The McFeely v. Commissioner of Internal Revenue case in 1935 revolved around the issue of whether payments made to a retired employee under an agreement for past services were taxable as income or not. The petitioner, Mr. McFeely, had been employed by the Baltimore and Ohio Railroad Company for over forty years before retiring due to poor health conditions. Upon his retirement, he entered into an agreement with the company that would pay him monthly sums until death as compensation for his past services rendered during employment. However, these payments were subjected to federal income tax which led Mr.McFeely to challenge this decision on grounds that they should be considered gifts rather than taxable income since there was no obligation on part of the employer to make such payments after termination of service relationship. However, Supreme Court ruled against him stating that these payments constituted gross income according to Section 22(a) of Revenue Act and hence are subjectable taxation irrespective if it's voluntary payment from employer side or obligatory one based upon contractual terms between both parties involved.

In the dissenting opinion for McFeely v. Commissioner of Internal Revenue, it was argued that the majority's interpretation of "employee" under Section 811(b) of the Revenue Act was too narrow. The dissenting justices believed that a broader definition should be applied which would include individuals who perform services in an employment relationship regardless if they are common law employees or not. They contended that this broad interpretation is more consistent with Congress' intent to tax income derived from labor and personal services as well as its aim to prevent evasion through contractual arrangements designed to disguise true employer-employee relationships. Furthermore, they pointed out inconsistencies in how similar terms were interpreted across different sections within the same act, arguing for uniformity in statutory construction.