In the case of United States v. State Investment Company et al., 1923, the Supreme Court was asked to determine whether a corporation could deduct losses from sales of property in calculating its income tax. The properties in question were acquired by foreclosure on defaulted mortgages and sold at a loss. The government argued that these transactions did not qualify for deduction as they were not part of the company's regular business operations but rather incidental or occasional activities. The court ruled against the government, stating that there is no requirement under law for such transactions to be routine or frequent to qualify for deductions. It held that any transaction entered into with an intent to profit qualifies as trade or business activity regardless of frequency or regularity. Therefore, corporations can claim deductions on losses incurred from sales of property even if those sales are infrequent and not part of their usual line of business provided they intended to make a profit when entering into such transactions.

In the dissenting opinion for United States v. State Investment Company et al., Justice McReynolds argued that the majority's decision was inconsistent with previous rulings and interpretations of tax law. He contended that there was no legal basis to impose a tax on the transfer of property from an individual to a corporation, as this did not constitute income under any reasonable definition or interpretation of existing laws. Furthermore, he asserted that such transfers were common business practices intended to facilitate management and control rather than evade taxes. Therefore, they should not be penalized by arbitrary taxation policies which could potentially discourage legitimate business activities and transactions. He also expressed concerns about potential abuses of power by taxing authorities if they were allowed to arbitrarily redefine what constitutes income based on their own subjective judgments or preferences.