In the 1940 case Pfaff et al., Executors v. Commissioner of Internal Revenue, the U.S. Supreme Court was tasked with determining whether or not certain payments made by a corporation to its deceased president's estate were deductible as "ordinary and necessary" business expenses under section 23(a) of the Revenue Act of 1928. The corporation had agreed to pay Mr. Pfaff's estate $25,000 per year for five years after his death in recognition of his past services and contributions to the company. The Commissioner argued that these payments constituted non-deductible distributions of profits rather than legitimate business expenses. The court ruled in favor of the Commissioner, holding that these payments were indeed distributions disguised as compensation for services rendered by Mr.Pfaff prior to his death and thus could not be deducted from corporate income tax liability under section 23(a). This decision set an important precedent regarding what constitutes an ordinary and necessary expense in relation to corporate taxation.

In the dissenting opinion for Pfaff et al., Executors, v. Commissioner of Internal Revenue, Justice Black disagreed with the majority's interpretation of Section 302(c) of the Revenue Act. He argued that this section was intended to prevent tax evasion by ensuring that only those who truly relinquished control over their property could claim a deduction for estate taxes. In his view, Mr. Pfaff had not genuinely given up control because he retained an option to repurchase shares in his company at any time before his death and thus should not be allowed to deduct these shares from his gross estate for tax purposes. Furthermore, Justice Black contended that allowing such deductions would create a loophole through which wealthy individuals could avoid paying their fair share in taxes by temporarily transferring assets without actually losing control over them.