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REPAYMENTS MADE IN RESTITUTION OF A CRIME MAY BE DEDUCTIBLE

01 / 16 / 2010

Cavaretta v. IRS, T.C. Memo 2010-4 (January 5, 2010)
 
The United States Tax Court has held that when a business owner makes payments in restitution of a health care fraud committed by his spouse, a co-worker, at a dental practice, the same may be treated as a deductible business expense, even though the "benefit" of the deduction will fall back on a joint income tax return.  The court looked to Helvering v. Janney, 311 U.S. 189 (1940), to find that deductions entitled to be taken by one spouse, can be taken on a joint return, without regard to the fact that the other spouse might otherwise be prohibited from taking the same deduction.  And, it is still permissible, if the joint return filing then allows for the spouses to combine their deductions in calculation of a NOL.  Regs. 1.172-3(d).