The U.S. Supreme Court case Penn Mutual Life Insurance Company v. Lederer, Collector of Internal Revenue in 1919 revolved around the issue of taxation on life insurance policies. The Penn Mutual Life Insurance Company had issued paid-up and cash surrender values to policyholders who discontinued their contracts before maturity, which were then taxed by the federal government under the War Revenue Act of 1917 as income from business or property dealings. The company contested this tax imposition arguing that these payments should not be considered profit since they are essentially a return of part of premiums previously paid by policyholders themselves and thus do not constitute taxable income under law. However, the Supreme Court ruled against Penn Mutual stating that regardless if it's seen as a return premium or an investment gain, it still constitutes income for purposes of taxation because it is derived from capital invested in its business operations; hence subject to taxes imposed by Congress through legislation such as the War Revenue Act.

In the dissenting opinion for Penn Mutual Life Insurance Company v. Lederer, Justice Holmes disagreed with the majority's interpretation of tax law. He argued that a life insurance company’s reserves should not be considered as debts when calculating taxable income under the Revenue Act of 1916. According to him, these reserves are merely estimates or provisions for future liabilities and do not constitute actual indebtedness until they become due upon death claims or policy maturities. Therefore, he believed it was incorrect to deduct them from gross income in determining net income subject to taxation. He also pointed out that if Congress had intended such an unusual treatment of reserve funds, it would have clearly stated so in its legislation.