The U.S. Supreme Court case A.A. Lewis & Co et al v Commissioner of Internal Revenue in 1936 revolved around the issue of tax liability for a corporation and its shareholders when liquidating assets. The court ruled that a company's distribution of capital to its stockholders during liquidation is not taxable as income, but rather should be treated as payment in exchange for their shares - essentially a return on investment - which may or may not result in capital gains depending upon the original cost basis of those shares. This ruling clarified an important aspect regarding taxation during corporate dissolution, establishing that such distributions are part of the process by which earnings and profits are reduced before determining whether any remaining amounts can be taxed as dividends.

In the dissenting opinion for A. A. Lewis & Co. et al v Commissioner of Internal Revenue, it was argued that the majority's decision to tax a corporation on its undistributed profits is inconsistent with established principles of taxation and corporate law. The dissent contended that corporations are separate legal entities from their shareholders and should be taxed as such; taxing them on undistributed earnings effectively double-taxes those earnings when they are later distributed as dividends to shareholders, which is unjustifiable under existing tax laws and principles of fairness in taxation. Furthermore, this approach could discourage companies from retaining earnings for future investments or contingencies by making it more expensive to do so, potentially harming economic growth and stability.