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Old 02-04-2014, 05:04 PM
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Restitution paid to PA deductible?

Hello Gurus,

A friend of mine was ordered to pay restitution to PA as a result of charges brought against him by the state 8-10 years ago. The restitution itself is for unpaid payroll and sales taxes.

The reading that I have done suggests that in determining whether or not restitution payments are deductible, the IRS looks into the nature of the payments. More specifically, if the payments are to reimburse the victim for damages suffered or if they are meant to punish the person ordered to pay them.

The only two clear restrictions that I can determine are: 1) anything that is considered a "fine or penalty" 2) any payment ordered to be made to a government agency as a direct result of breaking a law.

He was convicted on felony charges, I assume for tax evasion. He received 10 years probation and the only terms of his probation are his restitution payments. Thanks in advance for your time and consideration.

-Andrew


Last edited by Andyoman : 02-04-2014 at 05:10 PM. Reason: update from client


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Old 02-04-2014, 10:18 PM
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Quote:
Originally Posted by Andyoman View Post
Hello Gurus,

A friend of mine was ordered to pay restitution to PA as a result of charges brought against him by the state 8-10 years ago. The restitution itself is for unpaid payroll and sales taxes.

The reading that I have done suggests that in determining whether or not restitution payments are deductible, the IRS looks into the nature of the payments. More specifically, if the payments are to reimburse the victim for damages suffered or if they are meant to punish the person ordered to pay them.

The only two clear restrictions that I can determine are: 1) anything that is considered a "fine or penalty" 2) any payment ordered to be made to a government agency as a direct result of breaking a law.

He was convicted on felony charges, I assume for tax evasion. He received 10 years probation and the only terms of his probation are his restitution payments. Thanks in advance for your time and consideration.

-Andrew
nondeductible aslongas someone is ordered to make restitution payments following a criminal trial; Resitution is income that is taxed, not a tax. only 4 states currently tax restitution payments.i guess you can contact the dept of rev of PA for more info indetail



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