Pay back employer paid moving costs

[David]

I can't find anything in my research that addresses my client's situation. His employer paid his relocation costs in 2012. He was laid off and the employer required that he pay back the amount the employer paid. They settled on paying back half of the amount the employer paid - ~ $18.5K.

The employer wanted $37K paid back of which $22K was for transportation of household goods, $8K was taxable income to the employee, and the remaining $7K is unidentified. The TP, of course, doesn't know what this difference is. Some of that amount should be for grossing up for taxes. However, $7K seems too high for that.

Do I report the $18.5K as a claim of right deduction on Sch A line 28 or as a credit on line 73 of Form 1040? It appears that the only amount that can be deducted or credited is the amount that was originally included in income, which is $8K and the unknown amount of income to gross up for taxes.

I'm sure I'm not the only one who has a client with this situation. How have any of you who have had this situation handled it?

Thanks.