In Blair v. Commissioner of Internal Revenue, the U.S. Supreme Court ruled that income from a trust established under state law is taxable to the beneficiary who has an enforceable right to receive it, even if they have not yet received it. The case involved two trusts created by William A. Clark for his daughters with a provision that upon their death, the remaining principal and any undistributed income would pass on to their children (the petitioner's mother was one such child). When she died in 1930 before receiving her share of accumulated net income, this amount passed onto her son - Charles J. Blair (the petitioner). The court held that since he had an absolute right to demand payment at any time after his mother's death under Montana law where the trust was administered; this made him liable for federal tax on these amounts as per Section 219(h) of Revenue Act of 1928.

In the dissenting opinion for Blair v. Commissioner of Internal Revenue, Justice Cardozo disagreed with the majority's view that income derived from a trust should not be taxed as income to the beneficiary until it is distributed. He argued that this interpretation was inconsistent with previous court rulings and Congressional intent behind tax laws. According to him, when a trustee receives dividends on shares held in trust, those dividends are immediately taxable as income to the beneficiary regardless of whether they have been distributed or not. He believed that by allowing beneficiaries to defer taxation until distribution, it would create an unfair advantage for wealthy individuals who could afford to leave their money in trusts indefinitely while still benefiting from its growth and earnings without paying taxes on them.