In the case of Reinecke v. Spalding, 1929, the U.S Supreme Court was tasked with determining whether or not a federal estate tax could be levied on an inheritance that had been transferred via a trust before the enactment of such taxes. The decedent in question had established two trusts for his children prior to his death and before any federal estate tax laws were enacted. After his death, however, these trusts were included in calculating the total value of his gross estate for taxation purposes by Internal Revenue Service (IRS). The beneficiaries contested this inclusion arguing that since their father set up these trusts while he was alive and at a time when there were no federal estate taxes, they should not be subject to them now after his death. However, upon review by the Supreme Court it ruled against them stating that despite being created during lifetime and pre-tax law era; those assets still formed part of decedent's gross estate as per existing law at time of death thus liable for taxation.

In the dissenting opinion for Reinecke v. Spalding, Justice Stone argued that the majority's interpretation of Section 202(a) and (b) of the Revenue Act of 1921 was incorrect. He believed that these sections should be read together to mean that a taxpayer who sells property acquired by inheritance within two years after death is entitled to deduct from his gross income an amount equal to its value at time of death plus any increase in value during those two years due to improvements made by him or expenditures incurred for its preservation or maintenance. The majority’s decision not only contradicted this reading but also disregarded established principles regarding tax deductions and exemptions which are matters strictly governed by statute law. Furthermore, he pointed out inconsistencies in their reasoning when compared with other cases involving similar issues about estate taxation and capital gains treatment under federal tax laws.