In the United States v. Farrar case of 1929, the Supreme Court ruled on a dispute involving federal income tax law. The defendant, Farrar, had sold his stock in a corporation and claimed that he was not liable for paying taxes on the profit because it was capital gain rather than ordinary income. However, the government argued that since Farrar had received dividends from this stock prior to selling it which were used in part to pay off debts owed by him to the corporation, these dividends should be considered as ordinary income and therefore taxable. The court sided with the government's interpretation of tax law and held that when a shareholder uses corporate funds or assets for personal benefit without an appropriate reduction in their share value (as happened here), such transactions are equivalent to receiving dividend payments which are subject to taxation as regular income.

In the dissenting opinion for United States v. Farrar, Justice Stone argued that the majority's decision to uphold a conviction based on evidence obtained through wiretapping was inconsistent with previous court rulings and violated constitutional protections against unreasonable searches and seizures. He contended that wiretapping constituted an invasion of privacy equivalent to physical intrusion into a person's home or office, regardless of whether it occurred without trespassing onto private property. Furthermore, he expressed concern about the potential misuse of such surveillance methods by law enforcement authorities if left unchecked by judicial oversight. In his view, allowing evidence gathered through these means would undermine citizens' Fourth Amendment rights and set a dangerous precedent for future cases involving similar issues.