Blog: Taxpayers Need Clarity and Certainty. Proposals to Tax Unrealized Gains Provide Neither.

By Chuck Flint, AIA CEO

You haven’t sold anything.  You haven’t received a dollar, but under proposals to tax unrealized gains, you could still owe the IRS. Calls to tax unrealized gains are once again gaining traction in Washington and in states across the country. Proponents frame this idea as a benign measure to increase fairness in our tax system. But there is nothing fair about it. Behind the marketing and the spin lies a far more consequential shift, one that would hit ordinary taxpayers directly while expanding the reach of the Internal Revenue Service into their finances and injecting new layers of uncertainty into an already byzantine system.

At its core, a tax on unrealized gains would require you to write a check to the IRS based on annual changes in the estimated value of assets you have not sold. That may sound simple, but in practice it creates immediate challenges for anyone who owns a business, a farm, or long-term investments. Many assets—private businesses, intellectual property, or long-term investments—do not have clear, transparent market prices. Valuing them would depend on subjective judgments, inviting disputes, inconsistent enforcement, and years of litigation. You could owe taxes on a number the IRS picked, not one you ever saw in your bank account.

That ambiguity fuels economic uncertainty. When taxpayers cannot predict how their assets will be assessed, or how those assessments might change, you are left navigating a system where compliance becomes guesswork. This kind of unpredictability discourages investment, complicates long-term planning, and erodes trust in the tax code.

Layered on top of that is a second, equally serious concern: legal uncertainty. The Constitution authorizes a federal tax on income, not on unsold assets or theoretical gains. A tax on unrealized gains would go well beyond that boundary. If enacted, it would almost certainly trigger years of constitutional challenges, and while the courts sort it out, you’d be left wondering whether you even legally owe what the government is demanding.

In other words, you wouldn’t just be guessing how much you owe; you’d be guessing whether the tax itself is even lawful.

At the same time, administering such a system would require the IRS to make sweeping determinations about asset values across the economy. That level of discretion would significantly expand the agency’s authority, giving it unprecedented influence over your finances and how wealth is measured and taxed. For an agency already criticized for inconsistent enforcement, this would only deepen concerns about overreach.

We’ve seen this pattern before: complex tax schemes that begin narrowly defined often grow over time, pulling more everyday taxpayers into their orbit and increasing compliance burdens along the way. Each expansion compounds the uncertainty.

There is a better path forward. Instead of layering new complexity onto a broken system, policymakers should draw a clear line. Declaring that a tax on unrealized gains is unconstitutional would not only resolve the legal ambiguity—it would protect taxpayers from owning money they never made, eliminate a major source of economic uncertainty and prevent further expansion of IRS authority into areas where it does not belong.