Claim of Right for Whistleblower Settlement

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.

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.