The Union Trust Company of San Francisco, as executors of Lachman's estate, brought a case against Wardell, the United States Collector of Internal Revenue for the First District of California in 1921. The dispute centered around an inheritance tax assessment on property that had been transferred to a trust prior to death. The Supreme Court ruled in favor of the government and held that such transfers were subject to federal estate taxes if made without consideration and with intent to evade taxation. This decision was based on Section 402(c) of the Revenue Act which stated that any transfer intended or designed to avoid taxation would be deemed taxable under law. Therefore, even though Lachman had transferred his assets into a trust before he died, it was still considered part his gross estate for tax purposes because it was done with an intention to evade taxes.

In the dissenting opinion for Union Trust Company of San Francisco et al., v. Wardell, United States Collector of Internal Revenue for the First District of California, et al., Justice Holmes disagreed with the majority's interpretation that a certain clause in Lachman's will was intended to create a trust fund from which taxes should be paid. He argued that it was not clear whether Lachman meant to establish such a fund or simply wanted his executors to pay any necessary taxes out of his estate before distributing it among beneficiaries. The justice believed that this ambiguity should have been resolved in favor of taxability under existing laws and regulations rather than creating an exception based on uncertain intent. Furthermore, he contended there were no compelling reasons presented by the case facts or law principles supporting non-taxability conclusion reached by other justices.