A question on how to treat a court award. Company sues former employee for embezzlement. Employee was able to steal money for several years by creating fake invoices and billing the company. Company of course deducted the expenses on their tax returns. Employee will now be paying back the company. Logical assumption to me is that the money paid back is taxable income. Would you agree? Also - should the company just declare the income in the year that the award is paid, or would it be expected to amend their previous tax returns, if it can reasonably determine what expenses were invalid in which year.
Assuming a complete paper trail could be reconstructed, do these invalid expenses need to be changed to a theft loss, amended returns sent in for (3?) years, and adjusted taxes paid for those years, or can a simplistic, 'ignore previous years and declare the income now' approach be used?
thanks for your help.