.” Whereas duties, imposts, and excises defined in nongeographical terms generally satisfy the condition, those containing geographic language trigger “close[]” examination “to see if there is actual geographic discrimination.” Although this clause leaves possibilities for unbalanced aggregate revenue collection between states, it theoretically “cut[s] off all undue preferences of one State over another in the regulation of subjects affecting their common interests.”
B. The Direct Tax Clauses and Apportionment
But the Founders did not stop there. Elsewhere in the Constitution, they (1) required that revenue-raising bills originate in the House of Representatives, (2) mandated all federal expenditures pay debts or provide for the country’s common welfare, and (3) barred duties on state exports. While these three clauses supply relatively bright-line rules, the Founders further incorporated one mechanism from the requisition system — apportionment — that continues to spark debate:
Representatives and direct Taxes shall be apportioned among the several States which may be included within this Union, according to their respective Numbers, which shall be determined by adding to the whole Number of free Persons, including those bound to Service for a Term of Years, and excluding Indians not taxed, three fifths of all other Persons.
This excerpt’s taxation language bore later repeating: “No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or Enumeration herein before directed to be taken.” Whereas the Articles of Confederation tied taxation to land values, the Constitution adopted a change from the Confederation Congress’s final requisition by apportioning direct taxes based on population, a more administrable metric. And beyond incorporating this prior formula, the Founders added two novel distinctions: (1) cabining apportionment to “direct” taxes, and (2) linking direct taxation to the House of Representatives.
In theory, this apportionment scheme promotes impartial governance by preventing a congressional majority from disproportionately reducing favored states’ revenue obligations at the minority’s expense. Yet while population-based apportionment seemed sensible under the then-prevailing belief of equal per capita wealth across states, its fatal flaw rears its head when this condition no longer holds — as in the present-day United States. Even ignoring the administrative challenges of anything more complex than a capitation, this regime requires states with low per capita wealth to tax their residents at greater rates than those with high per capita wealth. Given the unpopularity of such a perverse system, Congress rarely issued apportioned direct taxes and has abandoned them since the Civil War. Some have claimed such impracticality is a feature, not a bug: the Founders repeatedly expressed concern over possible abuse of Congress’s newfound taxing authority, so perhaps they intended apportionment to render direct taxes so nonviable that the federal government would never use them. And although others have argued this theory exaggerates the extent to which people at the time thought apportionment would cripple direct taxation, the Founders still recognized these levies posed a danger to neutral governance and accordingly sought to at least partially limit their imposition.
C. The Direct/Indirect Dichotomy and Ambiguity
In sum, the Constitution contains a bifurcated regime of taxation. While indirect taxes largely just need to satisfy the undemanding Uniformity Clause, direct taxes trigger the onerous (if not insurmountable) mandate of apportionment. This two-tiered treatment naturally raises a question captured in James Madison’s notes on the Convention: “[Rufus] King asked what was the precise meaning of direct taxation?” Unfortunately for him and legal scholars, “[n]o one answd [sic].”
Indeed, this term’s contours remain fuzzy given the meager guidance in the Constitution. But in general, direct taxes describe levies upon people, including their property, whereas indirect taxes apply to transactions. And Founding-era evidence provides an intuitive rationale behind this distinction: since indirect taxes can often be passed onto customers by increasing the prices of affected products, market forces theoretically provide sufficient protection against excessive indirect taxation, warranting lighter constitutional restraint. In contrast, direct taxes cannot be shifted since they, by definition, are linked to the people and property upon which they operate, justifying the stricter condition of apportionment to replace market-based checks.
But this intuitive split suffers from a flawed execution. As early as 1796, the Court wrestled with the dichotomy when analyzing the constitutionality of a tax on carriages in Hylton v. United States. Exemplifying the direct/indirect divide’s tenuousness, the Court upheld this seeming direct tax on personal property by recharacterizing it as an excise on using carriages. However, the Justices unanimously reached this outcome in their seriatim opinions by forgoing conceptions of direct taxation and instead criticizing apportionment on its merits. Detached from constitutional text, Justice Iredell claimed direct taxes referred to levies that “could be apportioned,” Justice Chase lobbied for requiring proportional taxes only when “reasonabl[e],” and Justice Paterson labeled the apportionment rule “radically wrong.” Questionable reasoning aside, Hylton established a narrow definition of direct taxes by ascribing the label exclusively to head taxes and levies on real property — a trend maintained throughout much of the nineteenth century.
Just before Hylton’s centennial, however, direct-tax jurisprudence was overhauled. In Pollock v. Farmers’ Loan & Trust Co., the Court struck down a two-percent tax on income exceeding $4,000. Writing his first majority opinion in the case, Chief Justice Fuller equated taxes on real property with taxes on income from real property, a comparison summarized by quoting Lord Coke: “[W]hat is the land but the profits thereof?” Initially split 4–4 on the constitutionality of taxing income from personal property, a full Court revisited this matter after another hearing. And Chief Justice Fuller delivered the same result in his second majority opinion: “[W]e are unable to conclude that the enforced subtraction from the yield of all the owner’s real or personal property . . . is so different from a tax upon the property itself, that it is not a direct . . . tax[] in the meaning of the Constitution.” Controversial then due to its protection of high-income taxpayers, Pollock remains at least partially valid for restoring teeth to the meaning of direct taxation. Unlike Hylton’s narrow reading of direct taxes that reflected broader skepticism of apportionment, Chief Justice Fuller’s interpretation revived evidence from the Founding that tied the direct/indirect dichotomy to market dynamics:
Ordinarily all taxes paid primarily by persons who can shift the burden upon some one else, or who are under no legal compulsion to pay them, are considered indirect taxes; but a tax upon property holders in respect of their estates, whether real or personal, or of the income yielded by such estates, and the payment of which cannot be avoided, are direct taxes.
Ample precedent has since repudiated the oversimplified comparison between property and income taxes. One opinion, for example, deemed “[t]he theory . . . that a tax on income is legally or economically a tax on its source” to be “no longer tenable.” And shortly after Pollock, the Court rejected its market-based approach to the direct/indirect dichotomy by stating “such [a] distinction rests more upon the differing theories of political economists than upon the practical nature of the tax itself.” However, Chief Justice Fuller’s emphasis on returning to a Founding-era conception of taxation would likely resonate with a large portion of the present-day judiciary. And although some historical evidence contradicts the ubiquity of conflating indirect and shiftable taxes, the documented support behind Pollock’s “shiftableness” logic nonetheless provides a valid avenue to broadly define direct taxes. Indeed, Chief Justice Roberts cited this case just over one decade ago to support classifying taxes on personal property as direct. Far from being an antiquated relic of the early Lochner era, Pollock represents a continuing opportunity for some jurists to narrowly construe indirect taxes and thereby circumscribe congressional authority.
D. The Sixteenth Amendment and “Incomes”
While the discussion of direct taxation in Pollock has retained some legal relevance, its core holding has not. With this decision receiving widespread condemnation and, in the words of then-President Taft, “injur[ing] the prestige of the Supreme Court more” than anything prior, Senator Norris Brown proposed a constitutional amendment in 1909 that would allow the federal government to enact direct taxes on income without any apportionment. After refining this draft’s language, Congress submitted one sentence to state legislatures for a potential Sixteenth Amendment: “The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.” Over the next four years, forty-two states ratified the amendment. And in 1916, a unanimous Court cited it to uphold a tax on one percent of income above $3,000, writing “the [Sixteenth] Amendment was drawn for the purpose of doing away for the future with the principle upon which the Pollock Case was decided.”
In circumventing Pollock’s notorious result, however, the Sixteenth Amendment gave rise to another controversy: What was the precise meaning of “incomes[] from whatever source derived”? Creating constitutional déjà vu, Congress and the state debates supplied ambiguity rivaling that of the Convention’s response to Rufus King. Nevertheless, dictionaries published around the time of the Sixteenth Amendment’s proposal and ratification generally defined income as an accession in wealth, and some went further in demanding separation between such accession and its underlying income-producing property. For example, Henry Campbell Black (author of Black’s Law Dictionary) wrote during the ratification that “the farmer’s crop is not his income; it is the source from which his income will be derived when it is converted into cash.” And the Court endorsed this view shortly thereafter; in Eisner v. Macomber, Justice Pitney and a narrow majority struck down Congress’s attempt to tax stock dividends without apportionment by promulgating the realization requirement:
We are clear that not only does a stock dividend really take nothing from the property of the corporation and add nothing to that of the shareholder, but that the antecedent accumulation of profits evidenced thereby, while indicating that the shareholder is the richer because of an increase of his capital, at the same time shows he has not realized or received any income in the transaction.
Over one century later, few have written positively of this opinion. Although the practical result in Macomber may make economic sense, many believe the majority adopted an overly restrictive interpretation of the Sixteenth Amendment and failed to properly develop its realization concept. Alongside such academic criticism, the Court has increasingly questioned Macomber’s validity with statements such as “[w]e see nothing to be gained by the discussion of judicial definitions,” “[t]he [realization] rule[] [was] founded on administrative convenience,” “the original theoretical bases of [Macomber]” have been “undermined,” and “[Macomber] was not meant to provide a touchstone to all future gross income questions.” Yet, across this dicta, the Court has also never formally overruled Macomber — even when invited to do so.
But the Court will have another chance to revisit Macomber’s controversial holding this Term in Moore. In 2005, Charles and Kathleen Moore invested $40,000 for eleven percent of the common stock in an Indian company that the Code deemed a “controlled foreign corporation” (CFC) due to its majority U.S. ownership. Although this business consistently generated profits, all of which it reinvested in itself rather than distributing to shareholders, the Moores incurred zero U.S. tax between 2006 and 2017; rather, they received favorable treatment because Congress had exacted levies on only specific passive categories of undistributed foreign receipts — not active business income. However, in the colloquially named Tax Cuts and Jobs Act of 2017, the federal government overhauled its taxation of earnings abroad. Within this reform, Congress enacted a Mandatory Repatriation Tax (MRT) that established a retroactive, one-time transition tax on CFC profits made between 1987 and 2017 for certain U.S. investors. After paying $14,729 in taxes as part of this group, the Moores alleged, inter alia, that the MRT unconstitutionally imposed a direct, unapportioned tax outside the Sixteenth Amendment.
The Western District of Washington and Ninth Circuit disagreed. Dismissing the taxpayers’ claims, both courts found the MRT valid under the Sixteenth Amendment by outlining Macomber’s erosion in the judiciary. Additionally, over a spirited four-person dissent lobbying for the preservation of a constitutional realization requirement, the Ninth Circuit declined to rehear the case en banc. While Moore seemingly just formed another nail in Macomber’s coffin, the Supreme Court’s grant of certiorari and impending decision have caused commentators to speculate about the Justices’ possible return to narrowly defining “incomes.” Indeed, Justice Pitney wrote Macomber just seven years after the Sixteenth Amendment’s ratification and reached his decision by consulting several dictionaries from that era — two points persuasive to the increasingly originalist Court. And since much of the present-day Code relies on the Sixteenth Amendment for constitutionality, many anticipate the Court’s decision will have widespread implications for other tax statutes and proposals implicitly relying on expansive conceptions of “incomes,” including a wealth tax, global intangible low-taxed income (GILTI), and I.R.C. § 877A.
II. A Constitutional Defense of I.R.C. § 877A
As exemplified by the above (already abridged) discussion spanning numerous pages, the Constitution provides a disputed and complex approach to taxation. Yet for the run-of-the-mill tax statute, constitutional interpretation boils down to three inquiries: First, is it an income tax? The Sixteenth Amendment offers a safe harbor if so. If not, is it an indirect tax? The Uniformity Clause forms a simple blockade if so. And if not (for a second time), is it apportioned among the states? The Direct Tax Clauses supply a final, uncommon escape if so.
Along any of these paths, I.R.C. § 877A can survive challenge. Amid the coverage on Moore, however, recent analysis of this tax has centered on its answer to just the first question. Yet the analysis does not end there; in addition to the compelling arguments for categorizing I.R.C. § 877A as an income or indirect tax, this statute satisfies the apportionment rule because of its exclusive application to nonresidents — conferring an unexpected constitutional backstop via the Direct Tax Clauses. Accordingly, while Moore might raise skepticism over the longevity of other sections in the Code, I.R.C. § 877A should remain constitutionally sound regardless of changes in Sixteenth Amendment jurisprudence.
A. Is I.R.C. § 877A an Income Tax?
For its first path to constitutionality, I.R.C. § 877A could seek refuge as a tax on “income[] from whatever source derived” under the Sixteenth Amendment. Even before formally disposing of property, taxpayers still enjoy substantive accessions in wealth from increases to the value of such property, which would constitute “income” under many conceptions of the term. And although these expansive definitions contradict Macomber’s realization requirement, the Court has since asserted that income need not require severance between gains and the property from which they came. In fact, the Ninth Circuit upheld against a Sixteenth Amendment challenge a Code provision taxing annual changes in the fair market value of futures without requiring any sale — a mark-to-market regime comparable to that of I.R.C. § 877A.
This analysis naturally awaits guidance from Moore. If the Court resuscitates a robust realization requirement, little opportunity would remain to categorize I.R.C. § 877A as an income tax. The IRS might argue that a taxpayer’s renunciation of citizenship and relocation to another jurisdiction should still form a realization event given the changed relationship between the individual, U.S. government, and underlying property. But renunciation and relocation concern people, not property; for example, if someone owned a house abroad and moved into it after renouncing citizenship, nothing intuitively has been realized on the property itself. In short, should the Court deem the MRT unconstitutional through a Macomber-esque approach, it would likely find that I.R.C. § 877A falls out of the Sixteenth Amendment as well.
This conditional’s inverse carries less certainty. If the Court dismantles its realization requirement and adopts a broad conception of “incomes,” I.R.C. § 877A might find constitutionality under the Sixteenth Amendment. But a holding for the government in Moore does not guarantee this result. While the MRT imputes a foreign corporation’s prior profits to shareholders, I.R.C. § 877A imposes a mark-to-market regime based on changes in property values. In other words, the former distinctly still involves the widely accepted realization event of earnings, albeit at the level of the foreign company rather than the taxpayer. Even if the Court dispels Macomber’s realization requirement, it will still need a replacement; after all, “incomes, from whatever source derived” must have some meaning. And this revised definition could extend the Sixteenth Amendment’s grasp to cover the MRT but no further, leaving taxes like I.R.C. § 877A in need of another theory for constitutionality.
B. Is I.R.C. § 877A an Indirect Tax?
Should the Sixteenth Amendment fall short, I.R.C. § 877A might still survive challenge by qualifying as an indirect tax that satisfies the Uniformity Clause. Mimicking its logic in Hylton, the government could frame I.R.C. § 877A as an excise on the act of renouncing U.S. citizenship rather than a direct levy on the property of expatriates. And the Court has demonstrated receptiveness to comparably expansive conceptions of indirect taxes since this Founding-era decision; for example, the constitutionality of gift and estate taxes hinges on their application to transfers of property (instead of the property itself), and the Court upheld a pre–Sixteenth Amendment corporate income tax as an excise on the “privilege of doing business in a corporate capacity.” Indeed, the government has cited the latter decision in Moore to support its alternative argument that the MRT, regardless of the realization requirement’s validity, imposes a constitutional excise tax. Assuming similar framing of I.R.C. § 877A, the statute should enjoy constitutionality under the Uniformity Clause given its lack of geographical language.
Nevertheless, this argument contravenes the direct/indirect dichotomy of Pollock. Since taxpayers who trigger I.R.C. § 877A cannot simply “shift the burden upon some one else,” Chief Justice Fuller would have categorized it as a direct tax, “the payment of which cannot be avoided.” And although many refute the validity of such market-based reasoning, its documented origins from the Convention could influence the increasingly originalist federal bench. Indeed, a broad definition of indirect taxes threatens the very balance struck by the Founders. If I.R.C. § 877A imposes an excise on the act of renunciation, Congress could plausibly recharacterize levies on, say, land (one of few taxes widely accepted to be direct) as taxing the privilege of possessing such property. Courts also need not contradict the aforementioned post-Pollock precedent in deeming I.R.C. § 877A direct; corporate income taxes now fall squarely within the Sixteenth Amendment, and gift and estate taxes involve discrete transfers between parties who can freely agree to shift the resulting tax liabilities among each other. Moreover, if the Court addresses this topic in Moore and endorses the government’s claim that the MRT taxes “actual doing of business,” such a fact-specific holding would leave at most nebulous implications regarding the broader distinction between direct and indirect taxes.
One more caveat about indirect taxes: despite the constitutional benefits of labeling I.R.C. § 877A an excise on expatriation, this strategy risks suggesting the statute violates principles of international law. In particular, both the International Covenant on Civil and Political Rights (ICCPR) and the Universal Declaration of Human Rights (UDHR) implicitly recognize a right to renounce citizenship. I.R.C. § 877A does not outright prohibit expatriation, but taxpayers could claim it substantively impedes their ability to renounce citizenship by bundling the act with a potentially substantial tax liability. Accordingly, this burden might violate the agreements if deemed arbitrary or unreasonable, which requires a facts-and-circumstances analysis weighing individual rights against the interest of the nation in enforcing its laws. And should Congress frame I.R.C. § 877A as an excise on the act of expatriation instead of, say, “settling up” tax liabilities accrued during the taxpayer’s U.S. citizenship, its prospects in this balancing test weaken.
Of course, such agreements lack domestic legal effect standing alone; the Court has expressly stated that the UDHR “does not of its own force impose obligations as a matter of international law,” and the ICCPR’s expatriation provision requires separately enacted legislation to become judicially enforceable given its non-self-executing status. Moreover, the United States has demonstrated mixed obedience to international law in practice. And although the Code’s first levy on expatriates once raised concerns over violating U.S. income tax treaties, the federal government has since dodged this issue by reserving the right to tax former citizens in its international agreements. Nevertheless, the UDHR and ICCPR lend credence to invoking the Charming Betsy canon, which requires that statutes be construed to avoid violations of international law and agreements “[w]here fairly possible.” The interaction between this interpretive tool and non-self-executing treaties remains unclear, but jurists — including originalists, some of whom have cited Charming Betsy in the recent past — could credibly leverage this canon to resolve the otherwise ambiguous classification of I.R.C. § 877A. In sum, what this tax gains in constitutionality through being deemed indirect, it loses in international agreements by suggesting the United States merely aims to penalize expatriation.
C. Is I.R.C. § 877A Apportioned Among the States?
Even under narrow conceptions of “incomes” and indirect taxes, the Constitution provides a last resort for I.R.C. § 877A through the Direct Tax Clauses. Normally, the apportionment rule sounds the death knell for direct taxes falling out of the Sixteenth Amendment; historical records suggest the Founders intended indirect taxes to predominantly fund the federal government, and history itself demonstrates the political inviability of strictly apportioned levies. Indeed, the Hylton Court primarily reached its narrow definition of direct taxes to mitigate the otherwise unworkable mandate of prorating levies on carriages nationwide. And if the apportionment rule demands such formulaic allocations, I.R.C. § 877A seemingly fails with flying colors: not only does it disregard distributing taxes across states according to their populations, but it also does not apply to residents of the United States altogether.
Despite this facial violation of constitutional text, I.R.C. § 877A raises none of the original concerns justifying apportionment. In particular, the Articles of Confederation required that all requisitions follow a comparable (and later identical) apportionment scheme given fears that the newfound central government could tyrannically loot residents of minority states. And as the Founders sought to further empower Congress by terminating the requisition system, such uneasiness only grew more warranted. However, since I.R.C. § 877A inherently affects just those who have relinquished citizenship and already left the country, this threat of regional favoritism entirely dissipates. Alternatively, some claimed apportionment would protect the taxing jurisdiction of states, which allegedly generated most of their revenue from direct levies, against encroachment by the federal government. But even assuming this concern existed in the Founding era and remains colorable after the Sixteenth Amendment’s ratification, I.R.C. § 877A still poses little issue since nothing suggests states traditionally taxed expatriates. In fact, the Constitution limited extraterritorial taxation inside the country’s borders by barring states from disproportionately taxing nonresident citizens via the Privileges and Immunities Clause.
Applying apportionment to I.R.C. § 877A is like dividing by zero: the statute textually falls within the formula for proportional distribution, but the interaction between I.R.C. § 877A and the Constitution lacks substantive meaning. Further, this conceptual clash has rational roots; across the Convention and ratification process, debates over taxing powers operated under the premise that Congress would establish levies involving only some discrete connection to the United States, such as continuous citizenship. Indeed, “no taxation without representation” formed a common rallying cry during the American Revolution. And to the extent the United States has ever closely embraced this sentiment, I.R.C. § 877A satisfies it in substance despite facially applying to noncitizens. Namely, this statute extends to just those who have willingly forfeited their representation knowing (at least constructively) about the tax consequences — provisions they theoretically could have changed before expatriation. Although historical evidence does not expressly address the constitutionality of an expatriation tax, this absence is understandable. Given technological constraints at the time, those in the Founding era would have presumably viewed such a levy as practically infeasible. Yet I.R.C. § 877A does not contradict the principles undergirding apportionment; rather, its constitutionality falters under only the most mechanical reading of this constitutional mandate.
In short, while the arguments for categorizing I.R.C. § 877A as an income or indirect tax have merit, the provision enjoys an uncommon backdoor to constitutionality regardless through the Direct Tax Clauses. With any nascent or proposed tax that debatably violates the Constitution (including I.R.C. § 877A itself), academic discourse often strictly focuses on its validity under the Sixteenth Amendment or Uniformity Clause given the apportionment rule’s rigidity. If the judiciary opts for narrow definitions of income and indirect taxes, however, apportionment could experience a resurgence in striking down controversial levies. Under this constitutional landscape, for instance, recent federal proposals to tax the net worth or unrealized gains of wealthy taxpayers would likely not survive challenge because such levies apply to property and involve neither income nor apportionment. But such a fate need not extend to existing mark-to-market taxes with special attributes, such as unique coverage over expatriates; although I.R.C. § 877A seemingly forms an apt candidate for similar constitutional attack, it falls out of the apportionment framework based on writings and discussions from the Founding — evidence that should convince the same originalist mindset driving discussion to the Direct Tax Clauses in the first place.
Conclusion
I.R.C. § 877A is a strange tax. After decades of unsuccessfully deterring tax-motivated expatriation, Congress perceived the need for a stronger penalty in the Code that deemed assets sold upon expatriation. And while this relatively uncommon mark-to-market regime raises plausible constitutional questions, its equally uncommon expatriate-only coverage dispels such concerns. Accordingly, even if the Court closes two doors to I.R.C. § 877A’s constitutionality as an income or indirect tax, this statute entirely falls out of the framework required under its last resort, the Direct Tax Clauses. Under the same originalist methodology that generally fuels narrow constructions of federal taxing authority, I.R.C. § 877A would have substantively presented no issue with the apportionment requirement as understood at the Founding. Some expatriates likely view this statute with disdain comparable to former U.K. Prime Minister Boris Johnson’s choice words for American taxes, but one part of I.R.C. § 877A should survive criticism: its constitutionality.
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