The IRS in 2015 issued a  private letter ruling which held that a principal of a business could deduct the amount of money paid as restitution in a business crime plea deal. This ruling was significant because while Sec. 162(f) states that no fines or penalties paid for violation of a law are tax deductible, Sec. 162(b)(2) provides that compensatory damages paid to any entity do not constitute a fine or penalty. Treas. Reg. Sec. 1.162-21(b)(2) provides that a fine or penalty includes an amount paid in settlement of a taxpayer’s actual or potential liability in a civil or criminal matter.  

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