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United States v. Generes

United States Supreme Court
405 U.S. 93 (1971)


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


Holding and Reasoning (Blackmun, J.)

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