In the 1934 case of Helvering v. Morgan's Inc., the Supreme Court ruled on a tax dispute between the Commissioner of Internal Revenue and several corporations, including Morgan's Inc. The issue at hand was whether or not certain payments made by these corporations should be considered as dividends for taxation purposes. These payments were made to shareholders who had surrendered their stock in exchange for securities during a corporate reorganization process. The court held that such payments are indeed taxable as dividends under Section 115(f) of the Revenue Act of 1928, which defines "dividends" broadly to include any distribution made by a corporation out of its earnings or profits accumulated after February 28, 1913.

In the dissenting opinion for Helvering v. Morgan's Inc., Justice Stone argued that the majority had misinterpreted the Revenue Act of 1928. He believed that Congress intended to tax corporations on their net income, not gross income, and thus disagreed with taxing a corporation on money it never actually received. The case involved a corporation which issued stock dividends; while these were technically part of its gross income, they did not increase its net assets or wealth because they were simply redistributions of existing equity among shareholders. Therefore, according to Justice Stone’s interpretation of Congressional intent in drafting tax laws at that time, such dividends should not be taxable as corporate profit since no actual gain was realized by the company from issuing them.