In the 1932 case of Murphy Oil Co. v. Burnet, Commissioner of Internal Revenue, the U.S Supreme Court ruled on a tax dispute between an oil company and the IRS. The issue at hand was whether or not certain payments made by Murphy Oil to its shareholders were deductible as ordinary and necessary business expenses under section 234(a)(1) of the Revenue Act of 1918. These payments had been made in order to settle litigation with stockholders who claimed that they had been defrauded by inflated reports on oil production prospects. The court held that these payments were not deductible because they did not qualify as ordinary and necessary business expenses; instead, they represented capital expenditures incurred for the development of corporate assets (i.e., settling disputes over ownership). This decision affirmed previous rulings from lower courts which found in favor of Burnet, Commissioner of Internal Revenue.

In the dissenting opinion for Murphy Oil Co. v. Burnet, it was argued that the majority's decision to deny a deduction for losses incurred by Murphy Oil during its operations in Mexico was incorrect. The dissenting justices believed that the company should be allowed to deduct these losses from their U.S income taxes because they were directly related to business activities and not simply speculative investments or personal expenses. They also disagreed with the majority's interpretation of tax law, arguing that it unfairly penalized companies operating internationally and could potentially discourage American businesses from expanding overseas due to fear of double taxation. Furthermore, they contended that this ruling contradicted previous court decisions which had upheld similar deductions under comparable circumstances.