In the case of Helvering v. Midland Mutual Life Insurance Co., the U.S Supreme Court was tasked with determining whether or not a life insurance company could deduct from its gross income, for federal tax purposes, amounts paid to policyholders as dividends. The court ruled in favor of the Commissioner of Internal Revenue, Guy T. Helvering, stating that such dividends were not deductible business expenses under section 203(a)(2) of the Revenue Act (1934). This decision was based on their interpretation that these payments were essentially returns on premium overpayments and thus constituted part of an insurer's adjusted gross income rather than being considered ordinary and necessary business expenses. Therefore, they should be included in taxable income calculations.

In the dissenting opinion for Helvering v. Midland Mutual Life Insurance Co., Justice Cardozo disagreed with the majority's view that policyholders in a mutual life insurance company are not true owners, and therefore, their share of surplus should not be taxed as income. He argued that these policyholders have substantial rights and privileges akin to those of shareholders in a corporation, including voting rights and entitlement to dividends or surplus distribution upon dissolution. Therefore, he contended that they should be considered real owners under tax law principles. Furthermore, he pointed out inconsistencies in previous court rulings regarding similar issues involving other types of companies such as building-and-loan associations where members were deemed true owners despite having less control than policyholders do over mutual insurance companies.