The U.S. Supreme Court case Choteau v. Burnet in 1930 revolved around the issue of income tax on inherited property. The plaintiff, Choteau, had received stocks as a gift from his mother-in-law and argued that the increase in value of these stocks should not be considered taxable income under the Revenue Act of 1921 because it was an inheritance rather than earned income. However, Commissioner Burnet contended that this appreciation constituted taxable gain under Section 202(a) of the act since it was realized upon sale after acquisition by gift. The court ruled in favor of Burnet stating that while gifts are exempted from taxation, any profit made through their disposal is subject to tax liability regardless if they were initially acquired as a gift or inheritance. This decision established precedent for taxing profits derived from gifted assets and clarified aspects related to capital gains taxes.

In the dissenting opinion for Choteau v. Burnet, Justice Stone argued that the majority's interpretation of tax law was incorrect and overly narrow. He contended that a taxpayer should be allowed to deduct losses from their gross income even if those losses were not connected with their trade or business, as long as they were incurred in any transaction entered into for profit. According to Justice Stone, this broader interpretation would better align with Congress' intent when it enacted the relevant tax statute. Furthermore, he believed that allowing such deductions would promote fairness by preventing taxpayers from being taxed on nominal income while suffering real economic loss.