In the case of Neuberger v. Commissioner of Internal Revenue, 1940, the U.S Supreme Court was tasked with determining whether or not a taxpayer could deduct losses from their income tax return that resulted from selling securities at less than cost in order to offset capital gains taxes. The court ruled against Mr. Neuberger, stating that he had failed to demonstrate any real economic loss as required by Section 23(e) and (g) of the Revenue Act of 1934 for such deductions to be valid. Instead, his actions were seen as an attempt to manipulate tax laws for personal gain rather than reflecting actual financial hardship or loss on his part. Therefore, it was decided that these types of transactions are not deductible under federal income tax law.

In the dissenting opinion for Neuberger v. Commissioner of Internal Revenue, Justice Frankfurter disagreed with the majority's interpretation of Section 22(a) and (b)(3) of the Revenue Act. He argued that these sections should not be read in isolation but rather as part of a coherent system designed to tax income comprehensively while allowing deductions only where Congress explicitly provided them. According to him, this approach would prevent taxpayers from using artificial arrangements to avoid taxation on their actual economic gains. In his view, Mrs. Neuberger had effectively received an economic benefit when her husband paid off her debt at less than its face value; therefore, she should have been taxed on this gain under Section 22(a). The fact that she did not receive any cash or property directly was irrelevant because it was clear that she had realized a financial advantage through her husband's actions.