In the 1965 case First Security National Bank & Trust Co. of Lexington et al. v. United States, the Supreme Court ruled on a dispute over tax deductions related to bad debts from loans made by banks. The Internal Revenue Code allows for such deductions but requires that they be charged off during the taxable year in question or within two and a half months after its close if done so consistently with sound banking or business practice. The bank had written off certain debts as uncollectible in their books but did not deduct them until later years when it became clear they would never be repaid, arguing this was consistent with sound banking practice since immediate deduction could have led to insolvency due to regulatory capital requirements. The court disagreed, ruling that "sound banking practice" referred only to what is generally accepted as good accounting and management practices within the industry rather than specific circumstances faced by an individual institution like potential insolvency risks from regulatory capital requirements.

In the dissenting opinion for First Security National Bank & Trust Co. of Lexington et al. v. United States, Justice Harlan disagreed with the majority's interpretation of Section 23(a) of the Internal Revenue Code as it pertained to bad debt deductions by banks. He argued that Congress intended to allow banks more flexibility in claiming such deductions due to their unique role in lending money and managing risk compared to other businesses, a position supported by legislative history and administrative practice at the time. The majority's decision not only contradicted this intent but also created an unfair situation where some banks could claim these deductions while others couldn't based on arbitrary factors like state law or banking practices rather than actual economic realities or losses incurred from bad debts.