[1] The recipient of shares of stock, Elizabeth Taft, argued that she could not be taxed on the amount that the gift increased in value before she received it.

The IRS argued that she should have to pay tax on $4000 - the total amount of appreciation since the stock was first purchased.

Ms. Taft argued that she should only pay tax on $3000 - the amount of appreciation gained while she was the owner of the stock.

The Supreme Court held that the IRS could tax the appreciation which occurred while the gift was in the hands of the donor, finding that nothing in the Constitution requiring Congress to tax increased capital only so far as the increase occurred while in the hands of the current owner.

As Ms. Taft accepted the gift with knowledge of the statute, she voluntarily assumed the position of the donor with respect to the appreciation of the stock.