In the case of Cullinan v. Walker, 1922, the U.S. Supreme Court dealt with a dispute over taxation related to oil and gas leases in Texas. The plaintiff, J.S. Cullinan, argued that he was improperly taxed on income derived from these leases because they were capital assets and not ordinary income as defined by federal tax law at that time. He contended that his profits should be considered capital gains rather than regular income since they resulted from selling property rights (the oil and gas leases). However, the court disagreed with this interpretation of tax law. The Supreme Court ruled against Cullinan stating that payments received for granting an exclusive right or privilege to extract minerals are taxable as gross income under federal laws applicable during those years (1916-1918). This decision established a precedent regarding how such lease transactions would be treated for tax purposes going forward: namely as ordinary income subject to standard rates instead of being classified as capital gains which typically have lower tax rates.

The dissenting opinion in the case of Cullinan v. Walker, as Collector of Internal Revenue for the First District of Texas, argued that there was no legal basis to deny a tax refund to Magnolia Petroleum Company (formerly known as Cullinan Oil Company). The majority ruling held that because the company had not filed a claim for abatement before paying its taxes, it could not later seek a refund. However, the dissent pointed out that this requirement only applied if an assessment had been made by tax authorities; in this case, no such assessment occurred and thus should not prevent Magnolia from seeking redress. Furthermore, they contended that even if an error was made on part of taxpayer while calculating their own liability does not mean they are forever barred from correcting it and claiming what is rightfully theirs under law.