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Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 13335
Experience:  15years with H & R Block. Divisional leader, Instructor
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Convicted of securities fraud and ordered to pay $65 MM

Customer Question

convicted of securities fraud and ordered to pay $65 MM total restitution by paying 20% of my net annual income . I am paying $2000 per month. Are these restitution payments tax deductible?
JA: The Accountant will know how to help. Please tell me more, so we can help you best.
Customer: I received a 10 years sentence, 5 years of supervised release and $65 MM restitution
JA: Is there anything else important you think the Accountant should know?
Customer: nothing more
Submitted: 2 months ago.
Category: Tax
Expert:  Robin D. replied 2 months ago.

Hello, I'm Robin. Welcome to JustAnswer. I'm reviewing your question now and typing up my reply. I'll post that in just a few moments.

Expert:  Robin D. replied 2 months ago.

IRC Sec. 162(f) states that no fines or penalties paid for violation of a law are tax deductible, Sec. 162(b)(2) provides that compensatory damages paid to any entity are not a fine.

Your case would need to show that the restitution payment is not part of any punitive fine.

You could request a private letter ruling from the IRS to define your specific case. In United States v. Gilmore, the Supreme Court ruled that since the payments were the result of criminal activities related to the taxpayer's business, a ruling would not impact the personal wealth of the taxpayer. Therefore, it was clear that the illegal activities were within the normal course of business functions, regardless if they violated a law and no deduction allowed.

Only a private ruling from the IRS would allow you to deduct the amounts.

Expert:  Robin D. replied 2 months ago.

If you need to know how to request a ruling please let me know.