In the case of Boehm v. Commissioner of Internal Revenue (1945), the U.S Supreme Court ruled on a dispute over income tax deductions. The petitioner, George E. Boehm, had claimed losses from his hobby of breeding and racing horses as business expenses in his 1937 and 1938 income tax returns. However, the Commissioner of Internal Revenue disallowed these deductions on grounds that they were not incurred in a trade or business as required by section 23(e) and (h) of the Revenue Act of 1938. The court held that for an activity to be considered engaged in for profit so that its losses may be deducted from gross income under section 23(e)(2), it must have been conducted with "an actual and honest objective" to make a profit. It was determined that Mr. Boehm's horse racing activities did not meet this criterion because he pursued them primarily for pleasure rather than with an intent to make profits. Therefore, despite acknowledging Mr. Boehm’s substantial investment into horse breeding operations which could potentially yield financial gain at some point in future years; since there was no immediate intention or expectation for profitability during those specific taxable years -the court upheld the decision made by lower courts denying him any deduction claims related to his equine endeavors.

In the dissenting opinion for Boehm v. Commissioner of Internal Revenue, Justice Robert H. Jackson disagreed with the majority's ruling that a taxpayer could not deduct losses from his income tax return unless he was engaged in a trade or business activity. He argued that this interpretation was too narrow and inconsistent with previous court decisions and Congressional intent. According to him, Congress intended to allow deductions for all "non-business" losses as well, provided they were incurred in transactions entered into for profit-making purposes. Furthermore, he contended that there should be no distinction between taxpayers who engage in activities full-time (i.e., as their primary occupation) versus those who do so part-time or sporadically; both types of taxpayers are equally entitled to claim deductions under the law.