In Re Ralph J. Collins, Debtor. United States of America v. Ralph J. Collins

GODBOLD, Senior Circuit Judge:

At issue in this case is the deductibility of a sum of money which the taxpayer, Ralph J. Collins, paid in settlement of litigation in state court, and also the deductibility of sums which he paid as attorney’s fees in connection with the state court litigation. The issue rose in the context of bankruptcy proceedings, as discussed below. The bankruptcy court held in favor of Collins that the amounts were deductible. The district court affirmed. We reverse.

I. The Facts

Collins filed for bankruptcy in 1975 and was granted a discharge in 1976. Thereafter the trustee…