In the Commissioner of Internal Revenue v. Harmon case in 1944, the United States Supreme Court ruled on a matter concerning income tax deductions for losses incurred during business transactions. The respondent, Harmon, had purchased stock as an investment and later sold it at a loss. He claimed this loss as a deduction on his income tax return under section 23(e)(2) of the Revenue Act of 1938 which allows for deductions from gross income for losses incurred in any transaction entered into for profit though not connected with trade or business. The Commissioner disallowed this claim arguing that such losses were deductible only if they were sustained in one's trade or business. However, both lower courts sided with Harmon stating that he was entitled to deduct his loss because it arose from a transaction entered into for profit. Upon reaching the Supreme Court, it upheld these decisions ruling that "the words 'transaction entered into for profit' are broad enough to cover any transaction entered into with the object of making gain or profit." Therefore, even though Harmon's stock purchase wasn't directly related to his regular business activities but was intended as an investment (a venture aimed at generating profits), he could still claim its resultant loss as a deduction.

In the dissenting opinion for the Commissioner of Internal Revenue v. Harmon case, Justice Robert H. Jackson disagreed with the majority's ruling that a taxpayer could deduct from his gross income an amount representing depreciation on property used in a trade or business, even if no actual cash expenditure was made during that year to repair or maintain it. He argued this interpretation contradicted both common sense and established tax principles by allowing taxpayers to claim deductions for expenses they did not actually incur. According to him, such an approach would create inconsistencies in tax law and potentially open up avenues for abuse as taxpayers could manipulate their reported incomes through artificial depreciation claims without any corresponding outlay of funds.