In the case of Lewyt Corporation v. Commissioner of Internal Revenue, 1954, the U.S Supreme Court ruled in favor of Lewyt Corp., a vacuum cleaner manufacturer that had set up a reserve fund for potential returns and allowances. The company deducted these reserves from its gross income on its tax return as they were considered future liabilities. However, the IRS disallowed these deductions arguing that only actual losses could be deducted under Section 23(e) (1) and (2) of the Internal Revenue Code. The Tax Court upheld this decision but was reversed by Second Circuit court which held that such reserves are deductible if they are reasonable additions to a reserve for bad debts or other like reserves currently deductible under existing law. The Supreme Court affirmed this ruling stating that there is no rule against deducting estimated future expenses when those estimates have some basis in fact and experience. It further noted that businesses often need to estimate their expenses due to uncertainties inherent in business operations and it would not be fair or realistic to require them to wait until all uncertainties are resolved before taking any deduction.

In the dissenting opinion for Lewyt Corporation v. Commissioner of Internal Revenue, Justice Robert H. Jackson disagreed with the majority's ruling that a corporation could deduct from its taxable income payments made to an employee trust fund on behalf of shareholders who were also employees. He argued that this decision allowed corporations to avoid paying taxes by transferring profits directly to their shareholders through such funds, thereby undermining the principle that corporate earnings should be taxed twice: once when earned by the corporation and again when distributed as dividends. Furthermore, he contended that allowing these deductions would open up opportunities for tax evasion and avoidance schemes which are contrary to public policy and legislative intent behind taxation laws.