In the Edwards v. Douglas case of 1925, the Supreme Court dealt with a dispute over inheritance tax. The decedent, a resident of Kentucky, had made inter vivos transfers (gifts given during their lifetime) to his children and grandchildren without retaining any interest or power in them himself. After his death, the state attempted to impose an inheritance tax on these gifts arguing that they were intended to take effect upon or after death. However, the court ruled against this interpretation stating that for such taxes to be imposed there must be some retention of interest or control by the donor until their death which was not present in this case. Therefore it held that these transfers could not be taxed under Kentucky's Inheritance Tax Act as they were completed during life and did not "spring into existence" upon or after death.

In the dissenting opinion for Edwards, Collector v. Douglas et al., Executor, Justice McReynolds disagreed with the majority's decision to allow a federal estate tax deduction for state inheritance taxes paid by an estate. He argued that this interpretation of the law was not in line with Congress' intent when it passed the Revenue Act of 1918. According to him, allowing such deductions would result in significant revenue loss for the federal government and could potentially lead to manipulation or evasion of tax obligations by taxpayers. Furthermore, he contended that if Congress had intended to permit these types of deductions, they would have explicitly stated so within legislation itself rather than leaving it up to judicial interpretation.