In the 1938 case of Helvering, Commissioner of Internal Revenue v. R.J. Reynolds Tobacco Co., the U.S Supreme Court ruled in favor of the tobacco company, stating that it was not liable for additional taxes levied by the federal government on its overseas profits. The court held that under Section 217(a) and (b) of the Revenue Act 1921, a domestic corporation is entitled to deduct from gross income dividends received from a foreign subsidiary out of earnings accumulated during taxable years when such earnings were exempt from tax because they were derived from sources without United States. This ruling clarified how multinational corporations could be taxed on their foreign income and set an important precedent for future cases involving international taxation issues.

In the dissenting opinion for Helvering v. R.J. Reynolds Tobacco Co., Justice McReynolds disagreed with the majority's interpretation of Section 113(a)(5) of the Revenue Act, which pertains to determining basis for depreciation in property acquired by a corporation through reorganization. He argued that this section should be interpreted as allowing corporations to use their original cost basis when calculating depreciation deductions on assets received during corporate restructuring, rather than using fair market value at time of acquisition as determined by Commissioner Helvering. According to him, adopting such an approach would not only align more closely with legislative intent but also prevent potential abuses where companies could manipulate asset values to gain larger tax benefits. Furthermore, he contended that there was no clear evidence Congress intended for corporations' bases in their properties obtained through reorganizations to be adjusted according to fluctuations in market value.