The U.S. Supreme Court case Rainwater et al., Doing Business As R. S. Rainwater & Sons, et al. v United States in 1957 revolved around the issue of whether a taxpayer could deduct from gross income the cost of drilling oil wells that turned out to be dry holes under section 23(m) and (w) of the Internal Revenue Code as it stood before its amendment in 1951 by Section 312(d)(1). The court ruled against the taxpayers, stating that costs incurred for unsuccessful exploratory drilling were capital expenditures and not deductible business expenses or losses under existing tax law at that time. This decision was based on their interpretation that these costs represented investments made with an expectation of profit over a long term rather than ordinary and necessary business expenses which are immediately deductible.

In the dissenting opinion for Rainwater et al., Doing Business As R. S. Rainwater & Sons, et al. v. United States, Justice Brennan argued that the majority's decision to uphold a tax on cotton futures contracts was inconsistent with previous Supreme Court rulings and Congressional intent regarding commodity taxes. He contended that Congress had intended to exempt these types of transactions from taxation when it passed legislation in 1936 regulating commodities exchanges, as evidenced by its failure to include them in subsequent amendments expanding taxable transactions under this law. Furthermore, he pointed out that the court had previously ruled against taxing similar transactions involving grain futures contracts based on this interpretation of legislative intent and saw no reason why cotton should be treated differently than grain under the same law.