In the case of Merrill v. Fahs, Collector of Internal Revenue in 1944, the Supreme Court was asked to decide whether a taxpayer could deduct legal expenses incurred while contesting an estate tax deficiency from his gross income. The petitioner argued that these costs were business expenses and therefore deductible under section 23(a)(1)(A) of the Revenue Act of 1938. However, the court disagreed with this interpretation. It held that such expenditures are not ordinary or necessary business expenses because they do not arise from carrying on any trade or business as defined by law but rather stem from personal activities related to managing one's own property and affairs. Therefore, they cannot be deducted from gross income for federal income tax purposes.

In the dissenting opinion for Merrill v. Fahs, it was argued that the majority's interpretation of Section 22(b)(5) of the Revenue Act was incorrect. The dissenting justices believed that this section should not be interpreted to mean that life insurance proceeds are exempt from gross income only when they are paid out in a lump sum upon death. They contended that Congress intended for all life insurance proceeds to be excluded from gross income, regardless of whether they were paid out in installments or as a lump sum. This interpretation is supported by both legislative history and previous court rulings on similar issues. Therefore, according to these justices, Mr. Merrill should not have been required to include his wife’s installment payments in his gross income calculation.