how to deduct restitution from form 1098-f

[paron]

i have a client who files 1120S and 1040.

Client was made to pay fines , penalties, and restitution to us dept of justice

client received form 1098-f with various boxes filled in including box 3 for restitution

his lawyer is telling him that amount form box 3 is deductible

I have never dealt with this issue and do not know if corporate or personal deduction or which form to use.

1098-f was sent to clients social security number. the amount of restitution paid is in excess of $500,000.

help!!

[Just-Lisa-Now-]

Box 3 is the restitution amount.   What is he paying restitution FOR?  Whats the situation?

[IRonMaN]

"the amount of restitution paid is in excess of $500,000"

That got my attention.  I am eagerly waiting to hear the answer to Lisa's "what for" question.

As a side note, having a lawyer tell you something is deductible has just slightly better odds than your barber telling you that.

[paron]

i/m going to check with lawyer and get back to you. he owned a pharmacy and sold opiods.

all sales were by perscription. I need to check because i am not sure what he pleaded guilty too.

i know that box 3 is restitution amount. Just dont know if deductible on 1120s or 1040 and where to deduct

[paron]

restitution was for overbilling medicare and insurance companies

[Skylane]

.

[Skylane]

I'd Check w/ the lawyer by email. I'd like to get the attorneys' opinion in writing with cites if possible.... lol 

• The operative term, and the problem, is that the restitution is considered a penalty, and as such is not tax deductible. Punitive payments are not considered ordinary and necessary business expenses under IRC 162. They are also not considered deductible for business or capital losses, since the nature of the restitution is a penalty.

[BobKamman]

https://www.natlawreview.com/article/finding-silver-lining-leveraging-government-investigations-and-...

And lots of other websites with useful information if you Google "restitution deductible"

[PATAX]

@IRonMaN got my attention too, we're not talking chump change here.

[paron]

Thanks to all for replying 

I am going to take the amount of restitution that was withdrawn from the Scorp as a deduction on the s corp return. The lawyer and documentation indicate that this payment was restitution for over billing Medicare , Medicaid, insurance companies, etc. Through the advice of the community I did some further research and found an article in the national law review that states that restitution is a deductible business expense. The form 1098-f indicates the amount of restitution.

I am going to only take the restitution which was withdrawn from the business. No the total of the restitution paid on the 2 1098-f forms.

I would appreciate any thoughts on how I’m handling this. Thanks again

[Just-Lisa-Now-]

If they overbilled and collected too much income and now have to pay that income back, deducting it  makes sense, I wonder why its in the SSN, not the corporate ID number.

[Skylane]

@Just-Lisa-Now- id suppose it depends on the DoJ order. Did they go after the Corp, Individual, or both. iF the pharmacist was individually ordered to pay fines and make restitution I’m not sure I’d see it as a business expense, regardless of source of funds. Maybe deductible on sch A as a repayment but the DoJ order is going to be the bottom line.