Lot of additional information here and additional questions that have arisen. If the theft of property $500-1000 was a misdemeanor, then I think you are done. The 8500-8 asks about felony convictions. Recheck with your original attorney on that one. (EDIT - guessing here, but if the conviction was in TN, $500-$1000 appears to be the lowest level of felony conviction https://www.criminaldefenselawyer.c...lties/petty-theft-tennessee-penalties-defense) .
If that amount is a felony in the jurisdiction where you received the diversion, I think you are in less known legal territory. My impression, but IANAL, is that you can omit a true diversion if it was not entered on your court record as a conviction, but what you say above make it appear there was a conviction entered on the record.
In my and @PPC1052 's posts above, we have noted some of the cases that touch about these issues. It does not appear to have ever been clearly adjudicated.
So as to what to do, I would first gather all the records you can, then talk with an aviation attorney about it. They can advise you on the relative risks here. I suspect you will have to choose between A) obtaining an opinion letter from an aviation attorney stating that per their reading of the laws and regulations you can omit this in your application, or B) applying with the help of an experienced senior AME and trying to clear it up front through the FAA (it sounds like it should be clearable).
Tradeoffs will be:
Option A is somewhat quicker to start with and likely a little bit cheaper, but leaves you with an unknown legal risk and a potential really big delay and expense down the line. The opinion letter provides you with a sort of proof of good faith, might be an argument for a defense of not intentionally misrepresenting a fact on the form in the minds of the FAA, but does not completely clear you. If such a case went all the way to the Federal appeals court (maybe the NTSB would see the argument that a diversion and expunged record doesn't count, but I doubt the FAA itself would see it that way), it could cost more than $100k to pursue and would take years.
Option B will take a bit longer, perhaps 6 months, to start with and cost perhaps $5000. Once you have it cleared on the FAA record you are very unlikely to face serious legal action in the future, though it is on the record for future employers to see.
Personally, I would not make such a choice without the input of a good aviation attorney.
