In the United States v. Arzner case of 1932, the Supreme Court dealt with a dispute over income tax liability. The defendant, Dorothy Arzner, was a film director who had entered into an agreement with Paramount Pictures in which she would receive part of her salary as shares in the company's stock at below-market prices. The government argued that this constituted taxable income and sought to recover unpaid taxes from Arzner. However, she contended that these were not wages but rather capital gains and thus should be taxed differently. The court ruled in favor of the government stating that regardless of how payment is made (whether it be cash or property), it still constitutes compensation for services rendered and therefore must be considered taxable income under U.S law.

In the dissenting opinion for United States v. Arzner, it was argued that the taxpayer should not be allowed to deduct losses from his income tax return resulting from sales of stock in corporations he controlled. The justice disagreed with the majority's interpretation of "loss" under Section 23(e) of the Revenue Act of 1928, arguing that this provision was intended to cover actual out-of-pocket losses and not merely decreases in value or worth. He contended that allowing such deductions would open a loophole for taxpayers who control corporations to manipulate their tax liabilities by timing sales at a loss when convenient for them. This could lead to significant revenue loss for the government and undermine fairness in taxation.