In the case of Woodward v. Commissioner of Internal Revenue, 1969, the U.S. Supreme Court ruled that costs incurred by shareholders in connection with their successful proxy fight to gain control over a corporation were not deductible as ordinary and necessary business expenses under Section 162(a) of the Internal Revenue Code but instead should be capitalized. The court reasoned that these expenditures resulted in a significant long-term benefit for shareholders by securing control over corporate policies and thus constituted capital expenditures rather than regular business expenses. This decision clarified tax law regarding shareholder activities related to corporate governance, establishing an important precedent for future cases involving similar issues.

In the dissenting opinion for Woodward v. Commissioner of Internal Revenue, Justice Black argued that the majority's decision was inconsistent with previous tax law interpretations. He contended that legal expenses incurred by shareholders in a proxy fight should not be considered ordinary and necessary business expenses deductible under Section 162(a) of the Internal Revenue Code. Instead, he viewed these costs as capital expenditures since they were made to protect or enhance long-term corporate assets rather than for day-to-day operations. Furthermore, he criticized the majority’s reliance on Eisner v Macomber case which dealt with stock dividends instead of deductibility issue at hand in this case. Lastly, Justice Black expressed concern about potential abuse if such deductions were allowed because it could incentivize corporations to engage in costly litigation without financial consequence.