In the case of Atlantic City Electric Co. v. Commissioner of Internal Revenue, 1932, the Supreme Court was asked to determine whether or not a public utility company could deduct from its gross income amounts paid into a reserve fund for future repairs and replacements as ordinary and necessary business expenses under section 234(a)(1) of the Revenue Act of 1918. The court ruled in favor of the Commissioner, stating that such deductions were not permissible because they did not represent actual expenditures but rather anticipated future costs. The court reasoned that allowing companies to make these kinds of deductions would essentially allow them to manipulate their taxable income by arbitrarily deciding how much money to set aside each year for potential future expenses.

In the dissenting opinion for Atlantic City Electric Co. v. Commissioner of Internal Revenue, it was argued that the majority's decision to allow a public utility company to deduct from its gross income amounts set aside in a reserve fund for future repairs and replacements contradicted established tax law principles. The dissenting justices contended that such deductions should only be permitted when they represent actual expenses incurred during the taxable year, not potential future costs. They pointed out that allowing companies to make these kinds of deductions could lead to significant revenue losses for the government and potentially create opportunities for abuse or manipulation by corporations seeking to reduce their tax liabilities artificially.