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Can you clarify if the money was embezzled and repaid in the same year?
money taken 2008-2010 paid back in 2010
Since the embezzlement is treated as income, the entity that was a subject of embezzlement should report it to the IRS. Thus - you need to report the income in 2008, 2009, 2010 correspondingly. You should have separate form 1099-misc for 2008, 2009, 2010.
The fact of repayment does not affect the reporting requirement.
You may deduct the amount repaid in 2010 on the schedule A as a miscellaneous itemized deduction subject to the 2% adjusted gross income floor limit.