Schedule C with zero income and an $80K deduction.  Attach an explanation.  This would be one of those returns that IRS might not audit because they would figure, "this must be true because no one would make it up."  

Did the litigation really continue that long?  Or did the creditor get a default judgment and it just took this long to collect it?  Doesn't really matter. 

A cash basis taxpayer may deduct ordinary and necessary business expenses, the liability for which arose in the active conduct of a trade or business, even if the payment was made after the termination of that business. Dowd v. Commissioner, 68 T.C. 294, 301 (1977); see also Tolzman v. Commissioner, T.C. Memo. 1981-689. This is also the position taken by the Commissioner in Rev. Rul. 67-12, 1967-1 C.B. 29.