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Individual tax · Theft losses
Fraud victims lose their savings and often paid tax on income that never existed. When the loss came from a transaction entered into for profit, the tax law usually allows a theft loss deduction, and special safe harbors make the timing and amount clearer.
Serving United States, Virginia, Washington, DC, Maryland.
What we handle
Personal casualty and theft losses are largely not deductible, but a theft loss from a transaction entered into for profit is deductible under section 165(c)(2). Revenue Ruling 2009-9 explains that a Ponzi scheme loss is an ordinary theft loss, not a capital loss, deductible in the year the theft is discovered, reduced by any reasonable prospect of recovery, and it can include fictitious income you reported in earlier years. Revenue Procedure 2009-20 provides a safe harbor letting qualified investors deduct 95% of the net investment, or 75% if pursuing third-party recovery, in the discovery year.
In 2025 the IRS Chief Counsel concluded in CCA 202511015 that victims of several common scams, including crypto investment and pig-butchering schemes in which the victim transferred funds hoping to profit, may claim theft losses, while scams without a profit motive generally do not qualify. Large losses can create a net operating loss carried forward. Later recoveries are income when received, and clawback payments to a receiver may qualify for relief under the claim-of-right rules in section 1341.
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Ponzi losses are ordinary theft losses deductible in the year of discovery, including previously reported fictitious income.
Safe harbor deduction of 95% or 75% of the qualified investment in the discovery year.
Victims of profit-motivated scams such as crypto pig-butchering schemes may claim theft loss deductions.
A theft loss is treated as sustained in the year the taxpayer discovers it.
Our approach
A senior advisor reviews your facts and documents.
Scope, fees and timeline in an engagement letter.
Returns, elections and forms prepared and reviewed.
IRS contact and planning all year.
Questions
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Often yes, if you transferred the funds to make a profit and the facts show theft under state law. Romance or impersonation scams without a profit motive generally do not qualify. Documentation of transfers and the scheme is essential.
Fictitious income you reported is included in the theft loss. Depending on the year, amended returns or the theft loss deduction recover the benefit.
In the year you discover the theft, reduced by amounts you have a reasonable prospect of recovering. The Rev. Proc. 2009-20 safe harbor simplifies this for qualifying Ponzi investors.
Account statements, wire and wallet records, communications, police, FBI IC3 or SEC reports, and any receiver or lawsuit documents.
Latest updates
Authorized representatives can now make balance-due, amended return, extension, proposed assessment and federal tax deposit payments for business clients online. Appropriate authorization for the client and tax matter is required.
Source: IRS (IR-2026-134)
For 2027 the joint-return standard deduction rises to $33,200, the estate tax basic exclusion to $15,480,000, the annual gift exclusion to $20,000 and the Section 179 expensing limit to $2,640,000. Our advisors recommend revisiting year-end gifting and equipment purchase plans with these figures in mind.
Source: IRS (IR-2026-133)
All 6,576 nominated census tracts, including 2,594 rural tracts eligible for enhanced benefits, become Opportunity Zones on January 1, 2027 for ten years. Investors with capital gains should review the new map before committing funds.
Source: IRS (IR-2026-132)
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