In Parsons et al. v. Smith, Former Collector of Internal Revenue (1958), the U.S Supreme Court ruled in favor of the plaintiffs, who were shareholders in a dissolved corporation and had received liquidating dividends from it. The issue was whether these dividends should be treated as capital gains or ordinary income for tax purposes under Section 115(c) of the Internal Revenue Code. The court held that since there was no evidence to suggest that Congress intended to treat such distributions differently than other corporate distributions, they should be considered as part payment in exchange for stock and thus qualify for capital gains treatment rather than being taxed as ordinary income.

In the dissenting opinion for Parsons et al. v. Smith, Justice Brennan argued that the majority's decision to uphold a tax on dividends received by shareholders of an Alaska corporation was incorrect because it violated principles of intergovernmental tax immunity. He contended that since Alaska had not yet been admitted as a state at the time when this case was decided, its corporations should be treated like federal instrumentalities and thus exempt from taxation under existing Supreme Court precedents. Furthermore, he disagreed with the majority's interpretation of these precedents and believed they were being applied inconsistently in this case. He also expressed concern about potential negative impacts on future economic development in territories seeking statehood if such taxes were allowed to stand.