In the case of First Chrold Corporation v. Commissioner of Internal Revenue, 1938, the U.S Supreme Court was tasked with determining whether or not a corporation could deduct losses from its income tax return that were incurred as a result of selling stock at less than cost to its employees. The court ruled in favor of the Commissioner of Internal Revenue, stating that such losses were not deductible because they did not constitute ordinary and necessary business expenses under section 23(a) and (b) of the Revenue Act. The court reasoned that these sales were made for compensation purposes rather than as part an ordinary course of trade or business activity. Therefore, any loss resulting from this transaction should be considered capital loss rather than ordinary loss.

The dissenting opinion in the case of First Chrold Corporation v. Commissioner of Internal Revenue argued that the majority's decision was inconsistent with previous rulings and misinterpreted tax law. The dissent contended that a corporation should not be taxed on income derived from its own stock, as this would constitute double taxation. They also disagreed with the majority's interpretation of "dividend," arguing it should only apply to distributions made out of earnings or profits, not capital gains from selling corporate assets such as stocks or bonds. Furthermore, they believed that taxing corporations on their own stock dividends could lead to absurd results where companies are taxed more than their actual economic gain because the value of their shares fluctuates over time.