Client called me the other day to ask if they could take a loss on their return.   They raise goats, and have the seman collected and stored.    The storage place had an issue with the Nitro tank they were stored in and now they are worthless.  They were reimbursed for the cost of collection, but not the lost revenue.   The accountant for the storage facility told them to take this lost revenue on their taxes.    They do their return on the Cash basis.   The seman is irreplaceable as they no longer have some of these goats, hence why they stored the seaman, to produce this pedigree in the future  

I don't know of how they can take a loss when they have not claimed any income against it in the past. 

I have looked at 1.165-6 farming losses, but there does not seem to be anything to back up what they are being told.     Hopefully the community knows something I missed?    

Thank you in advance.