In Heiner v. Diamond Alkali Co., the U.S Supreme Court ruled on a tax dispute between the Collector of Internal Revenue and Diamond Alkali Company in 1932. The case centered around whether or not a corporation could deduct from its gross income, for federal taxation purposes, amounts paid to redeem its own bonds at prices above their face value. The company had bought back some of its bonds during World War I when bond prices were high due to low interest rates. When it later sold these bonds after interest rates rose again, it made a loss and claimed this as a deduction on its taxes. However, the IRS disallowed this claim arguing that such losses are capital investments rather than ordinary business expenses deductible under section 234(a)(1) of the Revenue Act of 1918. The Supreme Court sided with Diamond Alkali Co., ruling that corporations can indeed deduct losses incurred from buying back their own securities at higher-than-face-value prices if they subsequently sell them at lower values due to market fluctuations.

In the dissenting opinion for Heiner v. Diamond Alkali Co., Justice Stone argued that the majority's decision was inconsistent with previous rulings of the court and violated principles of statutory interpretation. He contended that a taxpayer should be allowed to deduct losses from their income tax return when they become apparent, not necessarily when they are realized through sale or exchange. In this case, he believed that Diamond Alkali Co.'s loss on its investment in Liberty Bonds became evident during World War I due to market depreciation, even though it did not sell them until later. Therefore, according to Justice Stone, such a loss should have been deductible at once under Section 214(a)(5) of Revenue Act of 1921 rather than waiting until realization by sale or exchange as required by Treasury Regulations 45 Article 156 and upheld by majority ruling.