Lyeth's grandma died. Grandma
gave a little bit of money to Lyeth and other relatives, but gave most of
her estate to the Christian Scientists.
Lyeth and the other relatives
contested the will, claiming that grandma lacked testamentary capacity.
Lyeth et. al. won, and in a
compromise, the bulk of grandma's estate was put into some holding
corporations, and the stock for those corporations was given to the
The IRS claimed that the money
Lyeth et. al. received should be counted as gross income. Lyeth objected.
Lyeth claimed that the money
was an inheritance and was
therefore exempt from gross income.
The relevant Statute at the
time was Revenue Act of 1932 §22(b)(3), which exempts "the value of property acquired by gift,
bequest, devise, or inheritance..."
That's similar modern
Statute 26 U.S.C. §102(a).
The IRS argued that it
wasn't an inheritance because
Grandma left all the money to the church, not to Lyeth.
The Trial Court found for Lyeth.
The IRS appealed.
The Appellate Court reversed.
The Appellate Court found
that the money wasn't exempted by §22(b)(3).
The US Supreme Court reversed.
The US Supreme Court found
that since the Revenue Act was a
Federal Statute, Federal law applies.
The Court found that Lyeth
didn't get the money through the will, but he wasn't just some random
guy, he was grandma's heir, and so any money he received, regardless of
how he received it, counts as an inheritance.
"What he got from the
estate came to him because he was an heir."