Lyeth v. Hoey
305 U.S. 188 (1938)

  • 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 relatives.
  • 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. Lyeth appealed.
    • 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."