Fifth Amendment:

No person shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a Grand Jury, except in cases arising in the land or naval forces, or in the Militia, when in actual service in time of War or public danger; nor shall any person be subject for the same offence to be twice put in jeopardy of life or limb; nor shall be compelled in any criminal case to be a witness against himself, nor be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.

Congress has sometimes given retroactive effect to its tax laws by, for example, making them effective from the tax year’s beginning or from the date that the bill that became the tax law was introduced.1 Absent some peculiar circumstance, the Supreme Court has never determined that application of an income tax statute to the entire calendar year in which enactment took place has denied a person due process.2 The Court has reasoned that a tax is not a penalty or contractual liability but rather “a way of apportioning the cost of government among those who in some measure are privileged to enjoy its benefits and must bear its burdens.” 3 Because “no citizen enjoys immunity from that burden, its retroactive imposition does not necessarily infringe due process.” 4 The Court held valid a special income tax on profits realized from the sale of silver, retroactive for 35 days, which was approximately the period during which the silver purchase bill was before Congress.5 An income tax law, made retroactive to the beginning of the calendar year in which it was adopted, was found constitutional as applied to the gain from the sale, shortly before its enactment, of property received as a gift during the year.6 Retroactive assessment of penalties for fraud or negligence,7 or of an additional tax on the income of a corporation used to avoid a surtax on its shareholder,8 does not deprive the taxpayer of property without due process of law. Moreover, an additional excise tax imposed upon property still held for sale, after one excise tax had been paid by a previous owner, does not violate the Due Process Clause.9 The Court similarly upheld a transfer tax measured in part by the value of property held jointly by a husband and wife, including that which came to the joint tenancy as a gift from the decedent spouse.10 It also upheld the inclusion in a trust settlor’s gross income of income accruing to a revocable trust during any period when the settlor had the power to revoke or modify the trust.11

Although the Supreme Court during the 1920s struck down gift taxes imposed retroactively upon gifts that were made and completely vested before the enactment of the taxing statute,12 it later distinguished those decisions and limited their precedential value.13 In United States v. Carlton, the Court declared that “[t]he due process standard to be applied to tax statutes with retroactive effect . . . is the same as that generally applicable to retroactive economic legislation” —retroactive application of legislation must be shown to be “'justified by a rational legislative purpose.’” 14 Applying that principle, the Court upheld retroactive application of a 1987 amendment limiting application of a federal estate tax deduction originally enacted in 1986. Congress’s purpose was “neither illegitimate nor arbitrary,” the Court noted, since Congress had acted “to correct what it reasonably viewed as a mistake in the original 1986 provision that would have created a significant and unanticipated revenue loss.” Also, “Congress acted promptly and established only a modest period of retroactivity.” The fact that the taxpayer had transferred stock in reliance on the original enactment was not dispositive, since “[t]ax legislation is not a promise, and a taxpayer has no vested right in the Internal Revenue Code.” 15

Footnotes

1

United States v. Darusmont, 449 U.S. 292, 296–97 (1981).

2

Stockdale v. Ins. Companies, 87 U.S. (20 Wall.) 323, 331, 332 (1874); Brushaber v. Union Pac. R.R., 240 U.S. 1, 20 (1916); Cooper v. United States, 280 U.S. 409, 411 (1930); Milliken v. United States, 283 U.S. 15, 21 (1931); Reinecke v. Smith, 289 U.S. 172, 175 (1933); United States v. Hudson, 299 U.S. 498, 500–01 (1937); Welch v. Henry, 305 U.S. 134, 146, 148–50 (1938); Fernandez v. Wiener, 326 U.S. 340, 355 (1945); United States v. Darusmont, 449 U.S. 292, 297 (1981).

3

Welch v. Henry, 305 U.S. 134, 146–47 (1938).

4

Id.

5

United States v. Hudson, 299 U.S. 498 (1937). See also Stockdale v. Ins. Companies, 87 U.S. (20 Wall.) 323, 331, 341 (1874); Brushaber v. Union Pac. R.R., 240 U.S. 1, 20 (1916); Lynch v. Hornby, d 247 U.S. 339, 343 (1918).

6

Cooper v. United States, 280 U.S. 409 (1930); see also Reinecke v. Smith, 289 U.S. 172 (1933).

7

Helvering v. Mitchell, 303 U.S. 391 (1938).

8

Helvering v. Nat’l Grocery Co., 304 U.S. 282 (1938).

9

Patton v. Brady, 184 U.S. 608 (1902).

10

Tyler v. United States, 281 U.S. 497 (1930); United States v. Jacobs, 306 U.S. 363 (1939).

11

Reinecke v. Smith, 289 U.S. 172 (1933).

12

Untermyer v. Anderson, 276 U.S. 440 (1928); Blodgett v. Holden, 275 U.S. 142 (1927), modified, 276 U.S. 594 (1928); Nichols v. Coolidge, 274 U.S. 531 (1927). See also Heiner v. Donnan, 285 U.S. 312 (1932) (invalidating as arbitrary and capricious a conclusive presumption that gifts made within two years of death were made in contemplation of death).

13

Untermyer was distinguished in United States v. Hemme, 476 U.S. 558, 568 (1986), upholding retroactive application of unified estate and gift taxation to a taxpayer as to whom the overall impact was minimal and not oppressive. All three cases were distinguished in United States v. Carlton, 512 U.S. 26, 30 (1994), as having been “decided during an era characterized by exacting review of economic legislation under an approach that ‘has long since been discarded.’” The Court noted further that Untermyer and Blodgett had been limited to situations involving creation of a wholly new tax, and that Nichols had involved a retroactivity period of 12 years. Id.

14

512 U.S. 26, 30, 31 (1994) (quoting Usery v. Turner Elkhorn Mining Co., 428 U.S. 1, 16–17 (1976)). These principles apply to estate and gift taxes as well as to income taxes, the Court added. 512 U.S. at 34.

15

512 U.S. at 33.