In the 1944 case of City Bank Farmers Trust Co. v. McGowan, the U.S Supreme Court was tasked with determining whether or not a trust could deduct payments made to beneficiaries from its gross income for tax purposes under Section 162(a) of the Revenue Act of 1936. The trust in question had been established by a will and required that all net income be distributed to designated beneficiaries annually, but also allowed for discretionary principal distributions. The IRS argued that these discretionary distributions should be considered part of the trust's taxable income because they were not definitively required by the terms of the will. The court ruled in favor of City Bank Farmers Trust Co., holding that only amounts which are unconditionally required to be distributed constitute "income" under Section 162(a). Discretionary principal distributions did not fall into this category and therefore could not be taxed as such.

The dissenting opinion in the case of City Bank Farmers Trust Co. v. McGowan, Collector of Internal Revenue argued that the majority's decision was inconsistent with previous rulings and interpretations of tax law. The dissent contended that a trust should not be considered an association taxable as a corporation merely because it possesses some characteristics similar to those of corporations; rather, there must be substantial evidence indicating its corporate nature. They also disagreed with the majority’s interpretation regarding “associations” under Section 801(a) of the Internal Revenue Code, arguing that this section does not apply to trusts like City Bank Farmers Trust Co., which lacks many essential features common to associations or corporations such as continuity of life and centralized management. Furthermore, they believed that treating trusts as associations for taxation purposes could lead to unjust results by imposing double taxation on beneficiaries who are already taxed individually on their income from trust properties.