United States v. Generes

405 U.S. 93 (1972)

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United States v. Generes

United States Supreme Court
405 U.S. 93 (1972)

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Facts

Allen Generes (plaintiff) owned 44 percent of the shares in the family-owned construction company that he helped found. Generes was also employed as the company’s president and drew a company salary that represented less than one-third of his annual income from all sources, including company shares. When Generes was forced to indemnify a lender for a loan that the company could not repay, Generes claimed that the indemnification was a business bad debt and therefore eligible for a deduction from his gross income. Generes filed suit against the United States government (defendant) in federal district court for a refund. The district court ruled in Generes’s favor, finding that Generes had taken on the debt because he had a significant business interest in protecting his employment. The court of appeals affirmed. The government argued that Generes’s business motivation needed to be dominant, not just significant. To resolve a circuit split on whether the test was the significance or dominance of the taxpayer’s motivation, the United States Supreme Court granted certiorari.

Rule of Law

Issue

Holding and Reasoning (Blackmun, J.)

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