In the 1941 case of Magruder, Collector of Internal Revenue v. Supplee et ux., the U.S Supreme Court ruled on a dispute concerning federal income tax law. The respondents, Mr. and Mrs. Supplee, had sold their business but retained some assets which they leased back to the new owners for an annual rent that was significantly higher than its fair rental value at the time of sale. They argued that this excess amount should be treated as capital gain rather than ordinary income because it represented part payment for their original property's sale price. The court disagreed with this argument and held in favor of Magruder (the Collector). It stated that any payments received by a seller from leasing property back to a buyer after selling them said property are taxable as ordinary income under Section 22(a) of the Revenue Act - not capital gains under Section 117(b). This is regardless if such payments exceed what would have been considered reasonable rental value at time of sale or whether there were intentions to treat these additional amounts as further consideration for transfer/sale.

In the dissenting opinion for Magruder v. Supplee, Justice Frankfurter disagreed with the majority's interpretation of Section 113(a)(5) of the Revenue Act of 1932. He argued that this provision should not be interpreted to mean that a taxpayer who receives stock as a dividend can calculate their gain or loss based on its value at distribution time when they later sell it. Instead, he believed that taxpayers should use the original cost basis (the price paid for an asset), which would result in higher tax liability upon sale because there would be more appreciation to tax. He contended that Congress intended this outcome and had made no changes to suggest otherwise despite having multiple opportunities over many years. Furthermore, he criticized his colleagues' reliance on Eisner v Macomber case precedent from two decades earlier, arguing it was outdated and irrelevant due to significant changes in both law and economic conditions since then.