The U.S. Supreme Court case Merchants' Loan & Trust Company, Trustee of Estate of Ryerson v. Smietanka involved a dispute over the taxation of an estate's income. The trustee for the estate argued that under federal law, it was not liable to pay taxes on its income because it had been distributed among beneficiaries during the tax year in question and therefore should be taxed as their personal income instead. However, former United States Collector of Internal Revenue for Illinois disagreed and insisted that the trust itself was taxable regardless if distributions were made or not within a given tax year. The court ruled in favor of Smietanka stating that even though all net earnings were paid out to beneficiaries during 1913 (the relevant tax year), this did not exempt them from being considered part of gross income earned by the trust which is subject to taxation.

In the dissenting opinion for Merchants' Loan & Trust Company v. Smietanka, Justice Holmes argued that the majority's interpretation of the Revenue Act was incorrect. He contended that a deceased person's estate should not be taxed on its entire value at death, but only on any increase in value during administration. The justice believed this approach to be more consistent with both common sense and legal precedent regarding taxation principles. Furthermore, he criticized the majority for their literal reading of "net estate," arguing it led to an unjust result by imposing a tax burden disproportionate to actual economic gain or loss experienced by an estate under administration.