In the case of Reinecke, Collector v. Gardner, Trustee in 1927, the U.S Supreme Court was tasked with deciding whether a trust's income could be taxed under federal law. The court ruled that it could not because the trust had been created before Congress passed legislation allowing for such taxation. The trustees argued that they were merely holding onto assets until they were distributed to beneficiaries and therefore should not be considered as having any taxable income themselves. They also contended that taxing them would amount to double taxation since beneficiaries would also have to pay taxes on their distributions from the trust. In its decision, the Supreme Court agreed with these arguments and held that trusts created prior to legislative changes cannot retroactively be subjected to tax laws enacted after their creation.

In the dissenting opinion for Reinecke v. Gardner, Justice Stone argued that the majority's interpretation of Section 219(h) of the Revenue Act was incorrect. He believed that this section should be interpreted to mean that stock dividends are not taxable as income unless they represent a distribution of accumulated profits earned by a corporation after March 1, 1913. According to him, if Congress intended for all stock dividends to be taxed regardless of when the profits were earned, it would have explicitly stated so in its legislation. Therefore, he disagreed with the majority's decision and felt that Mr. Gardner should not have been required to pay taxes on his dividend income from The Borden Company because these dividends represented pre-1913 earnings.