It is possible to clear the stolen flag on wearable items if you have more than one of the item. In the case of Armor, all pieces should be fully repaired so they have identical statistics.

* If you have one non-stolen and one stolen item, alternately equipping the two items repeatedly will clear the stolen flag.
* If you have two stolen items, equipping one item makes the second one appear legitimate. Dropping this item, then dropping the other, still marked stolen, will clear the stolen flag on both.