In Cuddy v. Commissioner, the United States Supreme Court was asked to decide whether a taxpayer was entitled to a deduction for losses incurred in the sale of real estate. The petitioner, Cuddy, had purchased a tract of land in 1881 and sold it in 1883 for a loss. He claimed the loss as a deduction on his income tax return for the year 1883. The Commissioner of Internal Revenue denied the deduction, and Cuddy appealed to the Supreme Court. The Court held that Cuddy was not entitled to the deduction. The Court reasoned that the loss was not incurred in the ordinary course of business, but rather was the result of a voluntary sale of property. The Court noted that the sale was not made in order to produce income, but rather to reduce the taxpayer's liability for taxes. Therefore, the Court concluded that the loss was not deductible. The Court also noted that the sale of the property was not made in the ordinary course of business, but rather was a voluntary act of the taxpayer. The Court reasoned that the taxpayer had not acted in a manner that would be expected of a prudent businessman, and thus the loss was not deductible. The Court's decision was unanimous. The Court held that the taxpayer was not entitled to the deduction for the loss incurred in the sale of the real estate.

In Cuddy v. Commissioner, the Supreme Court was asked to decide whether a taxpayer could deduct losses from an illegal gambling business as part of their income tax return. The majority opinion held that such deductions were not allowed because they would be contrary to public policy and encourage criminal activity. However, Justice Harlan dissented on the grounds that allowing these deductions did not necessarily mean encouraging crime; rather, it simply meant treating taxpayers fairly by recognizing all legitimate expenses incurred in running a business regardless of its legality or illegality. He argued that denying such deductions would create an unfair burden for taxpayers who had already suffered financial loss due to their involvement in illegal activities and should not be further punished by being denied proper tax relief for those losses.