In the case of Commissioner of Internal Revenue v. Court Holding Co., the U.S. Supreme Court ruled in 1944 that a corporation could not avoid paying taxes on capital gains by transferring property to its shareholders, who then sold it for profit. The company had owned an apartment building and decided to sell it but wanted to avoid paying corporate tax on the sale's profits. So, they transferred ownership of the building to their shareholders before selling it, arguing that any gain from this transaction should be taxed as individual income rather than corporate income because technically, individuals made the sale instead of a corporation. However, IRS argued that this was merely a scheme designed solely for tax evasion purposes and therefore should be treated as if the corporation itself had made the sale directly. The court agreed with IRS stating "the incidence of taxation depends upon substance not form". It held that since all substantial rights were vested in Corporation at time when negotiations were completed; hence Corporation is liable for payment under Revenue Act which imposes tax upon net income including gains derived from sales or dealings in property whether real or personal.

In the dissenting opinion for Commissioner of Internal Revenue v. Court Holding Co., Justice Jackson disagreed with the majority's decision that a corporation was liable for tax on capital gains from a property sale, arguing it had been sold by shareholders rather than the company itself. He contended that this interpretation went against established principles of corporate law and taxation, which recognize corporations as separate legal entities from their owners. According to him, if we accept that corporations can be disregarded in such transactions, then it would open up possibilities for abuse where companies could avoid taxes by attributing income-generating activities to their shareholders instead of themselves. Furthermore, he believed there was insufficient evidence to conclude that the corporation did not genuinely intend to sell its property before deciding otherwise due to unfavorable terms offered by potential buyers.