In a case involving criminal forfeiture of stock option profits, the Court of Appeals for the Federal Circuit has held that no deduction is allowed for $44 million in forfeited stock option gains on which tax was previously paid.  The court concluded that the forfeiture must be treated essentially as an after tax payment.  The court reached this decision by treating the forfeiture as a penalty under Section 162(f) of the Internal Revenue Code.  Accordingly, no deduction was allowable under Code Sections 165 or 162 for the loss.  And, because of that, the forfeiture was not entitled to special treatment under Section 1341.  This case, which was decided on June 10, 2016, could be of interest in other situations involving corporate clawbacks of stock option gains, thereby increasing the stakes for any such actions.

Court’s opinion is here