In McWilliams v. Commissioner of Internal Revenue, the Supreme Court dealt with a case involving taxation on gifts and estates. The petitioner, Mrs. McWilliams, had transferred securities to her sons in 1932 but retained the income from these for life as per an agreement made at that time. In 1941 she renounced this right to income without receiving anything in return from her sons who were under no obligation to make any payment or provide any benefit back to their mother for this action. The issue before the court was whether this renunciation could be considered a gift subject to tax under federal law or not. The IRS argued it should be taxed as such while Mrs McWilliams disagreed. The Supreme Court ruled in favor of Mrs.McWilliams stating that since there was no transfer of property rights by virtue of her renouncing the income from securities (as they already belonged legally and beneficially to her sons), there was no taxable event occurring here which would trigger gift tax liability.

In the dissenting opinion for McWilliams v. Commissioner of Internal Revenue, Justice Rutledge argued that the majority's interpretation of "personal services" was too narrow and inconsistent with previous court decisions. He contended that the term should encompass all activities performed by an individual in their capacity as a business owner or operator, not just those directly related to their professional skills or expertise. In this case, he believed that Mr. McWilliams' work in managing his investments constituted personal services because it required time, effort, and skill on his part. Therefore, according to Justice Rutledge's interpretation of tax law at the time (Section 22(a) of the Internal Revenue Code), income derived from these activities should be considered earned income rather than unearned income subject to surtaxes.