Supreme Court of the United States
United States v. Generes
February 23, 1972405 U.S. 93
Summary
The Court held that a bad debt incurred by a shareholder-employee has a proximate relation to the taxpayer's trade or business only when the taxpayer's dominant motivation was business-related; a merely significant business motivation is insufficient. Because the evidence could not support a finding that Generes was dominantly motivated to protect his salary, the Court ordered judgment for the United States rather than a new trial. Justice Douglas, dissenting, would have affirmed based on the regulatory proximate-relation standard, while Justice Marshall concurred in emphasizing the statute's legislative purpose and Justice White would have remanded for consideration of a new trial.
Holding
- Proper standard for determining whether a shareholder-employee's bad debt is a business bad debt. The applicable proximate-relation requirement is satisfied only when the taxpayer's dominant motivation in creating or guaranteeing the obligation was related to the taxpayer's trade or business. A significant business motivation, standing alone, is insufficient.
- Whether the record supported the taxpayer's verdict under the dominant-motivation standard. The record could not support a finding that Generes was dominantly motivated to protect his salary or employment. Because reasonable minds could not find for him under the correct standard, judgment notwithstanding the verdict for the United States was required.
Docket 70-28
Cited authorities
- Rev. Rul. 71-561
- Rev. Rul. 60-48
- CA10
- 26 U.S.C. § 172
- 39 Stat. 759
- 56 Stat. 820
- 26 U.S.C. § 531
- 26 U.S.C. § 2035