In Massachusetts Mutual Life Insurance Co. v. United States, the Supreme Court was asked to determine whether a life insurance company could deduct from its gross income the increase in reserve funds required by state law for policyholders who had not yet made claims. The court ruled that these reserves were indeed deductible as "ordinary and necessary" business expenses under federal tax law because they represented an actual liability of the insurer to its policyholders, even though no specific amount was due or payable during any particular year. This decision clarified that such reserves are part of the cost of doing business for insurance companies and should be treated as such for tax purposes.

In the dissenting opinion for Massachusetts Mutual Life Insurance Co. v. United States, Justice Stone argued that the majority's interpretation of "income" under the Sixteenth Amendment was too broad and inconsistent with previous court decisions. He contended that policyholder dividends should not be considered income because they are essentially a return of overpaid premiums, rather than profit or gain derived from capital or labor as defined by tax law. Furthermore, he pointed out that treating these dividends as taxable income would result in double taxation since insurance companies already pay taxes on their earnings before distributing any surplus to policyholders. Therefore, according to Justice Stone's view, such an interpretation contradicts both legal precedent and fundamental principles of fairness in taxation.