All Your Basis Are Belong to You

Taxing unrealized gain is one of tax policy’s perennial questions, and it nearly always arrives as the same wolf in sheep’s clothing, a tax on the very wealthy. This November, California voters will confront Proposition 40, the 2026 Billionaire Tax Act, a ballot initiative that would impose a one-time 5 percent tax on net worth exceeding $1 billion. Such a tax necessarily reaches appreciation no one has realized.¹ Senator Wyden’s Billionaires Income Tax would mark the publicly traded assets of the wealthiest taxpayers for annual market valuation.² And the Biden administration’s final budget proposed a 25 percent minimum tax on income, including unrealized capital gains, of taxpayers with more than $100 million in wealth, a proposal Vice President Harris carried into the 2024 campaign, and a House companion bill that had dozens of cosponsors.³ Each proposal is mandatory and aimed at a narrow class of high-net-worth taxpayers. The pattern has hardened into an assumption: taxing unrealized gain is something the government does to the rich.

That framing dictates how every round of the debate begins—with compulsion. May Congress force taxpayers to recognize appreciation before they sell? Does the Sixteenth Amendment require realization? Would a mark-to-market tax create intolerable valuation and liquidity problems?

The Supreme Court’s decision in Moore v. United States did not resolve those questions.⁴ The Court upheld the mandatory repatriation tax because the relevant income had been realized by a foreign corporation and could constitutionally be attributed to its shareholders,⁵ and it expressly declined to decide whether Congress may tax appreciation that no person or entity has realized.⁶ Four Justices indicated that realization is constitutionally required. Justice Barrett, joined by Justice Alito, wrote to that effect while concurring in the judgment, and Justice Thomas, joined by Justice Gorsuch, dissented on the same ground.⁷ Every mandatory proposal to tax unrealized appreciation, from a billionaire minimum tax to recognition of gain at death, now sails into that headwind.

But the debate after Moore overlooks a simpler question. Why should taxpayers who want to recognize unrealized gain be prohibited from doing so?

They are, mostly. A taxpayer cannot ordinarily declare that appreciated property has been sold, pay tax on the gain, and claim a corresponding basis increase while continuing to own the same property. The law determines when realization occurs; taxpayers cannot simply elect realization whenever doing so would be useful.⁸

Congress should change that result in a controlled manner. It should permit taxpayers to elect a deemed sale of designated appreciated property. The electing taxpayer would recognize the appreciation currently and take a fair-market-value basis, ordinarily producing a corresponding current tax liability. The government would recognize the income sooner, and ordinarily collect the tax sooner. The taxpayer would receive basis in return. No one would be forced to participate.

That is not a wealth tax. It is not a mandatory billionaire minimum tax. It is not an attempt to abolish realization. It is an elective acceleration of income that the government might otherwise wait years, or forever, to tax.

Taxpayers Should Be Allowed to Buy Basis

Basis ordinarily reflects the amount a taxpayer has invested in property.⁹ When property appreciates without a taxable transaction, its basis remains unchanged, and the gain is deferred until sale or exchange. Deferral is often valuable. But it is not always the taxpayer’s preferred result.

Why would anyone volunteer to pay tax early? For the same reasons taxpayers convert traditional IRAs to Roth accounts, which is to say, in droves.¹⁰ The parallel lies in the voluntary acceleration of tax rather than in the economics of the exchange; a conversion buys tax-free growth, while the election proposed here buys basis. The closest structural analog in the Code is the section 83(b) election, under which a taxpayer elects current inclusion of restricted property and, in exchange, receives the same two core attributes this proposal offers, basis and a running holding period. The settings differ, since section 83(b) concerns compensatory transfers before vesting, but the structure of the bargain is the same.¹¹ A business owner may expect the value of an interest to increase substantially and prefer to pay tax on today’s gain rather than tomorrow’s. An investor may be in an unusually low bracket. A taxpayer may want certainty before rates change. An estate planning client may own property likely to be sold during life rather than held until death. A family may want to establish clean basis records before an interest passes to the next generation.

The concept is not foreign to the Internal Revenue Code. Securities dealers mark their positions to market under section 475(a).¹² Traders in securities, and dealers and traders in commodities, may elect mark-to-market treatment.¹³ Section 1256 contracts are treated as sold at year-end.¹⁴ Shareholders of passive foreign investment companies may elect mark-to-market treatment for marketable stock.¹⁵ The Code therefore already recognizes that deemed sales and elective recognition are administrable. The question is not whether such treatment is conceptually possible. It is why access to it should remain confined to a handful of statutory categories.

What the Election Would Do

The proposal is best understood as a discrete deemed sale, not a continuing method of accounting. A taxpayer would elect, for a designated appreciated asset or group of assets, to be treated as having sold the property at fair market value on the election date and immediately reacquired it. The gain would be recognized and taxed. The property would take a fair-market-value basis, with the increase determined by the gain recognized, as on an actual sale, rather than by the cash tax ultimately remitted after losses and credits. Future appreciation would again be governed by ordinary realization rules until an actual sale, death, or a later election, which Congress could permit after a prescribed interval, a design choice taken up below. Nothing about the election would obligate the taxpayer to revalue the property annually. The section 475 regimes are methods of accounting that mark positions to market year after year; the election proposed here is a single, voluntary realization event, closer in spirit to a sale than to a method.

The election would be available only for appreciated property, and it would recognize only gain. That design choice does substantial work. Because no losses are recognized on election, the regime cannot be used to harvest deemed losses in downturns, and the anti-abuse machinery an annual system would require, including class-wide consistency rules and multiyear lock-in periods, becomes largely unnecessary. Asset-by-asset treatment would present far less risk of cherry-picking than an annual gains-and-losses regime, though valuation, character, and attribute interactions would still require safeguards. Subsequent declines in value would be recognized when the property is actually sold, under the ordinary rules and subject to the ordinary limitations.¹⁶

Nor is the exclusion of losses merely fiscal self-protection. It follows from the same symmetry that supplies the election’s other default rules. A taxpayer who actually sells a loss position and immediately repurchases it receives nothing; the wash sale rule disallows the loss and folds the disallowed amount into the basis of the replacement shares.¹⁷ An elective deemed sale at a loss would therefore hand the taxpayer something no real transaction can provide, a deductible loss without parting with the property or waiting out the statutory window. The wash sale rule reaches only stock and securities, but the principle generalizes. For real estate and business interests, a loss sale to an unrelated buyer is available today, but it carries the friction of a real transaction, the genuine risk of not recovering the property, and scrutiny under the related-party and economic-substance rules.¹⁸ An elective loss would strip away exactly that friction. Gains-only treatment is therefore not a policy compromise. For securities it tracks the wash sale rule; for everything else it prevents the election from becoming a loss-recognition mechanism more permissive than the law governing actual dispositions.¹⁹

The design mirrors a transaction the Code already tolerates for one asset class, and candor requires saying so at the outset. For freely tradable securities, a taxpayer can reach much the same result today by selling a position and immediately repurchasing it. The sale recognizes the gain and establishes a fair-market-value basis because the wash sale rule applies only to losses.²⁰ For marketable securities, then, the election’s contribution is administrative rather than substantive. It eliminates execution risk, transaction costs, and market impact, and it functions where an actual sale cannot, such as shares subject to lockups, blackout windows, contractual transfer restrictions, or pledges as loan collateral. The election’s real work begins with the assets for which no sale-and-repurchase equivalent exists, closely held business interests and real property, where a taxpayer today has no way to buy basis at any price.

Symmetry with an actual sale supplies the default rules. Gain recognized on election should retain the character it would have had on a true disposition. Capital assets would yield capital gain, with long-term or short-term status fixed by the taxpayer’s actual holding period. Section 475 converts trader and dealer gains to ordinary income; importing that rule here would make the election worthless, because no taxpayer would voluntarily convert capital gain into ordinary income to acquire basis.²¹ Depreciation and amortization recapture would likewise apply as on an actual disposition.²² And the holding period should restart on the deemed reacquisition, as it would after an actual sale and repurchase.²³ Depreciable property needs one further rule. Elected basis becomes future ordinary deductions purchased at capital gain rates, the precise concern section 1239 addresses when depreciable property is sold between related parties.²⁴ The deemed sale presents the same character-conversion concern in concentrated form, because the electing taxpayer both recognizes the gain and receives the depreciable basis. The statute should therefore extend section 1239 principles to the election and treat elected gain attributable to depreciable or amortizable property as ordinary income, including section 197 intangibles, which section 1239’s own definitions treat as depreciable property for this purpose.²⁵

That extension has to be componentized from the outset, not offered as an optional refinement, because section 1239 itself is componentized on an actual sale. A related-party sale of a single parcel of improved real estate does not convert the land’s gain to ordinary income merely because the building sold with it is depreciable; only the building component is ordinary under existing law. A blanket rule recharacterizing all elected gain would give the government more than an actual sale would, precisely the asymmetry the ceiling principle forbids. The statute should instead require the electing taxpayer to allocate elected gain between depreciable and nondepreciable components using the same relative-fair-market-value method the law already applies to a lump-sum sale of multiple assets,²⁶ or, where the elected interest is a business carrying goodwill or other section 197 intangibles, the residual method used to allocate consideration in an applicable asset acquisition.²⁷ Only the allocated depreciable and amortizable share becomes ordinary; the remainder retains its capital character. And the component rule should apply only where an actual disposition of the elected property, or an accompanying inside-basis adjustment, would place depreciable or amortizable basis in the taxpayer’s hands. An election on corporate stock, whose actual sale produces no section 1239 income however depreciable the corporation’s assets, would remain capital throughout; anything stricter would give the government more than an actual sale would. Unlike the section 475 conversion discussed above, this conversion is matched by the ordinary deductions the stepped-up basis will generate, so taxpayers who value the depreciation may still rationally elect.

A gentler alternative would preserve capital character but make the elected basis increase nondepreciable, recoverable only on an actual disposition. Either design forecloses the arbitrage for that component; the choice should simply be made expressly, and the closer fit to section 1239 favors the first. The governing principle is that the taxpayer should receive nothing better from the election than a real transaction would provide.

That principle is a ceiling on taxpayer benefits, however, not a mandate to import every collateral consequence an actual sale would trigger. The deemed sale should be a limited-purpose fiction, effective for basis, gain recognition, and the general holding-period rules, with the statute specifying which other tax attributes survive. Section 1202 illustrates why, and how the principle resolves the difficulty rather than merely naming it. Qualified small business stock (QSBS) must be acquired at original issuance and satisfy a multiyear holding period to support the exclusion.²⁸ An actual sale and repurchase of QSBS already forfeits the exclusion for the future, because the repurchased shares are not acquired at original issuance; the ceiling principle therefore dictates the same result here. The deemed-reacquired shares should be non-QSBS stock with a fresh holding period for general purposes.

But the election should not silently destroy an exclusion the taxpayer failed to recognize was at risk, and two further rules should apply. First, gain recognized on the deemed sale of stock that has already satisfied section 1202’s eligibility requirements and applicable holding period as of the election date should itself qualify for the exclusion, subject to the same per-issuer cap an actual sale would face,²⁹ since an actual sale on that date would have qualified. Second, the downside of miscalculation is unusually severe; an election could convert wholly excluded gain into taxed gain while permanently forfeiting the shares’ original-issuance status. A categorical bar on electing immature QSBS would sit uneasily with a regime premised on taxpayer choice, and taxpayers sometimes rationally surrender a contingent exclusion, doubting continued qualification or valuing basis certainty more. The statute should instead require an express certification, separate from the general election, that the taxpayer understands the exclusion does not carry forward to the reacquired shares and, for stock that has not yet reached any exclusion tier, that the election forfeits a benefit available simply by waiting. Under the tiered structure applicable to post-2025 issuances, a holder who has reached an intermediate tier could elect, claim that tier’s exclusion percentage on the elected gain, and relinquish the later tiers, exactly as an actual sale on that date would. Similar questions arise for reorganization holding periods, qualified dividend periods, partnership interests, and state conformity. The same two-step method, preserving an attribute only where an actual sale would have preserved it and requiring express acknowledgment wherever forfeiture is severe and irreversible, resolves each of them.

The design reduces to a short table.

Stepped-Up Basis and the Gain That Never Gets Taxed

The case for the election is strongest where deferral ripens into exclusion. Section 1014 generally increases the basis of property acquired from a decedent to its fair market value at death,³⁰ so appreciation that accrued during the decedent’s life may disappear permanently from the income tax base. The rule is nearly as old as the modern income tax, dating at least to the Revenue Act of 1921, yet the Supreme Court, reviewing the earliest statutes and regulations, found no documented legislative rationale for it.³¹ Whatever its origins, its consequences are familiar. Deferral of gain during life becomes elimination of income tax at death, and the promise of that elimination locks taxpayers into concentrated securities, real estate, and business interests they might otherwise sell.

Reformers have attacked the rule for a century, and the rule has won every round. Congress enacted carryover basis in 1976 and retroactively repealed it in 1980 when executors could not reconstruct decades-old cost records.³² It replaced section 1014 with a modified carryover basis for decedents dying in 2010, the one year the estate tax itself lapsed, and before the year was out Congress retroactively restored both the estate tax and stepped-up basis, while permitting executors of 2010 decedents to elect out of the estate tax and into modified carryover basis instead, an election that paired stepped-up basis with the estate tax and carryover basis with its absence.³³ The Biden administration’s proposal to treat death as a realization event above a $1 million exclusion met the same objections involving liquidity, family businesses, farms, valuation, and recordkeeping, and it met the same fate.³⁴

The comparative experience points somewhere more interesting than repeal. Canada has no stepped-up basis rule. Its alternative is a deemed disposition at death. The decedent is generally treated as having sold all capital property at fair market value, subject to statutory rollovers, most notably for property passing to a surviving spouse or qualifying spousal trust. The accrued gain is taxed on the terminal return, and the beneficiary takes a fair-market-value basis.³⁵ Canada, in other words, imposes a mandatory deemed disposition at death, the compulsory cousin of the election proposed here. The heir’s basis is stepped up because the gain was taxed. Basis step-up and taxation of unrealized gain are not opposites but complements, and the elective regime proposed here simply allows American taxpayers to reach the Canadian result voluntarily, incrementally, and during life.

Recognition during life carries a further advantage for one group of taxpayers. The income tax paid leaves the taxpayer’s estate. For estates that are or may become taxable, each dollar of income tax paid on elected gain reduces the gross estate that will later be valued at death, the same “tax burn” that makes grantor trusts such effective transfer-tax tools.³⁶ For the far larger group of estates safely below the basic exclusion amount, now permanently set at $15 million per decedent, the burn is no independent benefit; paying tax early simply reduces wealth.³⁷ For those taxpayers, the election must earn its keep on income tax grounds alone, through basis, rate certainty, or an anticipated lifetime sale. The distinction matters for the government as well, as discussed below.

The Adverse Selection Objection Gets the Baseline Wrong

The reflexive objection is adverse selection. Taxpayers will elect only when the election benefits them, so the election must cost the government revenue. That conclusion does not follow.

An electing taxpayer pays tax earlier than existing law requires, often years or decades before an actual sale, and the time value of that acceleration is real. More importantly, a substantial share of deferred gain is never taxed at all. Under section 1014, appreciation held until death vanishes from the income tax base; with the exclusion amount at $15 million, most of it escapes estate tax as well. A taxpayer who values certainty, expects further appreciation, or is planning a succession might voluntarily recognize gain that would otherwise be deferred and ultimately eliminated at death.

The natural rejoinder is that a taxpayer confident of holding property until death has little reason to volunteer tax that section 1014 would eliminate. But that confidence is often less secure than it appears. Businesses are sold, markets move, families divide, and liquidity needs arrive unannounced. The Roth experience shows that taxpayers voluntarily accelerate billions of dollars in tax each year even though deferral is, on paper, superior. Measured against the law we actually have, rather than against a hypothetical system in which section 1014 has been repealed, the election recognizes income earlier in every case, ordinarily collects revenue earlier, and sometimes collects tax that would never otherwise be paid. Whether those receipts would exceed the revenue lost to taxpayer self-selection is ultimately an empirical question for scoring, but the nearest scored precedent is instructive. When Congress repealed the Roth conversion income limits in 2006, effective for 2010, the provision was scored at enactment as raising revenue within the budget window, because voluntary acceleration front-loads receipts.³⁸ The same front-loading would apply here, with the honest caveat that in-window gains partly reverse beyond it; the durable pickup, tax on gain that section 1014 would otherwise erase, does not reverse. The point here is narrower. The standard objection measures the election against a baseline in which all deferred gain is eventually taxed, and that baseline does not describe current law.

The election also accomplishes quietly what a generation of reformers has failed to do loudly. The objections that reliably defeat mandatory proposals, such as illiquid family businesses, unappraisable assets, and impossible records, have force when recognition is compelled. They lose that force when it is chosen. The family that cannot value its business or pay tax without selling it simply does not elect. The one that wants to settle up during life, on its own timetable, finally can. The election offers an additional option rather than replacing the existing rules.

The Design Problems That Remain

A gains-only, discrete election eliminates the most obvious gaming. No losses can be manufactured, no class-wide lock-in is needed, and every election produces currently recognized gain. Several design problems remain, and they deserve candid acknowledgment.

Valuation

The regime should initially be limited to assets that can be valued with reasonable reliability, and publicly traded securities are the obvious starting point.³⁹ The securities phase is a proving ground with concrete deliverables. It lets Treasury test election forms, coordinate broker basis reporting, settle election-date valuation conventions, and build information matching on assets whose values are indisputable before extending the election to the harder cases.

For those harder cases, the statute should not wait for standards to emerge informally; it should import the machinery the Code already uses where taxpayers have an incentive to overstate value to their own benefit. Charitable contributions of property present the identical incentive, and the Code answers it with a qualified-appraisal requirement performed by a qualified, independent appraiser for property above a threshold value.⁴⁰ The election should adopt the same requirement, and the existing substantial- and gross-valuation-misstatement penalties should be extended expressly to overstated elected values, exactly as they already apply to overstated charitable and estate-tax valuations.⁴¹ A further safeguard, admittedly more aggressive, follows from the election’s own logic. Because the elected value determines the taxpayer’s new basis, an actual sale within a short period after the election, say two years, at a price materially below the elected value should create a rebuttable presumption that the election overstated fair market value, subject to retroactive adjustment of the elected basis, interest, and penalty, unless the taxpayer shows the difference reflects a genuine intervening change in the asset or the market. That presumption gives Treasury a low-cost enforcement tool that does not require contesting every appraisal at the time of election, and it lets phase two begin with real deterrence in place, though the materiality threshold would need careful definition so that ordinary volatility is not punished as misvaluation.

Hedging, Aggregation, and the Elected Unit

Defining what may be elected once the regime extends beyond traded securities is harder. “All interests in a specified business” sounds objective but leaves real questions of aggregation across related persons, offsetting positions, debt, and the relationship between a partnership interest and the partnership’s underlying assets. Together they form the principal design problem of the extension phase, but they do not require a freestanding anti-abuse regime; each maps onto tools the Code already supplies for exactly this incentive.

Property should not be eligible for election if the taxpayer, or a related person under the attribution rules described below, holds an offsetting position with respect to it, as section 1092(c) defines offsetting positions for straddles, unless no such position has existed during a specified pre-election period.⁴² That disqualification mirrors the diminished-risk-of-loss rule the Code already uses in the qualified covered call exception and in section 246(c)(4) for the dividends-received deduction, where a taxpayer who has hedged away market risk is denied a tax benefit that presupposes genuine exposure.⁴³ Without it, a taxpayer could elect the appreciated leg of a hedged position, recognizing gain and buying basis while the hedge insulated the taxpayer from any real market risk. With it, the election remains available to a taxpayer who holds appreciated property at genuine risk, which is the only taxpayer the regime is meant to benefit.

Aggregation should use the same attribution rules proposed below for repeat elections rather than a separate standard. For purposes of identifying offsetting positions, and for testing whether an interest a taxpayer proposes to elect on is appreciated on a net basis, positions and interests held by persons related to the taxpayer under sections 267(b), (c), and 707(b) should be aggregated with the taxpayer’s own.⁴⁴ That aggregation governs eligibility only. It does not require a family or controlled group to elect together, and the tax and basis consequences of an election still attach solely to the specific interest the electing taxpayer designates, consistent with the asset-by-asset design described above. A taxpayer therefore cannot isolate an appreciated interest from a related person’s offsetting position merely by holding the two positions in different hands, while a family whose members hold independent, unhedged interests in the same business remains free to have some members elect and others not.

Liabilities

Debt adds a computational question of its own, and it is not simply a matter of importing Crane and Tufts wholesale.⁴⁵ Those cases apply where a disposition actually shifts the debt burden to another party or extinguishes it; the symmetry they enforce, under which a taxpayer who received tax-free loan proceeds and basis credit for them must eventually recognize gain measured by the full debt relief, depends on an actual change in who bears the obligation. A deemed sale followed by an immediate deemed reacquisition changes nothing about who owes the debt. The deemed amount realized should therefore equal the property’s fair market value, for recourse and nonrecourse debt alike, with basis to match. This is one respect in which the deemed transaction should not replicate an actual sale, and the departure should be owned openly; the factual predicate for Tufts, a transfer of the debt burden, simply has not occurred.

That rule does not let the Tufts gain escape; it stores it. Where nonrecourse debt exceeds fair market value, the election taxes the appreciation and leaves the debt-relief excess exactly where the doctrine leaves it, embedded in the spread between the outstanding principal and the new fair-market-value basis, to be recognized when an actual disposition finally shifts the obligation. The alternatives fail on their own terms. Accelerating the full Tufts amount at election while capping basis at fair market value would tax the excess twice, once at election and again at the real disposition the doctrine reaches on its own; crediting the excess to basis instead would manufacture basis above the property’s value. Taxing appreciation now and debt relief when it happens avoids both errors. Recourse debt needs no special rule at all. Existing law caps amount realized at fair market value for recourse obligations and treats any excess actually discharged as cancellation-of-indebtedness income subject to its own exclusions, and because a deemed sale discharges nothing, that regime is simply undisturbed.⁴⁶

Partnership Interests

Partnership interests, by contrast, present a question the Code has already answered. The statute should preserve section 751 character on the deemed sale, exactly as it would apply on an actual sale of the interest.⁴⁷ The inside-basis question is not a fresh design choice; the Code resolves it for actual transfers, and the deemed sale should follow. On an actual sale, the buyer’s inside basis is stepped up only if the partnership has, or makes, a section 754 election, or the mandatory basis adjustment rules apply because the partnership holds a substantial built-in loss.⁴⁸ The election proposed here should track that conditionality rather than displace it. A partner whose partnership has a valid section 754 election in effect would receive a partner-specific adjustment under section 743(b) principles, just as an actual purchaser would; a partner whose partnership does not would receive outside basis only, leaving the partnership’s inside basis, and the partner’s share of asset-level gain and future depreciation, unchanged.

That default also settles a governance question. A partner should not be able to impose the recordkeeping and character-tracking burdens of a section 754 regime on the partnership and the other partners unilaterally, merely by making a personal election; that decision belongs to the partnership today, and there is no reason the deemed sale should change who holds it. A partner who wants the inside-basis benefit can seek the partnership’s agreement to make a section 754 election concurrently with the deemed-sale election, but the statute should not make the adjustment automatic. Outside-basis-only treatment is not a diminished version of the election; it is simply the default that would apply to a real buyer in the same position, and the electing partner retains the certainty, rate lock, and succession-planning benefits described above regardless of which default applies.

Repeat Elections

Much of the election’s value lies in timing, and Congress may reasonably conclude that some timing advantage is simply the price of the regime, as it is for every election in the Code. But the interval and the attribution rule should be specified rather than left as a design direction. A workable rule borrows an interval already in the Code rather than inventing one. No further election should be permitted with respect to the same property, or property received in exchange for it in a nonrecognition transaction, for a multiyear period, for instance five years.⁴⁹ Five years is a plausible anti-churning interval rather than a derivation; the optimal period would require modeling, but a period practitioners already track under section 1202 keeps compliance familiar, and it is long enough to prevent the election from functioning as an annual mark-to-market by another name.

The related-party problem is the more important one, because a minimum interval means little if a taxpayer can achieve the same result by dividing the asset among related holders. The statute should apply the constructive-ownership and attribution rules that already police disallowed losses and related-party sales, extending the family and entity attribution of section 267(b) and (c) and the partnership rules of section 707(b) to the election’s minimum interval.⁵⁰ Under those rules, a transfer of the property, or of a fractional or successive interest in it, to a related person or entity should carry the transferor’s election history with it, so that the transferee’s interval clock runs from the transferor’s most recent election rather than resetting. Fractional interests in the same underlying asset held by related persons should be aggregated for purposes of the interval, so that splitting an interest among family members or controlled entities does not multiply the number of available elections. These rules add complexity, but they reuse attribution concepts taxpayers and their advisors already apply elsewhere.

These restrictions would not eliminate every timing advantage. The relevant question is whether the election produces an acceptable policy result, not whether taxpayers would use it only when advantageous. A workable test follows from the ceiling principle. Any result a taxpayer could already reach through an actual sale, including the absorption of an expiring loss carryforward by recognized gain, is not an arbitrage the election creates; results no real transaction could deliver are, and the design above is built to foreclose them. Here, the taxpayer’s advantage would arise only after recognition of current gain, ordinarily accompanied by current tax. The extension phase, in short, is demanding but not novel; each of its problems maps onto machinery the Code already maintains.

Valuation and Liquidity Are Reasons to Make the Regime Elective

Mandatory mark-to-market regimes must solve valuation and liquidity problems for every covered taxpayer. An elective deemed sale need solve them only for taxpayers who choose to participate. Those unable to value the asset reliably, fund the liability, or justify the compliance costs would simply not elect. Voluntariness does not eliminate those problems, but it confines them to cases in which taxpayers conclude that the basis increase is worth the cost.

A Voluntary Election Materially Reduces the Constitutional Concern

Moore left open whether realization is constitutionally required before Congress may impose an income tax, and four Justices indicated that it is. Any mandatory tax on unrealized appreciation must therefore contend with unresolved constitutional risk. An elective regime presents a fundamentally different case.

The taxpayer would affirmatively choose deemed-sale treatment and report the resulting gain as income. The government would not impose tax merely because property increased in value; it would apply a tax treatment requested by the taxpayer under a congressionally authorized election. Taxpayers routinely choose their tax consequences through elections involving accounting methods, entity classifications, installment reporting, depreciation, foreign investments, and mark-to-market treatment.⁵¹

To be precise about what voluntariness does and does not accomplish, consent does not enlarge the taxing power of Congress, and no election can amend the Sixteenth Amendment. Moore itself says as much. In rejecting the taxpayers’ attempt to distinguish S corporations, the Court observed that there is no reason to think shareholder consent can eliminate the apportionment requirement, a structural feature of the Constitution, and thereby permit an otherwise unconstitutional tax.⁵² But that passage addressed consent offered to excuse the taxation of income the shareholders had arguably never received. The election proposed here uses consent differently. What the election changes is the tax’s object. Once a taxpayer affirmatively chooses congressionally authorized deemed-sale treatment, the tax attaches to the transaction the statute defines and the taxpayer selects, not to passive appreciation alone, and the long-standing elective regimes of sections 475(e), 475(f), and 1296 have never been thought constitutionally suspect on that account. A taxpayer who later challenged the consequences of a self-selected election would also face formidable obstacles under the duty of consistency and related estoppel principles.⁵³ The constitutional exposure of a voluntary regime is therefore substantially smaller than that of any mandatory proposal, whatever the Court ultimately holds about realization. If realization one day becomes a structural requirement, whether a congressionally deemed sale satisfies it will be a genuine question, but an electing taxpayer who raises it may face substantial arguments against obtaining relief. Congress need not resolve the boundary left open in Moore to authorize it.

Congress Should Let Taxpayers Choose

Tax policy debates often present realization and mark-to-market as irreconcilable alternatives. One side defends taxation only upon sale. The other argues that annual economic gains should be taxed as they accrue. An elective regime does not require Congress to choose between those positions. Taxpayers who value deferral could retain the realization system. Taxpayers who value basis, certainty, or flexibility could elect recognition. The government would collect tax sooner, and taxpayers would receive a basis increase reflecting the income on which they had already paid tax.

The proposal is deliberately modest. It does not repeal the stepped-up basis, impose a tax at death, or require an annual valuation of every privately held asset. It simply permits taxpayers to voluntarily accelerate tax through a single, well-defined deemed sale. The tax system already allows taxpayers to defer gain. In appropriate circumstances, it should also allow them to recognize it. And once the tax has been paid, all your basis should belong to you.

This article is for general information and discussion. It does not constitute legal, tax, or other professional advice, and reading it does not create an attorney-client relationship.