In the case of Arkansas Best Corporation v. Commissioner of Internal Revenue, 1987, the U.S Supreme Court was tasked with determining whether a loss from the sale or exchange of non-capital assets should be considered as capital losses under Section 1222(4) of the Internal Revenue Code. The dispute arose when Arkansas Best Corporation (ABC), after selling its stock in a bank at a loss, claimed it as an ordinary business deduction on their federal income tax return. The IRS disagreed and reclassified it as a capital loss which is subject to more restrictive deductions than ordinary losses. The court ruled in favor of IRS stating that all property falls within 'capital asset' unless specifically excluded by Section 1221's exceptions - regardless if they are related to taxpayer's business or not. Therefore, any gain or loss from such property sales must be treated as capital gains/losses for taxation purposes. This decision overturned previous rulings where only assets used in trade/business were considered 'capital'. It clarified that characterisation depends upon nature/type of asset involved rather than purpose behind holding/selling them.

In the dissenting opinion for Arkansas Best Corporation v. Commissioner of Internal Revenue, Justice Blackmun argued that the majority's decision to redefine capital assets was a departure from established precedent and an overreach of judicial authority. He contended that this change should be left to Congress, not decided by the courts. Furthermore, he disagreed with the majority's interpretation of Section 1221 of the Internal Revenue Code which defines capital assets as property held by taxpayers (whether or not connected with their trade or business), but does not include inventory property or property held primarily for sale to customers in ordinary course of business. The dissent believed that stock acquired in a hostile takeover attempt falls under these exceptions and thus should be treated as ordinary income rather than capital gain when sold at profit.