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progeny will apply. The Supreme Court in Lyeth established the
doctrine whereby proceeds received in compromise of a dispute are
characterized for tax purposes in accordance with the nature of
the claims which were compromised. In order to have Lyeth
control, there must be a compromise of a disputed claim by the
estate or its heirs, as opposed to a voluntary rearrangement of
property interests amongst heirs. The U.S. Court of Appeals for
the Ninth Circuit, to which this case would be appealable,
considered this question in Commissioner v. Estate of Vease, 314
F.2d 79 (9th Cir. 1963), revg. and remanding 35 T.C. 1184 (1961).
In Estate of Vease, the decedent's father died 18 months
after executing a will and very shortly after informing his
attorney of modifications he wished to be made to it. The
attorney incorporated these modifications into a new will, which
the decedent's father did not have an opportunity to execute
before he died. Shortly after the father's death, his attorney
met with his widow and children, including the decedent. The
attorney told the family that there was an executed will and an
unexecuted will but did not reveal the contents of either
document to the family members. The family decided unanimously
to abide by the father's last wishes as expressed by the terms of
the more recent, unexecuted will.
The executed will provided for specific bequests to the
decedent with 20 percent of the residue of her father's estate to
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