He was convicted of insurance fraud.  He had a car repair shop and was cashing insurance checks from fraudulent claims through his business account.  It was a federal conviction and he was ordered to pay restitution.  He was first audited by the IRS and had to pay additional taxes and penalties for understatement of income.  He paid.  Then he was arrested for Insurance fraud and convicted.  The charges were directly against him, not his business.  He did time in federal prison and was ordered to pay restitution.  The feds seized his 401k.  The did NOT have taxes withheld.  The entire $180k was paid back to the insurance companies.  

I am hoping that there is some way to deduct the amount of the seized 401k or to at least avoid the early withdrawal penalties.  

I'm also thinking that if he was charged taxes and penalties for understatement of income as a result of the audit of his 2016 tax returns then he should be able to either amend that return or deduct the payments from his 2019 return.  He was billed for understatement of income, but ultimately that income was paid back to the insurance companies.