Deductible Theft Loss?

[dude7707]

Rec'd this from client:

In 2019, my C-Corp client that provides K9 Services paid an individual $93,000 for the purchase of large kennels for their K9 dogs. The person was going to build them. They disappeared before giving her the items and was MIA for quite some time. I filed the tax return and treated as assets not yet placed in service as we were not sure if they permanently disappeared.

She asked for me to amend the 2019 as she felt it was not collectible and wanted to claim the loss.

My client went to Mexico before COVID hit and found the person. She ended up getting him to provide her some items but it was only approx $1,200 in value. Below is her email explaining value.
"The value of the items are $1200 for veri-kennels for three (the kind you use on flights), $800 for a roll of fencing, some tools: two shovels, a socket set, a wrench set and a screwdriver set which was roughly $75. Of course he gave me no receipts so I researched the prices."

I am wondering if it is appropriate to amend 2019 and claim the loss or if we should take in 2020.

Given the info above:

My initial thought, This is not a theft loss, since the item was never built and then stolen, so I would think show it as a ST capital loss.on 4797, SP - 0-, CB - 93k in amended 2019 and $2,075 (1,200 & 800 & 75) as Other Income in 2020.

Thoughts/Suggestions?

[sjrcpa]

But the $93,000 cash less the value of the recovered items was stolen, wasn't it?

[BobKamman]

From IRS Pub 547:

The taking of money or property through fraud
or misrepresentation is theft if it is illegal under
state or local law.

[dude7707]

Y, since no kennels were built, so how would this be reported, since occurred in 19, partially recovered in 20?

[dude7707]

Agree, Q is can this loss be claimed in an amended 1120? Or should it be claimed in 20 since there was some partial recovery of $2,075 in 2020 given the limited info in original statement?

[BobKamman]

Without looking it up, I think the rule for casualty loss is that it's claimed in the year of discovery.  For a business loss, though, I don't think you have to wait until there is no possibility of further recovery.  

[dude7707]

Thanks for all the replies!

So show it as a ST capital loss.on 4797, SP - 0-, CB - 93k in amended 2019 and $2,075 (1,200 & 800 & 75) as Other Income in 2020???.

[BobKamman]

You seem to really want to file a 2019 amended return, but when you did that return "we were not sure if they permanently disappeared."

Claim the loss minus recovery in 2020.  If anything more is recovered in future years, claim it as income.  

[dude7707]

No, I just want to know what is recommended reporting of this item.  I am in agreement with you on the amount and year, given the limited information we have, just want to verify Form 4797 is the correct form to report this.

[dude7707]

Here's 1 CPA's recommendation:

2019 

Dr. Prepaid Expense since not set up as a depreciable asset.

2020

Cr Prepaid Expense

    Dr   Repairs and Maintenance.

My suggestion:  Theft loss? - report on financials - under "Other expenses"?