In the 1930 case of Graham and Foster v. Goodcell, the U.S Supreme Court examined whether a taxpayer could deduct losses from sales of stock in their income tax return when they had purchased identical stocks within thirty days before or after such sale. The court ruled that under Section 206(a) of the Revenue Act of 1921, taxpayers are not allowed to claim deductions for losses on sales if they have acquired substantially identical property within thirty days before or after said sale. This provision was designed to prevent taxpayers from claiming artificial losses created by selling off depreciated assets only to repurchase them shortly thereafter at a lower price. In this particular case, Graham and Foster were denied their claimed deduction because they had engaged in such transactions.

In the dissenting opinion for Graham and Foster v. Goodcell, Justice Stone argued that the majority's decision was inconsistent with previous rulings of the Court regarding tax law. He contended that a taxpayer should not be allowed to deduct losses from their income if those losses were incurred in an illegal business venture or transaction. In this case, he believed that since the taxpayers had engaged in bootlegging (which was illegal under Prohibition laws at the time), they should not be able to claim deductions on their federal income taxes for expenses related to this activity. Justice Stone also disagreed with allowing such deductions because it would essentially mean condoning and financially supporting unlawful activities through tax benefits.