In the United States v. Nunnally Investment Co., 1941, the Supreme Court ruled on a case involving tax law and real estate transactions. The Nunnally Investment Company had sold property in exchange for bonds that were to be paid over time with interest. However, they did not report these payments as income until they received them, rather than when the sale was made. The IRS argued this violated tax laws which required immediate reporting of such gains as income at their fair market value at the time of sale regardless of when actual payment is received (the "accrual" method). The company contended it used a permissible "installment" method instead where income could be reported only when payments are actually received. The court sided with the government stating that under existing law and regulations, an accrual basis taxpayer who sells property on deferred payment terms must include in gross income for year of sale an amount equal to fair market value of rights acquired by purchaser even if full cash price isn't then due or payable.

The dissenting opinion in the United States v. Nunnally Investment Co. case argued that the majority's decision to uphold a tax penalty against Nunnally was incorrect, as it contradicted previous rulings by the court on similar matters. The dissent contended that there was no substantial difference between this case and others where penalties were not imposed for underpayment of taxes due to honest mistakes or misunderstandings about complex tax laws. They believed that imposing such a harsh punishment for an innocent error would discourage taxpayers from voluntarily complying with their obligations, which is essential for effective tax administration. Furthermore, they disagreed with the majority's interpretation of "negligence" in this context and felt it should only apply when there is clear evidence of carelessness or intentional disregard for rules and regulations.