In Koshland v. Helvering, Commissioner of Internal Revenue, 1935, the U.S Supreme Court ruled on a tax dispute involving dividends and stock rights. The petitioner was appealing against an earlier decision by the Board of Tax Appeals that had upheld the respondent's determination that certain distributions made to her in 1926 were taxable income rather than non-taxable returns of capital. The case revolved around whether or not these distributions constituted dividends under Section 201(g) and (h) of the Revenue Act of 1924. In its ruling, the Supreme Court held that when a corporation with two classes of stock makes a distribution to all shareholders pro rata without regard for class distinctions, such distribution is essentially equivalent to a dividend within meaning of Section 115(f)(1), even if it results in changing relative rights and interests among different classes because it does not change their proportionate interest in corporate assets.

In the dissenting opinion for Koshland v. Helvering, Justice Stone argued that the majority's decision to tax stock dividends as income was inconsistent with previous court rulings and Congressional intent. He contended that a dividend made in common stock of a corporation should not be considered taxable income because it does not increase the shareholder's wealth or provide them with any additional resources they can use independently from their ownership interest in the company. Instead, he viewed such dividends as merely changing the form of an existing investment rather than creating new wealth. Therefore, according to Justice Stone, these types of dividends should not be subject to taxation under federal law.