Whipple v. Commissioner

Whipple (plaintiff), an 80 percent owner of Mission Orange Bottling Company, built a factory and leased it to the company and made substantial loans to it, receiving no salary and performing no employment duties; when the loans and lease became worthless in 1953, he deducted them as bad business debts. The Commissioner (defendant) treated this as a nonbusiness bad debt, and the Tax Court and court of appeals agreed that Whipple was not in the bottling or general-financing business; the Supreme Court granted certiorari.

Whether a taxpayer may deduct worthless debts as bad business debts only if he is carrying on a trade or business related to those debts.