In the case of Lucas v. Alexander et al., 1928, the U.S. Supreme Court was tasked with determining whether a taxpayer could deduct losses from sales of stock in corporations that had been liquidated and dissolved prior to sale. The petitioner, Mr. Lucas (Collector of Internal Revenue), argued that such losses should not be deductible under Section 214(a)(5) of the Revenue Act as they were not incurred in any transaction entered into for profit since there was no possibility for gain after dissolution. The respondents, Mr. and Mrs. Alexander, contended otherwise; they believed their loss on these stocks should be tax-deductible because it resulted from transactions made for profit - even though those corporations had already been liquidated when sold. The court sided with the Alexanders ruling that despite being unable to generate future profits due to dissolution at time of sale, these transactions still fell within scope intended by Congress when creating this deduction provision - i.e., investment activities where one risks capital in hopes of financial return.

In the dissenting opinion for Lucas v. Alexander et al., Justice Stone argued that the majority's interpretation of Section 202(a) of the Revenue Act was incorrect. He believed that Congress intended to tax all income from any source derived, and not just those specifically mentioned in the law. According to him, this included gifts made by a corporation to its stockholders out of earnings or profits accumulated since March 1st, 1913. The majority’s decision would allow corporations with large surplus incomes to distribute them as gifts without taxation which he saw as an evasion of taxes rather than legitimate avoidance under existing laws. He also disagreed with their view on dividends and stated that they should be taxed whether distributed out of current earnings or accumulated profits because both are essentially corporate income given back to shareholders.