In the case of New Hampshire Fire Insurance Co. v. Scanlon, District Director of Internal Revenue et al., 1959, the U.S Supreme Court was asked to decide on a tax dispute involving an insurance company and the IRS. The issue at hand was whether or not unpaid fire losses could be deducted from gross income for federal income tax purposes under Section 832(b)(5) of the Internal Revenue Code (IRC). The New Hampshire Fire Insurance Company had claimed these deductions in its annual returns but they were disallowed by Commissioner who argued that only paid losses can be deducted according to IRC provisions. However, this decision was reversed by both Tax Court and Second Circuit court which held that unpaid losses are deductible as well if they are charged off during taxable year in accordance with sound accounting principles followed by taxpayer's insurance business practice consistently over years. This led IRS to appeal before Supreme Court where it affirmed lower courts' rulings stating that Congress intended such deduction provision for insurance companies so as to reflect their true earnings accurately considering nature of their business involving contingent liabilities.

In the dissenting opinion for New Hampshire Fire Insurance Co. v. Scanlon, it was argued that the majority's decision to allow a tax deduction for an insurance company's loss reserve funds was incorrect and inconsistent with previous court rulings on similar matters. The dissenting justices believed that these reserves should not be considered as losses until they are actually paid out in claims, rather than when they are set aside by the company. They pointed out that allowing such deductions could potentially lead to abuse of the tax system by companies who might inflate their estimated future liabilities in order to reduce their current taxable income. Furthermore, this interpretation contradicts established principles of accounting and taxation which require actual economic loss before any deduction can be claimed.