In the United States v. Generes et vir, 1971 case, the Supreme Court ruled on whether a taxpayer's loss from guaranteeing a corporation's loans could be considered as "arising from theft" and therefore deductible under section 165(c)(3) of the Internal Revenue Code. The respondent was an officer and shareholder in two corporations that went bankrupt. He had personally guaranteed bank loans for these companies which he later paid off when they defaulted. The IRS denied his claim to deduct these losses as bad debts or theft losses on his federal income tax return. The court held that such losses did not qualify for deduction because there was no proof of any criminal fraudulent conduct by anyone involved with the corporations' failure nor were there grounds to consider it a bad debt since it wasn't created through debtor-creditor relationship but rather corporate obligations backed by personal guarantees made by shareholders like Mr.Generes. This decision clarified how taxpayers can classify their business-related financial losses for tax purposes, emphasizing that only those arising directly due to fraud or embezzlement (theft) are eligible for deductions under Section 165(c)(3).

In the dissenting opinion for United States v. Generes et vir, Justice Blackmun argued that the majority's interpretation of "proximate cause" was too narrow and restrictive. He believed that a more flexible approach should be adopted in determining whether a taxpayer's loss is deductible as a bad debt or as an ordinary business loss under Section 166 of the Internal Revenue Code. In his view, Mr. Generes' decision to personally guarantee loans for his company was directly related to his role as an officer and major shareholder, thus making it reasonable to consider this action part of his trade or business activities. Therefore, he contended that such losses should qualify for deduction under Section 165(c)(1) rather than being limited by Section 166’s requirements on nonbusiness bad debts.