In the case of Davidson v. Commissioner of Internal Revenue (1938), the U.S. Supreme Court ruled on a dispute involving income tax liability for dividends received from foreign corporations by American shareholders. The petitioner, Mr. Davidson, was an American shareholder in two Canadian companies and had received dividends from these companies which he did not include in his gross income when filing his federal income taxes, arguing that they were exempt under Section 115(a) of the Revenue Act of 1928 as "income from sources within possessions of United States." However, the IRS disagreed with this interpretation and assessed additional taxes against him accordingly. The court sided with the IRS stating that Canada is not a possession or territory but rather a sovereign nation; therefore its corporations cannot be treated as domestic ones for purposes of US taxation law. Henceforth it held that such dividends are taxable to their full extent under U.S laws regardless if paid out by foreign entities operating outside US jurisdictional boundaries unless specifically excluded by statute or treaty provisions.

In the dissenting opinion for Davidson v. Commissioner of Internal Revenue, it was argued that the majority's decision to tax gifts made in contemplation of death as part of a decedent's gross estate contradicted established legal principles and precedent. The dissenting justices believed that such taxation constituted double taxation since these gifts were already subject to gift taxes during the donor’s lifetime. They also pointed out inconsistencies in how "gifts made in contemplation of death" were defined and applied by different courts, leading to arbitrary and unfair results. Furthermore, they disagreed with the majority's interpretation of relevant statutory provisions, arguing instead that Congress did not intend for these types of transfers to be included within a decedent’s gross estate for tax purposes.