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Brief Fact Summary. Charles Haslam and his wife, Petitioners, attempted to deduct bad business loans. Charles Haslam owned an explosives corporation and personally guaranteed loans during financially difficult times. The corporation eventually went bankrupt.
Synopsis of Rule of Law. Business bad debt losses are only deductible against ordinary income, and non-business bad debt losses are deductible only as short-term capital losses.
Issue. Are Petitioners allowed business or non-business deductions for losses arising from the guaranteed debts of Charles J. Haslam’s corporation?
Held. Judge Forrester issued the opinion for the Tax Court in holding that Petitioners may take the loss as a business deduction.
Discussion. Petitioner was both an employee and a stockholder, and the Tax Court had to determine his dominant motivation for the loan guarantee. In this case, the Tax Court found that the facts showed that the motivation was to protect Petitioner’s employment. Petitioner had no other job and no other income. A salary of $15,000 per year was a more valuable interest to Petitioner.