In the case of Chase National Bank et al. v. United States in 1928, the U.S Supreme Court ruled that a bank could not claim tax deductions for interest paid on borrowed money used to purchase tax-exempt securities. The court held that allowing such deductions would undermine the purpose and effectiveness of Congress's intent to exempt certain securities from taxation, as it would essentially allow banks to earn income from these securities without paying any taxes on them. This decision established an important precedent regarding how financial institutions are taxed and has had significant implications for banking regulation and policy.

In the dissenting opinion for Chase National Bank et al. v. United States, Justice Holmes disagreed with the majority's interpretation of tax law and its application to banks' dealings in Liberty Bonds during World War I. He argued that Congress did not intend to exempt profits from all sales of such bonds when it passed related legislation, but rather only those profits realized through redemption or maturity. The exemption was meant as an incentive for people to hold onto their bonds until they matured, thereby providing a stable source of funding for the war effort; it was not intended as a blanket protection against taxation on any profit made from these bonds under any circumstances. Therefore, he believed that banks should be taxed on gains made from selling these bonds before they reached maturity.