For the Defense - Vol. 4, Issue 3 - 23

Conclusion

8

When negotiating with a prosecutor or third
parties concerning a required payment by your
client, you should attempt to classify a payment as
restitution and compensatory in nature. Regardless
of its classification, your client may seek to be
reimbursed by his company for the payment. In
situations where your client does not receive a
required indemnity payment from his company, the
bad debt deduction may be available to help soften
the blow.
PANTONE

2955C

7406C

CMYK

NOTES:

90/78/39/30

9/22/91/0

RGB

22/58/92

234/194/56

26 U.S.C. § 162(f)(1).
2
Id.
3
26 C.F.R. § 1.162-21(b)(iii).
4
26 U.S.C. § 162(f)(2).
5
26 C.F.R. § 1.162-21(b)(2).
6
See, e.g., Stephens v. Comm'r, 905 F.2d 667 (2d Cir. 1990)
(taxpayer convicted of wire fraud and other counts
allowed deduction for payment to former employer under
terms of civil settlement agreement); IRS Private Letter
Ruling 200834016 (August 22, 2008) (physician convicted
of insurance fraud could deduct restitution payments he
made directly to defrauded health insurance company).

1

15 Pa. C.S.A. § 8848(b).
15 Pa. C.S.A. § 8848(f).
9
15 Pa. C.S.A. §§ 8648(b) & (e) (limited partnerships); 15 Pa.
C.S.A. § 8441(c) & (k) (general partnerships).
10
15 Pa. C.S.A. § 1741 (corporations).
11
15 Pa. C.S.A. §§ 8648(g) (limited partnerships);
15 Pa. C.S.A. § 8441(m) (general partnerships); 15 Pa.
C.S.A. § 1741 (corporations).
12
26 C.F.R. § 1.166-1(a).
13
Id.
14
Id.
15
26 C.F.R. § 1.166-2(a).
16
26 C.F.R. § 1.166-2(b).
17
Rev. Rul. 72-505, 1972-2 C.B. 102.
18
John McCoy, BNA Tax Management Portfolio 538-3rd
(Bad Debts), § III.C. 5 ("Section §280E [expenditures
in connection with the illegal sale of drugs] denies a
deduction for bad debts suffered by drug dealers in the
course of carrying on a trade or business of a criminal
nature. For other types of criminal activity, the issue is
apparently an open one.").
7

HEXIDECIMAL

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About the Authors
Stephen Pieklik is a partner
at the law firm of Williams
Coulson and works in
Pittsburgh. Stephen focuses
on tax controversy matters
and regularly represents
clients in a wide variety
of matters before the
Internal Revenue Service and the Pennsylvania
Department of Revenue, including audits,
appeals, litigation, and collections. Mr. Pieklik
received his law degree from the University of
Pittsburgh.
Nathan Catanese is an
associate attorney at Clark
Hill PLC in Pittsburgh. His
practice focuses on estate
planning and administration,
tax matters, and Orphans'
Court matters. Mr. Catanese
received his J.D., cum laude,
from Notre Dame Law School and a B.A., cum
laude, the University of Notre Dame.

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