@M-MTax wrote:
This would be a theft loss because what happened in a legal sense is embezzlement. There was no debtor-creditor relationship that would support a bad debt claim.
A contract for a future service that you pay for establishes that relationship.
That reply does not agree with the facts presented. The poster said that this was a travel agency that declared bankruptcy. An embezzlement is a crime that cannot be discharged in bankruptcy. If bankruptcy was filed (and accepted by the court) then it is probably another mismanaged travel agency which is bad, but not criminal. But, as the first answer said, if an investigation shows that the travel agency was a scam to defraud money than it can be theft if charges are filed.
(BTW: there are many cases like that where travel agencies booked trips and paid in advance that the trip provider could not provide due to the CLOVID shutdown and the agency was unable to get the money back because the trip provider went out of business, so they were caught in the middle and went out of business and declared bankruptcy as a result.)
There are too many unknowns for a definite answer.
**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
