Is a pig butchering scam loss tax deductible?

The memo, number 202511015, walks through five common scams. One is a pig butchering investment scam. In its example, a person sees an offer to invest in crypto, makes small deposits and is able to withdraw at first, then moves in much more, including retirement money. When they try to cash out, the website stops answering.

The memo's conclusion: the money was sent to invest, so the loss came from what the tax code calls a transaction entered into for profit. A theft loss of that kind can be deducted.

The memo is advice from the IRS's own lawyers, built on examples.

• It was theft. The taking has to be a crime under your state's law, such as fraud. You don't need anyone to be convicted.
• There is no reasonable prospect of recovery. In the memo's example, the bank and law enforcement said there was little to no prospect of getting the money back. If a claim is still open with a real chance of success, the loss usually waits until that is settled.
• You sent the money to make a profit. Money sent to invest counts.

Many of these scams begin as a friendship or a romance and only later turn to an investment. The memo covers this. Once the person is directed to a fake investment, the IRS looks at that money the same way as in the investment example.

Money sent earlier as a gift, or for a made-up emergency, is treated differently and usually can't be deducted today.

The loss is what you actually put in, less anything that came back to you or that you still expect to get back. The balance the platform showed you doesn't count. Profits that were never real, and never taxed, can't be deducted.

Many people are told to pay a "fee" or "tax" before they can withdraw. The memo notes that those payments add to the loss.

If some of the money came out of a traditional IRA, the memo treats that withdrawal as taxable income, and counts the stolen amount in the loss.

A theft loss belongs to the year you found out, once there is no reasonable prospect of recovery. If that year's return is already filed, claiming the loss usually means amending it. The IRS says you generally have 3 years from the date you filed the original return, or 2 years from the date you paid the tax, whichever is later.

On Form 4684, in Section B, and from there to Schedule A as an itemized deduction. Because it is itemized, it usually helps most when the loss is large.

Your own tax preparer can claim the loss. Many haven't done one before, so we build the file they need: every payment, the timeline, and the numbers. Our tax pro, an Enrolled Agent, checks it. Your preparer files the return, and your refund goes to your own account. One fixed price, set in writing before any work.