In the 1931 case General Motors Acceptance Corp. v. United States, the Supreme Court ruled on a tax dispute between General Motors Acceptance Corporation (GMAC) and the federal government. GMAC had been deducting losses from repossessed cars as ordinary business expenses in their income taxes, which was challenged by the IRS. The court held that these deductions were not allowable under existing tax law because they did not constitute an "ordinary and necessary" expense of doing business for GMAC's primary line of work - financing automobile sales - but rather were related to a separate line of business involving selling used cars after repossession. Therefore, such losses could only be deducted against profits made from this secondary line of business instead of being applied broadly to reduce overall taxable income.

In the dissenting opinion for General Motors Acceptance Corp. v. United States, it was argued that the majority's interpretation of tax law was incorrect and overly broad. The dissent disagreed with the majority's view that a taxpayer could not deduct losses from sales to customers who later defaulted on their payments if those losses were covered by reserves set aside in previous years for such contingencies. They contended that this approach failed to recognize the reality of business operations where companies routinely establish reserves to cover anticipated future expenses or losses, which are then deducted as they occur. This practice is widely accepted in accounting and should be recognized under tax law as well, according to them. Furthermore, they believed that denying these deductions would unfairly penalize businesses for prudent financial planning while rewarding those who do not plan ahead and instead incur unexpected expenses or losses.