The U.S. Supreme Court case Lucas v. The Pilliod Lumber Company in 1929 revolved around the issue of tax deductions for losses incurred by a corporation due to depreciation of its assets, specifically timberlands and standing timber owned by the company. The Commissioner of Internal Revenue had disallowed these deductions, leading to a dispute that reached the Supreme Court. In its decision, the court ruled in favor of Pilliod Lumber Company stating that under applicable revenue laws at that time, corporations were entitled to deduct from their gross income any loss sustained during the taxable year not compensated for by insurance or otherwise including reasonable allowance for exhaustion, wear and tear on property used in trade or business inclusive of obsolescence.

In the dissenting opinion for Lucas v. The Pilliod Lumber Company, Justice Holmes argued that the majority's decision to allow corporations to deduct dividends received from wholly-owned subsidiaries was inconsistent with the intent of Congress when it enacted tax laws. He believed that these dividends were not truly "income" as they did not represent a gain or profit made by the corporation but rather a mere shifting of funds within an economic entity. Therefore, allowing such deductions would result in unfair tax advantages for corporations and undermine revenue collection efforts by the government. Furthermore, he contended that this interpretation could lead to potential abuses where companies might set up subsidiary entities solely for tax avoidance purposes.