In the case of Commissioner of Internal Revenue v. Munter (1946), the U.S Supreme Court was tasked with determining whether or not a taxpayer could deduct losses from his income tax return that resulted from selling securities below their market value to a corporation he controlled. The court ruled in favor of the Commissioner, stating that such transactions were essentially transfers between an individual and himself, thus they did not result in deductible losses for federal income tax purposes. This decision established important precedent regarding how closely held corporations are treated under tax law, particularly when it comes to transactions involving corporate shareholders and their personal assets.

In the dissenting opinion for Commissioner of Internal Revenue v. Munter, it was argued that the majority's interpretation of Section 22(b)(3) of the Revenue Act was incorrect. The dissenting justices believed that this section should not be interpreted to mean that a taxpayer who receives property as a gift is entitled to use its fair market value at the time he or she received it as their cost basis when calculating gain or loss upon sale. They contended that such an interpretation would result in inequitable tax treatment because taxpayers who purchase property are required to use their actual cost as their basis, while those who receive gifts could potentially claim a higher basis and thus lower taxable income from sales. This discrepancy, they argued, contradicted Congress' intent in enacting Section 22(b)(3), which was designed to prevent double taxation on gifted properties by excluding them from gross income calculations rather than allowing recipients to inflate their bases.