The primary focus of this Note is on the development of the judicial doctrines interpreting the provisions of section 166 as applied to share-holder losses on loans to related corporations. Whether, in any given case, advances by shareholders will be considered loans or capital investments is beyond the scope of this work. For purposes of this study, the existence of a valid debtor-creditor or debtor-guarantor relationship between the corporation and its shareholder will be assumed. A brief description of the statutory scheme of the bad debt and loss provisions will be followed by a discussion of the origins and development of the judicial doctrines interpreting the trade or business requirement in the context of bad debt claims. The Note will then examine the problem of current significance: under what circumstances will a loan be deemed proximately related to the trade or business of the shareholder-creditor? This examination will center on an analysis of the recent decision of the Supreme Court in United States v. Generes and the implications of that decision for future shareholder-creditors who suffer losses on loans to their corporations.
Bland W. Cannon, Jr.,
Characterization of Shareholder-Creditor Bad Debt: United States v. Generes Sounds the Knell for Deductions from Ordinary Income,
26 Vanderbilt Law Review
Available at: https://scholarship.law.vanderbilt.edu/vlr/vol26/iss1/4