Lyeth v. Hoey

After the decedent's heirs contested her will (which left most of a multi-million-dollar estate to a charitable Endowment Trust) alleging lack of capacity and undue influence, the parties reached a court-approved compromise splitting the estate between the heirs and the Trust, and the petitioner received his share under that compromise; the Commissioner treated the petitioner's share as taxable income rather than tax-exempt inheritance, and the Court of Appeals, applying Massachusetts inheritance law, agreed the compromise distribution wasn't a true inheritance.