In the 1940 case of Helvering, Commissioner of Internal Revenue v. Eubank, the U.S Supreme Court ruled on a matter related to income tax and life insurance policies. The respondent, Mr. Eubank had taken out several life insurance policies which he later sold for less than their face value but more than what he paid in premiums. The IRS argued that this profit should be considered taxable income under Section 22(a) of the Revenue Act of 1932 and assessed additional taxes against him accordingly. However, Mr.Eubank contended that these profits were not taxable as they represented returns from capital investments rather than ordinary income. The court sided with the IRS stating that while proceeds received by beneficiaries upon death are exempted from taxation under Section 22(b), there is no such exemption for policyholders who sell their policies before maturity or death occurs; thus making any gains realized through such sales subject to federal income tax laws.

In the dissenting opinion for Helvering v. Eubank, Justice McReynolds disagreed with the majority's decision to tax Mr. Eubank on his life insurance policy dividends. He argued that these dividends were not income but rather a return of overpaid premiums and therefore should not be subject to taxation under the Sixteenth Amendment which allows Congress to levy an income tax without apportionment among states or regard to any census or enumeration. According to him, this interpretation was consistent with previous court decisions and Congressional intent when passing relevant legislation. Furthermore, he contended that taxing such dividends would result in unjust double taxation as both premium payments and resulting dividends would be taxed.