In the case of Cochran et al., as Surviving Executors of Cochran, v. United States in 1920, the Supreme Court was tasked with determining whether or not a bequest to the United States for public purposes could be taxed under federal estate tax laws. The court ruled that such a bequest could not be taxed because it would essentially amount to one branch of government taxing another. This decision was based on an interpretation of Section 402(b) and (c) of Revenue Act 1918 which exempted certain transfers from taxation if they were used exclusively for public purposes by states or municipalities within them. The court extended this exemption to include gifts made directly to the U.S Government itself for similar uses.

In the dissenting opinion for Cochran v. United States, Justice McReynolds disagreed with the majority's decision to uphold a tax on stock dividends as income. He argued that this interpretation of the Sixteenth Amendment was incorrect and inconsistent with previous rulings by the Court. According to him, stock dividends should not be considered taxable income because they do not increase a shareholder's wealth or purchasing power; instead, they merely represent a redistribution of existing corporate assets among shareholders. Furthermore, he contended that taxing them would result in double taxation since corporations already pay taxes on their profits before distributing them as dividends. Therefore, he believed that such taxation was unconstitutional and unjustly burdensome for shareholders.