In the case of Colonial American Life Insurance Co. v. Commissioner of Internal Revenue, 1988, the Supreme Court dealt with an issue related to tax law and insurance companies. The court had to decide whether policyholder dividends that were left with the company to earn interest could be deducted as "dividends paid" under section 808(c) of the Internal Revenue Code by life insurance companies in their taxable income calculations. The IRS argued that these amounts should not be deductible because they remained within control of the insurer and thus did not constitute true payments made during a given year for tax purposes. The Supreme Court sided with Colonial American Life Insurance Company (CALIC), ruling against IRS's interpretation on this matter. They held that such dividends can indeed be considered as 'paid' even when left with insurers for earning interests, thereby making them eligible for deductions from gross income under Section 801(b)(1). This decision was based on legislative history and consistent administrative practice which supported CALIC’s position.

In the dissenting opinion for Colonial American Life Insurance Co. v. Commissioner of Internal Revenue, it was argued that the majority's decision to disallow deductions for policyholder dividends until they were actually paid contradicted established tax principles and previous court rulings. The dissent pointed out that these dividends are a liability from the moment an insurance company declares them, as they represent an obligation to pay policyholders in future years. Therefore, according to standard accounting practices and tax law precedents, such declared but unpaid dividends should be considered deductible expenses in the year they are announced rather than when payment is made later on. The dissent also highlighted inconsistencies between this ruling and other cases where taxpayers were allowed deductions for similar liabilities before actual payments occurred.