The Founders General Corp. v. Hoey case in 1936 revolved around the issue of taxation on corporate reorganization and liquidation. The Supreme Court ruled that a corporation undergoing voluntary dissolution, which distributes its assets to shareholders, is liable for income tax under Section 115 (g) of the Revenue Act of 1928 if it has retained earnings or profits at any time during the taxable year prior to complete liquidation. This decision was based on an interpretation that "earnings or profits" included not only those accumulated after February 28, 1913 but also those accumulated before this date as well. Thus, even though Founders General Corporation had no earnings or profit from operations during its final taxable period and all distributions were made out of capital surplus created by contributions from stockholders prior to March 1,1913; it was still held accountable for income tax.

In the dissenting opinion for Founders General Corp. v. Hoey, it was argued that the majority's decision contradicted previous rulings and interpretations of tax law by allowing a corporation to deduct losses from stock sales as ordinary business expenses. The dissenting justices believed that these losses should have been classified as capital losses, which are subject to different rules and limitations under tax law. They contended that treating such losses as regular business expenses allowed corporations an unfair advantage in reducing their taxable income, thereby undermining the intent of Congress when it established separate categories for ordinary income and capital gains or losses. Furthermore, they disagreed with the majority's interpretation of what constitutes "property used in trade or business," arguing that this definition should not extend to stocks held by a corporation unless those stocks were directly tied to its primary line of work.