Stephen F. Scofield and Nancy E. Scofield - Page 24

          which the litigation arose.  Boagni v. Commissioner, supra at               
               Respondent argues that the legal fees relating to                      
          petitioner's bankruptcy were nondeductible personal expenses.               
          Sec. 262.  Respondent also argues that petitioners may not deduct           
          attorney's fees related to the adversary proceeding because they            
          involved a challenge to petitioner's discharge for alleged                  
          prepetition fraudulent conveyances.  See In re Collins, 26 F.3d             
          116 (11th Cir. 1994).  In Collins, the U.S. Court of Appeals for            
          the Eleventh Circuit held that a debtor could not deduct a                  
          settlement payment and attorney fees resulting from a bankruptcy            
          trustee's challenge to the debtor's prepetition transfers to a              
          family trust in connection with the debtor's prior bankruptcy               
          case because the payments did not arise from the debtor's                   
          income-producing activities.                                                
               We disagree with respondent's contention that Collins                  
          controls here.  The origin of the claim is not necessarily                  
          established by allegations made to support a claim.  Peters,                
          Gamm, West & Vincent, Inc. v. Commissioner, T.C. Memo. 1996-186.            
          The origin of the claim in this case was petitioner's liability             
          for the debts of Northeast, not the allegation that petitioner              
          committed fraud.  Unlike the taxpayer in Collins, petitioner paid           
          the legal fees in dispute to defend against the claims of his               
          creditors in the Northeast litigation who opposed his discharge             
          in bankruptcy; as discussed above at paragraph II-A-3, the claims           

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