In the case of Helvering v. O'Donnell, the United States Supreme Court ruled that income from a life insurance policy could be taxed. The respondent, O'Donnell, was a beneficiary of two life insurance policies and argued that the proceeds should not be considered gross income under Section 22(a) of the Revenue Act of 1928 because they were not derived from capital or labor but rather as a result of death. However, Commissioner Guy T. Helvering contended that these proceeds constituted taxable income as per federal law. The court sided with Commissioner Helvering in an unanimous decision stating that while it is true some forms of receipts such as gifts and inheritances are exempted from taxation by statute or implication; there is no statutory exemption for amounts received through life insurance policies when paid to individual beneficiaries in installments exceeding those payable at death. This ruling established precedent for taxing benefits received beyond immediate death benefits on life insurance policies.

In the dissenting opinion for Helvering v. O'Donnell, Justice Cardozo disagreed with the majority's ruling that income from a trust established in Texas by an individual living in Massachusetts was taxable under federal law. He argued that this interpretation of the Revenue Act of 1928 was incorrect and inconsistent with its legislative history and purpose. According to him, Congress intended to tax only those trusts where beneficiaries had a guaranteed right to receive income or could demand it at any time; not ones like O’Donnell’s where trustees had full discretion over distributions. He believed this distinction protected taxpayers from being taxed on potential income they may never actually receive while still ensuring revenue collection from more certain sources of wealth.