Theft Loss

Today TaxMama® hears from Pierre in the TaxQuips Forum, with this issue. “In 2012, an S-Corp had an employee who stole cash from them through the inventory and sales. They own a NAPA Auto Parts store.
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They have camera tapes on him and have reported the theft to NAPA. They did not report the theft to the police or to their insurance company because he was a family acquaintance and did not want to cause harm to the family.
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The total loss was approx $25,000.00 Can they write any of this loss off even though it wasn’t reported to police or insurance, just to NAPA, their franchise corporate? I looked it up and don’t see anything about police reports or insurance reimbursement, only that they ask how much was the insurance reimbursement.
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Please let me know you take on it should we write it off.”

Dear Pierre,

Nope.

If they want a theft loss, they MUST file a police report AND the perp must be convicted. Otherwise, there is no proof of a theft loss. (Since not everyone is caught, it’s important to, at least, have a copy of a police report and file number.)

Mike Reed, EA adds that Tax Topic 515 covers casualty losses:  The loss, regardless of whether it is a casualty or theft loss, must be reduced by any salvage value and by any insurance or other reimbursement you receive or expect to receive.

So, if they didn’t report it to the insurance company, how would you expect to compute the loss?

Frankly, the guy isn’t much of a family friend if he engaged in Grand Theft or Grand Larceny. And if they don’t report the jerk, he’ll do it to someone else – another ‘family friend’, who will also be too gutless to report him.
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And so on.

Sorry, the IRS isn’t in business to make it to up to them if they don’t have the balls to
own up to their responsibilities. Remember, if the insurance company would have covered all or some of the loss if it had been reported, the deduction would only have been the difference.

Good luck explaining this to your clients…of course, if the family really wants to protect them, the whole family should bring pressure to bear on the thief to set a payment plan to repay the whole thing.

[Additional TaxMama note: Think about this in terms of employee business expenses. If the employee could have submitted the expenses to the employer for reimbursement, but didn’t – the IRS doesn’t allow a deduction. Anytime a reimbursement is available, but not used, you can’t deduct that part of any loss or expense.]

And remember, you can find answers to all kinds of questions about theft losses and other tax and business issues, free. Where? Where else? At www.TaxMama.com.

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