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Charles J. Haslam v. Commissioner

United States Tax Court
33 T.C.M. 482 (1974)


Facts

In 1954, Charles J. Haslam (plaintiff) and Earl Canavan formed Northern Explosives, Inc. (Northern), a corporation specializing in the sale and distribution of explosives. Haslam had previously gained experience with explosives through the army, school, and prior jobs. In 1957, Haslam became the sole owner of Northern, having invested a total of $20,000. In 1960, Northern had financial troubles and required a loan to continue its operations. Haslam therefore guaranteed a loan to Northern by the National Commercial Bank and Trust Company of Albany, New York (National) in the amount of $100,000. The loan was secured by some of Haslam’s securities and his personal residence. Northern went bankrupt in 1964. Because Northern was unable to repay the loan to National, National sold some of Haslam’s securities, resulting in the repayment of $55,956 of Northern’s debt. Until Northern went bankrupt, Haslam was employed full-time by Northern and earned approximately $15,000 annually. Haslam’s income came primarily from his employment with Northern. After Northern went bankrupt, Haslam obtained employment in an unrelated field for a smaller salary, as skills in explosives were not marketable at the time. On his tax return for 1967, Haslam claimed a business bad debt in the amount of $55,956. The Commissioner (defendant) ruled that Haslam could only claim the amount as a nonbusiness bad debt.

Rule of Law

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Issue

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Holding and Reasoning (Forrester, J.)

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