In the Griffiths v. Commissioner of Internal Revenue case in 1939, the U.S Supreme Court ruled on a tax dispute involving Mr. and Mrs. Griffiths who were shareholders in two corporations that had accumulated earnings beyond reasonable business needs, which they then invested into federal bonds and other securities rather than distributing as dividends to avoid surtaxes. The IRS argued this was an attempt to evade taxes and assessed deficiencies against them under Section 104 of the Revenue Act of 1936, which penalizes attempts at income diversion for tax evasion purposes. The taxpayers contested this decision arguing that their investments were made with legitimate business purpose and not for avoiding taxes; however, both lower courts sided with the IRS. Upon reaching the Supreme Court, it upheld these decisions stating that even if there is a genuine business reason behind accumulation or investment of earnings by a corporation controlled by its shareholders (as was true here), such actions can still be deemed as constructed dividend distributions subject to individual shareholder taxation if found primarily motivated by tax avoidance intent.

In the dissenting opinion for Griffiths v. Commissioner of Internal Revenue, it was argued that the majority's decision to tax a trust beneficiary on income she did not receive nor had control over was unjust and contrary to established principles of taxation law. The dissent pointed out that under Connecticut law, which governed this particular trust, the trustee held absolute discretion over whether or not to distribute any income from the trust each year. Therefore, since Mrs. Griffiths could neither demand nor guarantee receipt of any income from her interest in the trust during 1933 (the tax year in question), taxing her on such potential but unrealized income violated basic tenets of fairness and equity inherent in our system of taxation laws. Furthermore, they contended that this ruling contradicted previous court decisions where beneficiaries were only taxed on actual distributions received rather than theoretical ones they might have received if trustees chose differently.