In the case of Malat et ux. v. Riddell, District Director of Internal Revenue (1965), the U.S Supreme Court was tasked with interpreting a provision in the tax code that allowed for deductions on losses incurred "in any transaction entered into for profit." The dispute arose when Bernard Malat and his wife sold their interest in a real estate venture at a loss and claimed it as a deduction on their income taxes. The IRS denied this claim, arguing that since they had not intended to make profits from selling property but rather from operating an apartment complex, they were ineligible for the deduction under Section 165(c)(2) of the Internal Revenue Code. The Supreme Court disagreed with this interpretation by ruling unanimously in favor of Malat. They held that "transaction entered into for profit" does not only refer to transactions solely motivated by profit but also includes those where there is some potential or expectation of gain even if other motivations are present too. Therefore, since Mr.Malat's investment could have potentially resulted in financial gains despite its primary purpose being otherwise, he was entitled to deduct his losses.

In the dissenting opinion of Malat et ux. v. Riddell, District Director of Internal Revenue, Justice Harlan argued that the majority's interpretation of "primarily" as meaning "of first importance" or "principally" was incorrect in relation to Section 1221(1) of the Internal Revenue Code. He believed that this interpretation could lead to confusion and inconsistency in future applications because it would require a subjective determination about what constitutes 'first importance'. Instead, he suggested that “primarily” should be interpreted as meaning “more than 50%”. This approach would provide a clear numerical standard for determining whether property is held primarily for sale to customers in ordinary business operations and thus subject to capital gains tax under section 1221(1). By doing so, it would ensure consistency and fairness in its application across different cases.