I’m a sole proprietor. In 2008 I discovered an embezzlement in my business going back several years. Do I have to amend prior year returns to take the loss?

I’m a sole proprietor. In 2008 I discovered an embezzlement in my business going back several years. Do I have to amend prior year returns to take the loss?

No. An embezzlement loss is deductible in the year of discovery (2008 in your case), provided there is no reasonable expectation of any recovery. You can deduct the loss as a business deduction on Schedule C; the $100 subtraction or 10%-of-adjusted-gross-income floor applies only to personal theft and casualty losses.