Charles J. Haslam v. Commissioner

Charles J. Haslam (plaintiff) co-founded and later became sole owner of Northern Explosives, Inc., investing $20,000 total. When Northern needed financing in 1960, Haslam personally guaranteed a $100,000 bank loan, securing it with his own assets. Northern went bankrupt in 1964, and the bank sold some of Haslam's securities to recover $55,956 of the debt. Haslam had worked full-time for Northern earning about $15,000 a year, his primary income source, and his explosives expertise was not marketable elsewhere — after the bankruptcy he took a lower-paying job in an unrelated field. Haslam claimed the $55,956 loss as an ordinary business bad debt on his 1967 return; the Commissioner (defendant) recharacterized it as a nonbusiness bad debt, which is deductible only as a capped capital loss.