In the case of Magruder, Collector of Internal Revenue v. Washington, Baltimore & Annapolis Realty Corp., 1941, the U.S Supreme Court was tasked with determining whether a corporation could deduct from its income tax return a loss resulting from the sale of property that had been condemned and taken by eminent domain. The Washington, Baltimore & Annapolis Realty Corporation argued that it should be able to do so because it had not willingly sold its property but rather had been forced to give up ownership due to government action. However, the court ruled against them stating that such losses were not deductible under Section 23(e)(2) of the Revenue Act as they did not fall within "losses incurred in any transaction entered into for profit." This decision clarified how involuntary conversions due to condemnation proceedings are treated under federal tax law.

In the dissenting opinion for Magruder v. Washington, Baltimore & Annapolis Realty Corp., Justice Frankfurter argued that the majority's decision was inconsistent with previous rulings and interpretations of tax law. He contended that a corporation should not be able to claim deductions on interest payments made on its own bonds, as these are essentially self-imposed obligations rather than genuine expenses or losses. Furthermore, he disagreed with the majority's interpretation of "indebtedness" in this context, arguing it should only apply when there is an actual obligation to pay a third party. By allowing corporations to deduct interest payments on their own debt securities from their taxable income, he believed the court was enabling them to manipulate their tax liabilities unfairly.