In the 1918 case of Caldwell et al., Copartners, Trading as Caldwell & Dunwody v. United States, the Supreme Court ruled on a dispute regarding income tax liability. The plaintiffs were partners in a law firm that had received payment for services rendered over several years but only reported this income when it was actually paid rather than when it was earned. The Internal Revenue Service (IRS) argued that the money should have been taxed in the year it was earned according to an "accrual" method of accounting. However, since there were no specific regulations requiring businesses to use accrual accounting at that time, and because legal precedent suggested cash-based accounting could be used unless specifically prohibited by law or regulation, the court sided with Caldwell and his partners. They held that taxpayers may compute their income tax based upon receipts and disbursements (cash basis), unless required by Treasury Department Regulations to compute it upon an accrual basis.

In the dissenting opinion for Caldwell et al., Copartners, Trading as Caldwell & Dunwody v. United States (1918), Justice Holmes argued that the majority's decision to uphold a tax on cotton futures contracts was incorrect. He believed that these contracts were not property in themselves but rather agreements about future transactions of property and therefore should not be subject to taxation under the Revenue Act of 1916. Furthermore, he contended that such taxes could potentially disrupt commerce by discouraging people from entering into futures contracts due to increased costs associated with them. This would ultimately harm both individuals involved in these transactions and overall economic activity.