In the 1941 case of Helvering, Commissioner of Internal Revenue v. Lerner Stores Corp., the U.S Supreme Court was tasked with determining whether or not a corporation could deduct losses from its income tax return that resulted from thefts committed by employees. The Lerner Stores Corporation had suffered significant financial loss due to employee theft and sought to claim these losses as deductions on their federal income tax returns. However, the Commissioner of Internal Revenue denied this deduction under Section 23(e)(3) of the Revenue Act which only allowed for deductions in cases where there were "losses incurred in trade or business". The court ruled in favor of Lerner Stores Corp., stating that such losses can be considered as ordinary and necessary expenses paid during taxable year in carrying on any trade or business. Therefore, they are deductible under section 23(a), even though they may also be capital expenditures.

In the dissenting opinion for Helvering v. Lerner Stores Corp., Justice Frankfurter disagreed with the majority's interpretation of Section 22(b)(9) of the Revenue Act, which excluded from gross income "amounts received through accident or health insurance." He argued that this provision was intended to exempt only personal injury compensation and not business loss coverage. The justice believed that interpreting it otherwise would lead to an unjustified tax exemption for businesses, contrary to Congress' intent when drafting the legislation. Furthermore, he contended that such a broad interpretation could potentially open up loopholes in future taxation cases. Therefore, he dissented from the majority ruling which held that payments made under a policy insuring against business interruption due to employee sickness were not taxable as income.