In the case of Iselin v. United States (1925), the U.S. Supreme Court ruled in favor of James O. Iselin, a taxpayer who had been denied deductions by the Commissioner of Internal Revenue for losses incurred during World War I due to currency devaluation in Europe. The court held that under Section 234(a)(4) of the Revenue Act of 1918, such losses were deductible as they constituted "losses sustained during taxable year and not compensated for by insurance or otherwise." This decision was based on interpreting tax laws with reasonable doubt resolved in favor of taxpayers rather than government entities collecting taxes; thus, it set an important precedent regarding interpretation rules applied to ambiguous tax statutes.

In the dissenting opinion for Iselin v. United States, Justice Oliver Wendell Holmes Jr. argued that the majority's decision was based on an overly literal interpretation of tax law language and failed to consider its purpose and spirit. He believed that the taxpayer should not be allowed to escape taxation by exploiting ambiguities in wording or technicalities in legal definitions, especially when such actions contradict the clear intent of Congress when it enacted these laws. According to him, if a statute is intended to tax profits from certain transactions but fails due to unclear phrasing or omission of specific terms, then courts should interpret it broadly enough so as not to defeat its obvious purpose - which is revenue collection for public use.