If the repayment of income reported in a prior tax year exceeds $3,000, the taxpayer can claim a credit in lieu of a deduction in the year of repayment equal to the tax originally paid on the income. The taxpayers in this IRS legal memo provided services to hospitals with alcohol and substance abuse programs. Following whistleblower lawsuits alleging fraudulent claims for payment, taxpayers deducted the settlement amounts as a disgorgement of profits relating to the settlement agreement. The memo concludes that taxpayers would not be entitled to relief under IRC Sec. 1341 if they engaged in intentional wrongdoing, but may be entitled to relief if they made the repayments "pursuant to a settlement agreement negotiated in good faith by the parties to establish liability." LAFA 20082802F.