"This being the case should I only record 90% of the loss as business expense as it all gets reported on the K-1 and flows through their personal return from what I can see in Proconnect.

Do you think differently?"

Well, the IRS certainly does.

Look at the ownership. If that is the corporation, then it is the corporation's asset. 100%. There is no sharing of the ownership of the vehicle.

There is a sharing of the use of the vehicle. The corporation owns and operates the vehicle. Anyone getting to use that corporate asset for personal is supposed to be taxed on the value of that use. That's why it goes on the W2. The IRS has the rate to charge, even.

Your shareholder/employee can pay for that use, of course, instead of it being a taxable addition as fringe. If you enter 100% of costs for the corporation, and then you offset that by some amount charged to the employee (say, 10%), you are ending up with Net 90% under vehicle expense and the other 10% under taxable fringe benefit.

Not reporting it at all would be an error of omission.

Just because someone else did something wrong, don't ride along on that wave.