In the case of Lynch v. Turrish, 1917, the U.S Supreme Court was tasked with deciding whether a tax imposed on distilled spirits stored in bonded warehouses could be considered an unconstitutional direct tax without apportionment. The plaintiff, Turrish had refused to pay taxes on his whiskey that was aging in government bonded warehouses arguing that it constituted an illegal direct tax. However, the court ruled against him stating that this levy did not qualify as a direct tax but rather fell under excise taxes which are constitutionally permissible and do not require apportionment among states according to population. Therefore, such taxation is within Congress's power under Article I Section 8 of the Constitution granting them authority "to lay and collect Taxes, Duties, Imposts and Excises." This decision upheld federal taxing powers over goods held in bond or storage.

In the dissenting opinion for Lynch v. Turrish, Justice Holmes argued that the majority's decision was a misinterpretation of tax law and an overreach of judicial power. He contended that Congress had intended to tax all income from whatever source derived, including dividends paid by corporations out of earnings accumulated before the Sixteenth Amendment became effective. The majority's ruling exempted such dividends from taxation, which Holmes believed contradicted legislative intent and undermined revenue collection efforts during a time when financial resources were needed for World War I. Moreover, he criticized his colleagues for unnecessarily deciding on constitutional questions instead of resolving statutory interpretation issues first as per standard judicial practice.