Recovering from a Pig-butchering Crypto Scam - Can I Claim Theft Loss or Ponzi Scheme Loss for Taxes?

I've worked with several clients in similar situations. The distinction between general theft losses and Ponzi scheme losses is important for tax purposes. For a loss to qualify as a Ponzi scheme under IRS guidelines, there typically needs to be: 1) an investment operation where the scammer claims to generate income but actually uses new investor money to pay "returns" to earlier investors, 2) a perpetrator who had criminal intent, and 3) the perpetrator must have controlled the investment operation. Pig-butchering scams are tricky because they don't always fit the classical Ponzi structure - they're more direct theft. However, if your scammer created a fake investment platform showing fictitious gains to lure more money from you, there's an argument to be made. The IRS's Revenue Ruling 2009-9 and Revenue Procedure 2009-20 established the Safe Harbor provisions for Ponzi schemes, allowing qualifying victims to claim theft losses as itemized deductions not subject to the typical limitations on casualty and theft losses.

After going through something similar (not as much as you, but still painful), I found an amazing service called taxr.ai that helped me navigate the crypto tax nightmare. I was totally lost trying to figure out if my losses qualified for any tax relief, and my regular accountant wasn't helping. I uploaded all my documentation to https://taxr.ai - screenshots of the fake platform, chat logs with the scammer, transaction records - and they analyzed everything and provided a detailed report explaining exactly how to classify my loss for tax purposes. They specifically addressed the Ponzi scheme qualification criteria and how it applied to my pig-butchering case. What I appreciated most was that they had experience with crypto scams specifically. They even provided me with all the documentation I needed to give to my tax preparer, with references to the specific IRS rulings and procedures.

I was highly skeptical when I first heard about taxr.ai from this thread, but after losing $135K in a similar crypto scam, I was desperate. I decided to try it since I wasn't getting clear answers from local tax professionals. All I can say is WOW. The analysis they provided was incredibly detailed. They walked through exactly how my situation qualified under the Ponzi scheme provisions, citing specific sections of Revenue Procedure 2009-20 and other relevant tax guidance. They even prepared all the documentation I needed for my tax return, explaining exactly which forms to use and how to report the loss. My CPA was impressed with the thoroughness of their report and followed their recommendations. We were able to claim about 95% of my losses as a deduction. Still waiting to see if the IRS has any questions, but my CPA is confident we have proper substantiation thanks to the detailed analysis from taxr.ai. If you're in this unfortunate situation, definitely check them out.

When I was dealing with my crypto scam loss, the most frustrating part was trying to actually speak with someone at the IRS about how to properly report it. I spent HOURS on hold, only to get disconnected or told to call back later. I finally used Claimyr (https://claimyr.com) and it was a game-changer. They somehow got me connected to an actual IRS agent within about 20 minutes when I had been trying for weeks. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The IRS agent I spoke with confirmed that while general theft losses aren't deductible currently, losses that qualify under the Ponzi scheme safe harbor provisions can potentially be claimed. She explained exactly what documentation I would need to substantiate my claim, which was super helpful. Just having that direct confirmation from the IRS gave me confidence to move forward with claiming the loss on my taxes.

I have to come back and eat my words. After calling the IRS for THREE DAYS straight and never getting through, I broke down and tried Claimyr. Within 45 minutes, I was talking to an actual IRS representative. The agent was able to pull up information about Ponzi scheme treatment for tax losses and confirmed that if I can document that my crypto scam meets the criteria in Revenue Procedure 2009-20, I should be able to claim the loss despite the general suspension of theft loss deductions. He also explained that I need to file Form 4684 (Casualties and Thefts) and include a statement that I'm claiming the loss under the Ponzi scheme safe harbor provision. This was exactly the information I needed and couldn't get because I could never reach anyone. Definitely worth the money just for the time saved and the peace of mind from getting official information.

I successfully claimed a crypto scam loss as a Ponzi scheme loss on my 2023 taxes. Here's what worked for me: 1. Documented EVERYTHING - all communications with the scammer, screenshots of the fake platform showing "returns," all transaction records showing money movement. 2. Wrote a detailed statement explaining how the scam met the Ponzi scheme criteria (promised returns, showed fake earnings, continuous requests for more deposits). 3. Used Form 4684 and specifically referenced Revenue Procedure 2009-20 on my attached statement. 4. Included copies of all police reports and IC3 complaints as evidence I reported the crime. My CPA was initially hesitant but after reviewing the IRS guidance agreed this was the correct approach. The key is convincingly documenting that your situation meets the Ponzi scheme definition, not just general theft.

Has anyone tried using a qualified appraisal to establish the value of the crypto at the time of the theft? My accountant mentioned this might strengthen my claim since the IRS often questions the valuation of crypto assets.

I'm so sorry this happened to you - $260k is devastating. I went through something similar last year (lost about $85k) and the tax situation was incredibly confusing. One thing that really helped me was getting organized early. I created a comprehensive timeline documenting every interaction with the scammer, every transaction, and every fake "profit" they showed me. The IRS really wants to see that pattern of deception that's characteristic of Ponzi schemes. A few practical tips from my experience: - Save everything in multiple formats (screenshots, PDFs, printed copies) - Get official documentation from your exchange showing the transaction history - Write a detailed narrative explaining how the scammer convinced you to keep investing by showing fake returns - Keep all your law enforcement report numbers handy The hardest part for me was finding a tax professional who understood this specific situation. Most CPAs I talked to had never dealt with crypto scam losses before. You might want to look for someone who specializes in fraud cases or has experience with Revenue Procedure 2009-20. Also, don't let anyone pressure you into quick decisions about how to handle this tax-wise. Take time to get proper advice. The potential tax relief is significant if you can properly document that your case qualifies under the Ponzi scheme provisions. Hang in there - you're not alone in this.

I'm really sorry you're going through this - losing $260k to one of these scams is absolutely devastating, and I can only imagine how you're feeling right now. From what I've researched after my own experience with a similar scam (thankfully much smaller amount), the key distinction for tax purposes really does come down to whether your situation can be classified as a Ponzi scheme under IRS guidelines rather than just theft. The fact that the scammer showed you fake "profits" and convinced you to deposit more money based on those fictitious returns is actually a strong indicator that this could qualify under Revenue Procedure 2009-20. That pattern of showing fake investment gains to encourage additional deposits is exactly what the IRS looks for in Ponzi scheme cases. A few things that might help strengthen your case: - Document every instance where they showed you fake profits or trading activity - Save all communications where they encouraged additional deposits based on your "performance" - Keep records of any promised returns or investment strategies they claimed to be using - Make sure you have clear transaction records showing the pattern of deposits over time The 95% deduction under the safe harbor provision could be huge for you financially. Even if there's some risk of audit, the potential tax savings on a $260k loss would be substantial. Have you been able to find a CPA yet who has experience with these specific types of cases? That seems to be the biggest challenge most people face.

I'm so sorry you're dealing with this - these pig-butchering scams are absolutely devastating and the financial impact is just crushing. $260k is a life-changing amount of money to lose. I went through something similar about 18 months ago (lost around $90k) and can share what I learned about the tax side. The good news is that your situation actually sounds like it has strong potential to qualify for Ponzi scheme treatment based on what you've described. The key factors that worked in my favor were: - The scammer created a fake trading platform showing fictitious gains - They used these fake "profits" to convince me to deposit more money - There was a clear pattern of deception designed to look like legitimate investment returns - I had extensive documentation of all communications and fake trading activity What really helped my case was organizing everything chronologically to show the pattern of deception. I created a timeline showing each deposit, the fake "gains" they showed me afterward, and how they used those fake profits to convince me to invest more. This clearly demonstrated the Ponzi-like structure. I ended up working with a CPA who had some experience with fraud cases (not specifically crypto, but general investment fraud). We used Form 4684 and included a detailed statement referencing Revenue Procedure 2009-20. The documentation was key - screenshots of the fake platform, all communications, transaction records, and police reports. I was able to claim about 95% of my losses as a deduction. Haven't been audited yet, but my CPA said the thorough documentation gives us a strong position if questioned. The fact that you've already filed reports with multiple agencies is great - that shows you treated this as a crime from the beginning, which supports the theft loss angle. Don't give up hope on the tax relief. With proper documentation and the right tax professional, you have a real chance at significant tax savings that could help with your recovery.

I'm really sorry you're going through this nightmare - losing $260k to one of these sophisticated scams is absolutely devastating, and I can only imagine the emotional and financial stress you're dealing with. From what I've learned after helping several clients navigate similar situations, your case actually has strong potential for Ponzi scheme classification based on the details you've shared. The fact that the scammer showed you fake "profits" and used those fictitious returns to encourage additional deposits is a classic hallmark of Ponzi scheme structure that the IRS recognizes. A few key things that will strengthen your position: 1. **Document the deception pattern** - Create a detailed timeline showing each deposit you made and the fake gains/trading activity they showed you afterward. This demonstrates the systematic deception characteristic of Ponzi schemes. 2. **Preserve all evidence** - Screenshots of the fake platform, all communications with the scammer, transaction records, and copies of all your law enforcement reports. The more comprehensive your documentation, the stronger your case. 3. **Focus on the investment illusion** - Emphasize in your documentation how the scammer created the appearance of legitimate investment returns when no actual trading was occurring. This distinguishes your case from simple theft. The Revenue Procedure 2009-20 safe harbor provision could allow you to deduct up to 95% of your losses, which on $260k would provide substantial tax relief. While there's always some audit risk with large deductions, proper documentation and adherence to IRS guidelines provides strong protection. I'd recommend finding a CPA with experience in fraud cases, even if they don't specialize in crypto specifically. The key is someone willing to work with Revenue Procedure 2009-20 and Form 4684 properly. Don't lose hope - with the right approach and documentation, you have a legitimate path to significant tax relief that could help your financial recovery.