Constitutionality of Retroactive Tax Legislation [October 25, 2012]   [open pdf - 259KB]

"The question is frequently asked whether Congress can enact retroactive tax legislation. It can be an important one for Congress because (1) an ever-growing number of tax provisions have expiration dates and some may not always be extended in a timely manner; (2) an interest in finding new revenue can encourage making a provision retroactive in order to increase the amount raised; and (3) an intent to influence behavior by means of a tax provision can sometimes include a desire to 'penalize' past conduct. It is clear there is no absolute constitutional bar to retroactive tax legislation. Nonetheless, it is possible, albeit rare, for retroactive tax legislation that increases a taxpayer's tax liability to violate the Constitution. For example, some cases where retroactive taxes have been struck down suggest that extended periods of retroactivity and lack of notice of a wholly new tax can raise due process concerns under the Fifth Amendment. While it is often asked whether such legislation would violate another of the Fifth Amendment's provisions--the Takings Clause--it seems unlikely this would be the case. The Supreme Court has long ruled that the sovereign's taxing power and its power to take private property upon payment of just compensation are distinct. Most of the retroactivity challenges to taxes have been litigated on a substantive due process rather than takings theory. On the other hand, if a court can be convinced that what looks like a tax is, in reality, an arbitrary confiscation of property, then a taking might be found."

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CRS Report for Congress, R42791
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