The Sixteenth Amendment court cases that matter most are a short list. Pollock v. Farmers’ Loan & Trust Co. forced the amendment into existence in 1895. Brushaber and Stanton confirmed in 1916 that Congress could finally use it. Eisner v. Macomber and Commissioner v. Glenshaw Glass Co. defined what “income” means. Cottage Savings and the 2024 decision in Moore v. United States set the rules for when a gain becomes taxable. South Carolina v. Baker cleaned up the last surviving piece of Pollock. And a line of cases running through Cheek v. United States has closed off the constitutional arguments people still try to raise against paying income tax at all.
The Case That Forced the Amendment
Congress passed the Income Tax Act of 1894, a two-percent tax on individual and corporate incomes above four thousand dollars. A shareholder of a trust company sued to stop the company from paying it. In Pollock v. Farmers’ Loan & Trust Co. (1895), the Supreme Court agreed with him and struck the tax down, reasoning that taxing rents, dividends, and interest from property was the same as taxing the property itself and therefore a “direct tax.”1Justia U.S. Supreme Court Center. Pollock v. Farmers’ Loan and Trust Co. The Constitution requires direct taxes to be divided among the states according to population, and the 1894 Act applied one flat rate nationwide.
The ruling gutted federal revenue. Most of the country’s wealth sat in property-derived income the government could no longer reach without state-by-state apportionment. Congress proposed the Sixteenth Amendment in 1909; it was ratified in 1913.2National Archives. 16th Amendment to the U.S. Constitution: Federal Income Tax The amendment gave Congress the power to tax income “from whatever source derived” without apportionment.3Congress.gov. Sixteenth Amendment
While the country waited for ratification, Congress got creative. The Tariff Act of 1909 imposed an “excise” tax on corporations measured by their net income. In Flint v. Stone Tracy Co. (1911), the Court upheld it, drawing a line between taxing property because you own it and taxing the privilege of doing business in corporate form.4Justia U.S. Supreme Court Center. Flint v. Stone Tracy Co. Because no one was forced to incorporate, the tax was avoidable and not “direct” in the constitutional sense. Flint still shapes how courts analyze excise taxes today.
The Cases That Let the New Tax Start Working
Congress passed the Revenue Act of 1913, imposing a graduated income tax, and challenges arrived immediately. In Brushaber v. Union Pacific Railroad Co. (1916), a stockholder tried to stop the railroad from paying the new tax, arguing it violated due process and still required apportionment. Chief Justice Edward White rejected every argument and delivered the foundational reading of the amendment: it did not create a new taxing power. Congress had always possessed the power to tax income. What the amendment did was strip courts of the ability to reclassify an income tax as “direct” based on where the income came from, which was exactly the move Pollock had made.5Justia U.S. Supreme Court Center. Brushaber v. Union Pacific R. Co., 240 U.S. 1 (1916) After Brushaber, no income tax could be struck down on apportionment grounds.
The same year, Stanton v. Baltic Mining Co. rejected a mining company’s argument that the tax unconstitutionally cut into capital because depletion deductions were capped at five percent of gross output.6Justia U.S. Supreme Court Center. Stanton v. Baltic Mining Co. Together, the two decisions gave the IRS the certainty it needed to start broad enforcement.
How the Supreme Court Defined “Income”
The amendment authorized a tax on “incomes.” The Constitution never defined the word.
Eisner v. Macomber (1920): The Narrow View
The Court’s first definition came in a case about stock dividends. Income, it said, means gain derived from capital, from labor, or from both combined.7Justia U.S. Supreme Court Center. Eisner v. Macomber, 252 U.S. 189 (1920) A shareholder who received additional shares of the same company held the same proportionate interest as before, so nothing new had arrived. The test worked for simple cases but left gaps for anything valuable that did not fit neatly into capital or labor.
Commissioner v. Glenshaw Glass Co. (1955): The Modern Standard
Two companies received punitive damages and treble-damage antitrust awards and argued the money was not taxable because it came from neither capital nor labor. The Court rejected that reasoning and replaced Macomber’s formula with a much broader test: income is any undeniable accession to wealth, clearly realized, over which the taxpayer has complete control.8Justia U.S. Supreme Court Center. Commissioner v. Glenshaw Glass Co. That standard still governs federal tax law and matches the Internal Revenue Code’s definition of gross income as “all income from whatever source derived.”9Office of the Law Revision Counsel. 26 U.S. Code 61 – Gross Income Defined
United States v. Sullivan (1927): Illegal Income Counts
The breadth of Glenshaw Glass had a predecessor. In Sullivan, the Court held that profits from illegal liquor sales during Prohibition were taxable income. Justice Oliver Wendell Holmes pointed out that Congress had deliberately dropped the word “lawful” from the statutory definition of business income in the Revenue Act of 1921.10Justia U.S. Supreme Court Center. United States v. Sullivan If an activity produces a profit, the IRS gets its share whether or not the activity is legal. Holmes also rejected the argument that reporting illegal income would violate the Fifth Amendment, noting that a taxpayer can raise a self-incrimination objection to a specific line but cannot refuse to file at all.
When a Gain Becomes Taxable
Owning something that has grown in value is not the same as having taxable income. The tax system generally waits for a “realization event,” usually a sale or exchange. Two cases set the modern outer edges of that rule.
Cottage Savings Ass’n v. Commissioner (1991)
A savings institution swapped one pool of mortgage participation interests for a nearly identical pool held by another lender and claimed a loss. The IRS said nothing real had changed. The Supreme Court sided with the taxpayer and set the “material difference” test: a taxable gain or loss occurs whenever the exchanged properties give their owners legal rights that differ in kind or extent.11Justia U.S. Supreme Court Center. Cottage Savings Ass’n v. Commissioner Different borrowers, different properties, and different risk profiles meant different legal entitlements, so the swap counted. In practical terms, a stock portfolio can double in value without triggering any tax; the moment you sell or trade for something with different legal characteristics, the gain becomes real.
Moore v. United States (2024)
The most recent major decision tested how far Congress can push realization. Charles and Kathleen Moore owned shares in an Indian corporation that earned profits but never paid them a dividend. Under the 2017 Tax Cuts and Jobs Act, the one-time Mandatory Repatriation Tax required American shareholders of foreign corporations to pay tax on the company’s accumulated overseas earnings whether distributed or not. The Moores argued they had never realized any income.
The Court upheld the tax on narrow grounds. The majority pointed to Congress’s long history of taxing shareholders and partners on a business entity’s undistributed income, citing partnerships, S corporations, and Subpart F rules. Because the foreign corporation itself had realized the income, Congress could attribute that income to its American shareholders and tax them on it.12Justia U.S. Supreme Court Center. Moore v. United States, 602 U.S. ___ (2024) The Court sidestepped the bigger question of whether the Sixteenth Amendment requires realization before Congress can tax something, and explicitly said its holding did not disturb Macomber’s rule that mere appreciation is not income. That unanswered question leaves room for future challenges if Congress ever tries to tax unrealized gains on investments held by individuals directly.
The Last Piece of Pollock Falls
One part of Pollock outlived the Sixteenth Amendment by decades. The 1895 decision had also held that federal taxes on interest from state and municipal bonds were unconstitutional because they amounted to taxing the borrowing power of the states. That carve-out stood until South Carolina v. Baker (1988), where the Court overruled it. Bondholders, the Court said, have no constitutional right to avoid tax on their bond interest, and a nondiscriminatory federal tax on state bond income does not impermissibly burden state sovereignty.13Justia U.S. Supreme Court Center. South Carolina v. Baker With Baker, the last functional remnant of Pollock was gone.
Rejected Constitutional Challenges and What They Cost
“Wages Are Not Income”
A persistent line of tax-protester litigation argues that wages are not income because a worker trades labor of equal value for money and gains nothing. Courts have rejected the argument without exception. The Supreme Court added one wrinkle in Cheek v. United States (1991). John Cheek, an airline pilot, stopped filing returns based on that belief. At trial, the judge told the jury to disregard Cheek’s belief as objectively unreasonable. The Supreme Court reversed, holding that because tax crimes require “willfulness,” a genuine good-faith belief that wages are not income can negate that element no matter how wrong the belief is.14Justia U.S. Supreme Court Center. Cheek v. United States The jury had to consider whether Cheek truly held the belief, not whether it was reasonable. That protects defendants with sincere misunderstandings from criminal conviction, but it does nothing to erase the underlying tax debt or civil penalties. Cheek was retried, convicted, and sentenced to prison.
Ratification Challenges
Another recurring claim is that the Sixteenth Amendment was never properly ratified because of minor textual differences among state legislatures. Every court to consider it has said no. The Ninth Circuit held in United States v. Stahl (1986) that the Secretary of State’s certification is conclusive on the courts. The Fifth Circuit called the argument “totally without merit” in Knoblauch v. Commissioner (1984) and imposed sanctions. The Seventh Circuit in Miller v. United States (1989) sanctioned the taxpayer for advancing a “patently frivolous” position.15Internal Revenue Service. The Truth About Frivolous Tax Arguments – Section I (D to E)
The Financial Cost of Pressing These Arguments
Losing the case is not the end of the exposure. Federal law imposes a $5,000 penalty on anyone who files a return based on a position the IRS has identified as frivolous or who submits a frivolous request or application.16Office of the Law Revision Counsel. 26 U.S. Code 6702 – Frivolous Tax Submissions That penalty sits on top of any taxes owed, interest, and other civil penalties. Courts add their own sanctions; the Eighth Circuit levied $8,000 against one taxpayer for arguing the income tax was an unconstitutional direct tax. The IRS keeps a published list of positions it considers frivolous, and Sixteenth Amendment challenges appear prominently on it.