In the 1939 case of Higgins, Collector of Internal Revenue v. Smith, the U.S Supreme Court ruled on a matter concerning federal income tax law. The respondent, Smith had sold securities and reported his profits as capital gains rather than ordinary income which resulted in lower taxes. However, the IRS argued that these transactions were part of Smith's regular business operations and should be taxed at a higher rate as ordinary income. The court sided with the IRS stating that even though there was no explicit statutory provision addressing this issue, it was within their power to interpret existing laws to cover such situations based on congressional intent behind those laws. Therefore they held that profits from sales made by an individual who regularly engages in buying and selling securities are taxable as ordinary income regardless if he considers them separate from his regular business or not.

In the dissenting opinion for Higgins v. Smith, Justice Black argued that the majority's decision was inconsistent with previous rulings and interpretations of tax law. He contended that a taxpayer should not be taxed on unrealized gains from stock transactions until those gains are actually realized through sale or exchange. In his view, this interpretation aligns more closely with Congress' intent when it enacted income tax laws. Furthermore, he expressed concern over potential double taxation if taxpayers were required to pay taxes on both their original investment and any subsequent increase in value before they had an opportunity to realize these profits. Ultimately, Justice Black believed that the majority's ruling could lead to unfair treatment of taxpayers and create unnecessary confusion in interpreting tax laws.