Physician’s Restitution for Insurance Fraud

An IRS private letter ruling concludes that restitution payments made by a physician to insurance companies to settle claims for insurance fraud are not deductible as trade or business losses under IRC Sec. 165(c)(1) , but are deductible as losses incurred in a transaction entered into for profit under IRC Sec. 165(c)(2) . [ Section 165(c)(2) deductions are claimed as miscellaneous itemized deductions subject to the 2%-of-AGI floor.] In reaching this conclusion, the IRS cited Rev. Rul. 65-254 (1965-2 CB 50) and Rev. Rul. 82-74 (1982-1 CB 110) for the proposition that payments in the nature of restitution (i.e., intended to compensate the victim rather than punish the perpetrator) are deductible under IRC Sec. 165(c)(2) . Ltr. Rul. 200834016 .

About the Author

Reed Tinsley CPA

This article is written by Reed Tinsley, a Houston, TX-based CPA with over 30 years of experience advising physicians and medical practices across Texas and the United States. Reed holds certifications as a Certified Valuation Analyst (CVA), Certified Healthcare Business Consultant (CHBC), and Certified Financial Planner (CFP), specializing exclusively in the healthcare sector. He is a published author, nationally recognized speaker, and trusted advisor to physicians on accounting & tax, practice management, and financial planning. Schedule a Free Consultation.