The Industrial Trust Co. v. United States case in 1935 revolved around the issue of whether or not a corporation could deduct from its gross income, for federal tax purposes, amounts paid to redeem its own stock under a plan of recapitalization. The Supreme Court ruled that such payments were essentially capital transactions and thus non-deductible as ordinary business expenses under Section 234(a)(1) of the Revenue Act of 1926. This decision was based on the premise that these payments did not represent losses incurred during regular operations but rather changes in corporate structure and financing methods which are typically considered capital expenditures.

In the dissenting opinion for Industrial Trust Co. et al., Executors, v. United States (1935), Justice Stone argued that the majority's interpretation of Section 302(c) of the Revenue Act was incorrect and inconsistent with its legislative history and purpose. He contended that Congress intended to tax only those transfers made in contemplation of death as substitutes for testamentary dispositions, not all gratuitous inter vivos transfers by a decedent within two years before his death regardless of intent or motive behind them. The justice believed this misinterpretation led to an unjust result where gifts given without any thought towards impending death were taxed simply because they fell within a certain time frame prior to the donor's demise. This, he asserted, went beyond what Congress had intended when it enacted Section 302(c).