In the case of Commissioner of Internal Revenue v. Sullivan et al., 1957, the U.S Supreme Court ruled that illegal activities can still be considered a trade or business under Section 23(a)(1)(A) of the Internal Revenue Code. The respondent, Sullivan, operated an illegal liquor business and deducted his expenses related to this operation from his federal income tax return. The IRS disallowed these deductions on grounds that they were not "ordinary and necessary" expenses incurred in carrying on a trade or business as required by law for such deductions to be valid. However, upon appeal to higher courts, it was held that even though Sullivan's activity was unlawful, it constituted a trade or business within the meaning of Section 23(a)(1)(A). Therefore he could deduct his ordinary and necessary expenses incurred in conducting this illicit enterprise from gross income for federal taxation purposes.

In the dissenting opinion for Commissioner of Internal Revenue v. Sullivan et al., Justice Frankfurter disagreed with the majority's decision to allow a taxpayer to deduct business expenses related to an illegal activity from their taxable income. He argued that allowing such deductions would be contrary to public policy and could potentially encourage unlawful behavior by reducing its financial impact on those who engage in it. Furthermore, he contended that Congress did not intend for tax laws to apply in this way when they were written, as evidenced by their refusal to clarify or amend them despite having had opportunities to do so after previous court decisions on similar issues. Therefore, he believed that the Court was overstepping its bounds by interpreting these laws in a manner inconsistent with Congressional intent.