No Supreme Court case in recent memory has seized the attention of tax scholars quite like Moore v. United States. The Moores sought an answer to a question that threatened many provisions of the Code, and many reforms as well: “Whether the Sixteenth Amendment authorizes Congress to tax unrealized sums without apportionment among the states.” Ultimately, however, the Court ducked that question, instead issuing a narrow ruling that has failed to attract much attention outside of tax circles.

In “Formalism, Functionalism, and Nonfunctionalism in the Constitutional Law of Tax,” Daniel Hemel considers Moore’s broader significance. He situates Moore within general debates about constitutional interpretation. 

According to Hemel, the Court’s fractured opinions reflect three competing interpretive methodologies: formalism, functionalism, and nonfunctionalism.

Summary

Much commentary on American public law focuses on the clash between “formalism” and “functionalism.” Formalists, according to my colleague Larry Alexander, seek to interpret each legal norm “without regard to the background reasons the norm is meant to serve.” Functionalists, by contrast, consider a law's purposes when determining its scope. Hemel argues that in the constitutional law of tax, a third option has emerged: “nonfunctionalism.” Nonfunctionalists believe that certain constitutional provisions serve no ongoing purpose and, therefore, should be construed to accomplish as little as possible.

Hemel shows that the opinions in Moore reflect these three interpretive methodologies, plus a fourth:

1. The majority opinion (written by Justice Kavanaugh) is largely formalist. The majority emphasizes precedent that (in its view) allows Congress to attribute corporate income to shareholders. Since the income at stake in Moore clearly was realized at the shareholder level, the majority did not need to reach the question of whether realization is constitutionally required to uphold the mandatory repatriation tax that the Moores called into question. Because the majority applied precedent without considering the underlying purposes of the Sixteenth Amendment or the Direct Tax Clauses, its opinion is largely formalist.

The majority opinion also reflects a distinct interpretive methodology: “consequentialism.” Consequentialism interprets a law according to its effect on social welfare, regardless—in contrast with functionalism—of whether those consequences correspond to the purpose of the law. In Moore, the majority emphasizes the potential “fiscal calamity” that would result from ruling for the taxpayers: a consequentialist move that doesn't engage with the purposes of the Sixteenth Amendment or the Direct Tax Clauses.

2. Justice Barrett's concurrence is pure formalism. Justice Barrett embraces the continued vitality of Macomber’s ruling that realization is constitutionally required. But she nonetheless concurs with the majority’s bottom-line conclusion because the Moores conceded that Subpart F is constitutional, and the Justice could see no meaningful difference between Subpart F and the mandatory repatriation tax. Like the majority, Justice Barrett declines to consider the purposes of the Sixteenth Amendment and the Direct Tax Clauses.

3. Perhaps surprisingly, Justice Thomas’s dissent is functionalist.  Justice Thomas identifies a clear purpose for the Direct Tax Clauses: preserving federalism by protecting states' property tax bases from congressional encroachment. This purpose, Thomas argues, requires distinguishing between income (which Congress can tax without apportionment) and wealth (which generally requires apportionment).

4. Justice Jackson's concurrence is nonfunctionalist. She argues that constraints on Congress's taxing power should come not from the Constitution but from the electoral process, suggesting that the Direct Tax Clauses serve no meaningful function in modern governance.

Hemel then goes on to assess the merits and limitations of formalism, functionalism, and non-functionalism in the constitutional law of tax. He does not come down definitively in favor of any one, but instead raises many thoughtful points that bear on the methods’ overall evaluation.

Further Connections

One of the paper’s main virtues is that it places Moore—and the constitutional law of tax—in a broader context. It raises as many questions as it answers for scholars of tax law and constitutional law alike.

The Statutory Law of Tax

Debates between formalism, functionalism, and nonfunctionalism are connected to one of the main themes in statutory tax law: the choice between “formal” legal norms and “substantive” norms. A formal norm, as Liam Murphy has said, is one whose content does not reflect or mirror its purpose; a substantive norm is one that does. While tax is one of the most formal subjects that a law student is likely to encounter, tax contains many substantive norms as well, which often exist in some tension with formal norms—for example, the doctrine of “substance over form.”

One of the key choice-points between formal norms and substantive norms is the allocation of authority for amending the law to effect a given purpose. Under formal norms, the onus often lies with Congress; under substantive ones, courts have greater scope. For example, in Cottage Savings, Justice Marshall’s majority opinion defines statutory realization in a formal way—as occurring whenever distinct legal entitlements are exchanged. This requires Congress to add provisions to the Code to “turn off” realization when taxpayers attempt to game the Code in specific ways. Justice Blackmun’s Cottage Savings dissent would have defined realization in a more substantive way—as occurring when a taxpayer’s economic position has meaningfully changed—and would have invited courts to determine when particular transactions are abusive.

Like formal legal norms, constitutional formalism and nonfunctionalism place the responsibility for amending the law on some actor that is not a court. Formalism places that responsibility on the actors in the Article V amendment process; nonfunctionalism places that responsibility on Congress. There have been rich debates about these assignments of authority. Hemel’s paper invites us to consider how they intersect with debates about the allocation of authority for developing statutory tax law as well.

Constitutional Law Outside of Tax

A second big question is whether—and if so, how—tax is exceptional within constitutional law. Hemel notes several ways in which particular interpretive methodologies might or might not be especially well-suited to the constitutional law of tax. For example, the historical sources for interpreting the Direct Tax Clauses are bare, undermining formalism’s promise of determinacy. Similarly, because tax is often technical and foreign to generalist judges, we might be especially wary of judicial constraints on tax legislation. That would support nonfunctionalism. These points—and many others that Hemel insightfully makes—invite a broader conversation about whether interpretive methods should be trans-substantive and, if not, which interpretive method is most appropriate for tax.