In the case of Burnet, Commissioner of Internal Revenue v. Harmel in 1932, the U.S Supreme Court ruled on a dispute regarding income tax law. The respondent, Harmel, had received oil and gas leases as gifts and later sold them at a profit. The Commissioner of Internal Revenue argued that these profits should be taxed as capital gains under federal law while Harmel contended they were not taxable because they were gifts initially given without any cost basis to him. The court sided with the commissioner ruling that even though the original leases were gifted to Harmel for no consideration (cost), when he sold them at a profit those proceeds constituted taxable income under existing laws. This decision established an important precedent in tax law by clarifying how property acquired through gift is treated for taxation purposes upon its sale.

In the dissenting opinion for Burnet, Commissioner of Internal Revenue v. Harmel, Justice Stone argued that the majority's interpretation of tax law was incorrect and overly rigid. He believed that oil and gas leases should be considered capital assets under federal income tax laws because they are property used in a trade or business with an inherent value separate from their extraction potential. According to him, these leases have a significant economic worth beyond just the extracted resources they may yield; thus, profits derived from them should be treated as capital gains rather than ordinary income. This would mean lower taxes for leaseholders since capital gains were taxed at a lower rate than ordinary income during this period. Justice Stone also criticized the majority’s reliance on previous court decisions which he viewed as outdated and not applicable to modern conditions in the oil industry.