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 .