In the Higgins v. Commissioner of Internal Revenue case in 1940, the U.S. Supreme Court ruled on whether expenses incurred by a taxpayer while managing his investments were deductible from gross income under Section 23(a) of the Revenue Act of 1932. The plaintiff, Mr. Higgins, had argued that these costs should be considered business expenses and thus deducted from his taxable income. However, the court disagreed with this interpretation and held that such expenditures could not be classified as ordinary or necessary business expenses because they did not arise from carrying on any trade or business as specified in Section 23(a). Instead, they were personal living expenses which are non-deductible according to tax law provisions.

In the dissenting opinion for Higgins v. Commissioner of Internal Revenue, Justice McReynolds argued that the majority's decision was inconsistent with previous rulings and interpretations of tax law. He contended that Mr. Higgins' activities were indeed a business as he devoted significant time and effort to managing his investments, which should be considered an active trade or business under Section 23(a) of the Revenue Act of 1928. The justice believed that this interpretation would align more closely with Congress’ intent when drafting tax legislation - to allow deductions for all ordinary expenses paid in carrying on any trade or business activity. Therefore, according to him, Mr.Higgins should have been allowed to deduct his investment-related expenses from his gross income.