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.
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