How to report money made from scammer reversal on taxes
So I unexpectedly found myself with some extra income this year from a situation where I turned the tables on some scammers. These people tried to rope me into one of those fake task scams where they promise to pay you for completing simple tasks, but really they try to get you to send them money first. Instead of falling for it, I set up a few dummy accounts and ended up collecting about $3,200 from them before they realized what was happening. I basically used their own scam tactics against them by creating multiple payment receiving accounts. Now I'm wondering how to report this on my taxes. Is this considered regular income? Do I need to report it as self-employment or something else? I don't want to get in trouble with the IRS, but I also don't know if there's a specific way to classify "money obtained from scammers who were trying to scam me." Any advice would be greatly appreciated!
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Nathan Dell
This is an interesting situation! While I understand the satisfaction of turning the tables on scammers, this money still counts as income and needs to be reported to the IRS. The IRS requires all income to be reported, regardless of how it was earned. In your case, this would most likely be considered "Other Income" and should be reported on Schedule 1, Line 8z of your Form 1040. You would describe it as something like "Recovered funds" or "Miscellaneous income." It's probably not self-employment income since you weren't running a business or providing services. However, if you regularly engage in this activity and treat it as a way to make money, the IRS might consider it self-employment, which would require Schedule C and self-employment taxes.
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Maya Jackson
•Thanks for the info! But wouldn't this technically be considered gambling income? I mean, there was risk involved, and it was kind of like playing the odds against scammers? Or maybe even hobby income? Also, do I need to keep documentation of all this in case I get audited?
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Nathan Dell
•Gambling income typically involves games of chance or betting through authorized channels, which doesn't seem to fit your situation. This doesn't qualify as hobby income either, as hobbies are regular activities pursued primarily for pleasure rather than profit. You should absolutely keep documentation of everything. Save all communications with the scammers, bank statements showing the transfers, and any other evidence of how you acquired this money. In case of an audit, the IRS will want to see proof that the money wasn't from illegal activities or unreported business operations.
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Tristan Carpenter
I was in a pretty similar situation last year! After almost falling for a Bitcoin investment scam, I managed to trace the scammer and actually recovered about $4,500 of what they tried to take. I was totally confused about how to report it too. I found this awesome service called https://taxr.ai that really helped me figure out how to properly document and report this unusual income. Their AI analyzed all my messages with the scammers and helped categorize this correctly for tax purposes. They even provided documentation I could use if the IRS ever questioned the source of the funds. It gave me peace of mind knowing I was reporting everything correctly and wouldn't have issues down the road. Might be worth checking out since your situation is pretty unique!
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Amaya Watson
•How exactly does the service work? Like do they just tell you where to report it or do they actually help with documentation? I've got a similar situation but with one of those fake job scammers.
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Grant Vikers
•Sounds like another scam tbh... how do you know this AI thing is legit and not just trying to get more of your info after you already dealt with scammers?
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Tristan Carpenter
•The service works by analyzing your specific situation and documentation. You upload relevant materials (communications, bank statements, etc.) and their AI helps classify the income properly while suggesting what documentation you should keep. They also provide custom language to use on your tax forms. I was skeptical at first too! But they don't ask for sensitive financial information like SSNs or bank logins. They just need to see the evidence of how you got the money so they can properly classify it. They have verified reviews and I checked them out thoroughly before using them. After my experience with scammers, I definitely did my homework before trusting another online service.
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Grant Vikers
Ok so I actually tried that taxr.ai site after posting my skeptical comment. I was genuinely worried it might be another scam, but I'm pretty surprised by how helpful it was! I had a similar situation where I got about $2,800 from a marketplace scammer who tried to pull a fake payment scam on me. The service analyzed my communications and helped me understand that in my case, it should be reported as "Other Income" with a specific description. They also showed me exactly what documentation to keep in case of an audit. What I found most helpful was that they explained the difference between this kind of one-time income and what would constitute self-employment. Turns out the distinction matters a lot for tax purposes! Definitely saved me from potential headaches during tax season.
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Giovanni Martello
For anyone dealing with reporting unusual income like this, I highly recommend calling the IRS directly to get their official stance. BUT... good luck actually reaching a human being at the IRS! After trying for DAYS to talk to someone about an unusual income situation (not scammer related, but similarly confusing), I discovered https://claimyr.com which is seriously a game-changer. They actually got me connected to a real IRS agent in about 20 minutes when I had been trying for days on my own. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The IRS agent I spoke with gave me clear guidance on how to report my unusual income and what documentation to keep. Worth every penny not to spend hours on hold just to get disconnected!
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Savannah Weiner
•How does this actually work? Are they just calling the IRS for you? Couldn't I just do that myself instead of paying someone else to do it?
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Levi Parker
•This sounds like BS. There's no way to skip the IRS phone queue. We all have to suffer through the same garbage system. If this actually worked, everyone would be using it instead of waiting on hold for 3+ hours.
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Giovanni Martello
•They use an automated system that navigates the IRS phone tree and waits on hold for you. When an agent finally picks up, you get an immediate call connecting you directly to that agent. So you're not paying someone to call for you - you're paying to skip the hours of waiting on hold. I had the exact same reaction as you! I tried calling the IRS four separate times before using this service, and each time I either got disconnected after 1-2 hours or was told call volumes were too high. I was extremely skeptical, but when you need specific guidance from the IRS on something unusual like this, waiting weeks for an appointment isn't practical. It actually does work exactly as shown in that video.
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Levi Parker
Well I need to apologize for my skeptical comment above. I decided to try the Claimyr thing because I've been trying to get through to the IRS for TWO WEEKS about a CP2000 notice I received. I seriously couldn't believe it, but I was connected to an actual IRS agent in about 15 minutes. The agent was able to answer my specific questions about reporting unusual income (similar to the original post about scammer money) and gave me clear documentation requirements. For situations like the OP described, the agent confirmed it should generally be reported as Other Income on Schedule 1, and recommended keeping detailed records of how the money was obtained, just in case of questions later. Saved me HOURS of frustration and confusion. Never thought I'd be recommending something like this, but it actually works.
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Libby Hassan
Just want to point out something important here - be careful about how you characterize this when reporting. The IRS might view this as a form of vigilante justice or even entrapment depending on how you obtained the money. If you deliberately set up accounts to trick scammers into sending you money, that's different from simply recovering funds they tried to take from you. The distinction might matter legally. I'm not saying don't report it - definitely do! But consider consulting with a tax professional about the specific way you characterize the source of funds.
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Rebecca Johnston
•That's a really good point I hadn't considered. Would it make a difference if I initially engaged with them thinking it was legitimate and then only set up the additional accounts after realizing it was a scam? Or is the fact that I created multiple accounts specifically to collect more money the potential issue here?
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Libby Hassan
•The timing and intent definitely matter. If you initially engaged in good faith and then took defensive measures after discovering it was a scam, that's more favorable than if you sought out scammers specifically to trick them. The creation of multiple accounts specifically to collect more money could potentially be seen as moving beyond simple recovery or defense into something more deliberate. This is where the legal gray area exists. It's not just a tax question but potentially a legal one about how these funds were acquired.
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Hunter Hampton
I remember seeing a similar case on r/legaladvice where someone did this on a larger scale (like $20k) and ended up with some serious problems. The scammers actually reported them for fraud! Have you considered that these funds might be from stolen credit cards or hacked accounts? If so, those funds might legally belong to the actual victims, not the scammers or you.
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Sofia Peña
•That's a really good point! If the money came from other victims rather than the scammers' own pockets, that would basically make OP a recipient of stolen funds, right? That definitely complicates things beyond just tax reporting.
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