In the 1935 case of Helvering v. San Joaquin Fruit & Investment Co., the U.S Supreme Court was tasked with deciding whether or not a corporation could deduct losses from sales of property to its shareholders. The San Joaquin Fruit and Investment Company had sold properties at a loss to its shareholders, who were also directors and officers in the company, during liquidation proceedings. They then claimed these losses as deductions on their federal income tax return. The Commissioner of Internal Revenue rejected this claim, arguing that such transactions between a corporation and its shareholders are not recognized for tax purposes because they do not change economic positions substantially. The Supreme Court sided with the Commissioner's interpretation of Section 23(e)(2) of the Revenue Act (1928), which allows corporations to deduct "losses sustained during taxable year" but does not specify if it includes those incurred through sales to stockholders. In an unanimous decision written by Justice Benjamin Cardozo, it held that no deductible loss occurred when property is transferred from a corporation to its stockholders since there is no meaningful change in beneficial ownership.

The dissenting opinion in the case of Helvering v. San Joaquin Fruit & Investment Co., argued that the majority's interpretation of Section 113(a)(6) and (8) was incorrect. The dissent believed that these sections should be read together, not separately as the majority had done. They contended that when read together, it is clear that Congress intended for a company to adjust its basis only if it received property or money in exchange for stock during reorganization. In this case, no such exchange occurred; instead, San Joaquin simply transferred its assets to another corporation without receiving anything in return. Therefore, according to the dissenters' interpretation of Section 113(a), there should have been no adjustment made to San Joaquin's basis following their reorganization.