In the case of United States v. Consumer Life Insurance Co., 1976, the Supreme Court was asked to determine whether insurance companies were liable for federal income tax on policyholder dividends left with the company at a guaranteed rate of interest. The Internal Revenue Service (IRS) argued that these amounts should be considered taxable income because they remained under the control and use of the insurer. However, Consumer Life Insurance Co., along with other insurers, contended that these funds represented liabilities rather than taxable income since they were owed to policyholders. The court ruled in favor of Consumer Life Insurance Co., stating that such dividends retained by an insurer do not constitute taxable income under Section 61(a)(1) or Section 801(b)(1)(C) of the Internal Revenue Code as interpreted by Treasury Regulations §1.801-3(c). This decision clarified how certain aspects of life insurance taxation are handled and set a precedent for future cases involving similar issues.

In the dissenting opinion for United States v. Consumer Life Insurance Co., it was argued that the majority's interpretation of Section 809(a) of the Internal Revenue Code was incorrect. The dissent believed that this section should be interpreted to allow life insurance companies to deduct policyholder dividends from their gross income in the year they are declared, rather than when they are paid out. They contended that this interpretation is more consistent with both the language and intent of Congress when drafting this law, as well as with general accounting principles used by insurance companies. Furthermore, they disagreed with how much weight was given to legislative history in interpreting this statute and felt there were other factors which could have been considered instead.