This case was a dispute between the Commissioner of Internal Revenue and Preston, a taxpayer. Preston had received a payment from a corporation in which he was a shareholder. The Commissioner argued that the payment was taxable income, while Preston argued that it was not. The Supreme Court held that the payment was taxable income. The Court reasoned that the payment was made to Preston in his capacity as a shareholder, and that it was not a return of capital. The Court noted that the payment was made to Preston in exchange for his services as a shareholder, and that it was not a return of his investment. The Court also noted that the payment was not a dividend, as it was not paid out of the corporation's profits. The Court concluded that the payment was taxable income, and that Preston was liable for the taxes due on it.

Justice Field delivered the dissenting opinion in Walsh v. Preston, arguing that the Commissioner of Internal Revenue had no authority to assess a tax on an individual's income from property owned prior to the passage of a new revenue act. He argued that Congress did not intend for this particular law to be applied retroactively and thus it should not apply to individuals who acquired their property before its enactment. Furthermore, he noted that if such taxes were allowed then there would be no limit as to how far back they could reach and citizens would have little protection against oppressive taxation by Congress. Justice Field concluded his dissent by stating that allowing such taxation without clear congressional intent was unconstitutional and violated fundamental principles of justice which must be respected even when dealing with public matters like taxation laws.