In the Gould v. Gould case of 1917, the U.S Supreme Court ruled that alimony payments were not considered income and therefore could not be taxed under federal law. The case involved a dispute between Edwin Gould, son of railroad tycoon Jay Gould, and his ex-wife Katherine Clemmons Gould over whether or not her alimony was taxable as income. Mrs. Gould argued that it should not be because it was simply a division of property rather than an actual gain or profit for her; Mr. Gould disagreed and sought to have it classified as such so he could deduct the payments from his own taxes. The court sided with Mrs.Gould's interpretation, stating that "alimony does not represent gain or profit accruing to a wife divorced from her husband." This decision remained in effect until 1942 when Congress passed legislation specifically designating alimony as taxable income.

In the dissenting opinion for Gould v. Gould, Justice Oliver Wendell Holmes Jr. argued that alimony payments should be considered taxable income under federal law. He contended that such payments were not gifts but rather a division of property or earnings between former spouses and thus constituted income to the recipient spouse. The majority's decision, he believed, was based on an overly narrow interpretation of what constitutes "income." According to him, any gain derived from capital or labor should be regarded as income unless specifically exempted by law. Therefore, he disagreed with the court's ruling which held that alimony was not subject to federal taxation.