In the case of Stratton's Independence, Ltd. v. Howbert (1913), the U.S. Supreme Court ruled that gross income from mining operations was subject to federal tax under the Corporation Tax Act of 1909, despite arguments that it constituted a mere conversion of capital assets and should not be considered as taxable profit or gain. The court held that while minerals in situ are part of real estate and thus capital, once they have been extracted they become ordinary objects of commerce which can generate taxable income when sold for more than their extraction cost. Therefore, net profits derived from selling mined ore were deemed taxable income rather than non-taxable return on capital investment.

In the dissenting opinion for Stratton's Independence, Ltd. v. Howbert (1913), Justice Holmes argued that the majority erred in their interpretation of what constitutes "gross income" under federal tax law. He contended that gross income should include not just profits from sales but also any increase in value of property or assets held by a company, even if they have not been sold yet. In this case, he believed that the gold mined by Stratton's Independence should be considered part of its gross income and therefore subject to taxation, regardless of whether it had been sold or remained as inventory at year-end. Holmes' view was grounded on his belief that wealth accumulation through increased asset values is a form of economic gain and thus taxable under federal law.