In 1972, Victor Diedrich and Frances Diedrich (plaintiffs) made gifts of stock to their children under the condition that their children pay the gift taxes associated with the transfer. The Diedrichs’ adjusted tax basis in the stock was $51,073. The gift tax paid by their children was $62,992. The commissioner for the Internal Revenue Service (defendant) issued a deficiency notice, holding that the children’s payment of the gift taxes, which were due to be paid by their parents, was a discharge of their parents’ indebtedness. The Diedrichs petitioned the United States Tax Court for a redetermination. The tax court held in favor of the Diedrichs, and the commissioner appealed. The United States Court of Appeals for the Eighth Circuit reversed in favor of the commissioner, resulting in a conflict among the federal circuit courts. The United States Supreme Court granted certiorari to resolve the conflict among the circuit courts.