United States v. Generes

Allen Generes (plaintiff) owned 44 percent of the shares in a family construction company he helped found, and also served as its president, though his salary made up less than a third of his total annual income from the company. When Generes was forced to indemnify a lender after the company defaulted on a loan, he deducted the payment as a business bad debt on his taxes. He sued the federal government (defendant) for a refund after the IRS disallowed the deduction. The district court and court of appeals sided with Generes, finding he had a significant business interest — protecting his job — in taking on the debt. The Supreme Court granted certiorari to resolve a circuit split over whether the proper test required a significant or a dominant business motivation.