Lyeth v. Hoey

305 U.S. 188 (1938)

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Lyeth v. Hoey

United States Supreme Court
305 U.S. 188 (1938)

SR
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Facts

After the death of his grandmother in 1931, Lyeth (plaintiff) was deemed one of several heirs to her estate. The grandmother’s will left small legacies to each of her heirs and left the remainder of her estate, which equaled to over $3,000,000, to the trustees of an endowment trust. The heirs contested the will in probate court, alleging lack of testamentary capacity and undue influence. Before a jury could hear the case, the parties entered into a compromise agreement by which the bequest to the endowment trust was invalidated. Under the terms of the compromise agreement, the heirs received $200,000, the endowment trust received $200,000, and the heirs and the trustees of the endowment trust equally divided the remainder of the estate. In 1933, after the probate court approved the compromise agreement, Lyeth received his share. The Commissioner of Internal Revenue valued Lyeth’s share at approximately $141,000 and deemed it taxable income, causing Lyeth to pay approximately $56,000 in taxes. Lyeth subsequently filed for a refund, arguing that the share was acquired by inheritance, and tax laws exempted property acquired by inheritance from taxation. The commissioner rejected Lyeth’s claim, finding that the receipt of property under a settlement agreement did not constitute acquisition by inheritance. Lyeth then filed suit against Hoey (defendant), the tax collector. The district court held in Lyeth’s favor, but the Second Circuit reversed. The United States Supreme Court granted certiorari .

Rule of Law

Issue

Holding and Reasoning (Hughes, C.J.)

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