As a leading cryptocurrency law firm, Gordon Law Group guides clients through the intricate world of crypto taxes and other legal issues. People frequently approach us for help after they’ve been scammed or had their cryptocurrency stolen.
Unfortunately, Gordon Law Group cannot directly help with these types of scams or recovering lost funds, but we may be able to point you in the right direction.
We hate to see any member of the cryptocurrency community become a victim of fraud, so we’ve compiled this guide to help you keep your funds safe and avoid falling victim to scams. We hope this information helps!
Understanding Cryptocurrency Scams
Cryptocurrency scams are diverse, ranging from counterfeit investment opportunities to phishing scams, where fraudsters pose as reliable entities to acquire your assets. The bottom line is that these fraudulent activities aim to deprive you of your valuable crypto resources.
Common Types of Crypto Scams
Ponzi or Pyramid Schemes
These scams entice investors with the promise of high returns. Early participants may receive pay-outs from the contributions of later entrants, creating the illusion of a lucrative investment.
These occur when scammers send emails or messages that seem to come from trusted sources. Their goal is to trick victims into revealing sensitive information, such as passwords or private keys.
Fake Exchanges and Wallets
Fraudsters may set up bogus exchanges or wallets that closely resemble legitimate ones, disappearing with users’ assets once they’ve gained their trust.
This type of scam occurs when the developers of a cryptocurrency project suddenly withdraw all their funds and disappear, often after significant hype and investment from unsuspecting investors. While we can’t help you recover your investment, there are strategies you can use to lower your taxes in this case.
Tax Collection Scams
In these scams, phony crypto exchanges may claim that users need to pay a significant amount in taxes before withdrawing their funds. The IRS does not collect crypto taxes in this way (learn more about crypto tax reporting here), so this is a sure sign of a scam.
What Can You Do If You’ve Been Scammed Out of Your Crypto?
Report to Authorities
Your first course of action should be to report the scam to local law enforcement. While recovery may be difficult, your report could help authorities track down the culprits and possibly prevent others from falling victim to the same scam.
Report to the Financial Institution
If you’ve made a payment via a bank or a credit card, reach out to your financial institution immediately. They may be able to help or advise you on the potential for chargeback.
Inform the Crypto Exchange
If the scam involved a specific cryptocurrency exchange, inform them about the incident. They may be able to suspend the scammer’s account or provide information that can assist in the investigation.
Report to the Internet Crime Complaint Center (IC3)
In the United States, you can file a complaint with the IC3, a branch of the Federal Bureau of Investigation that handles internet-related crimes.
Keep detailed records of all interactions related to the scam. This includes usernames, transaction IDs, times and dates, and any correspondence. This can be crucial information for any investigation.
Increase Security Measures
After suffering a scam, it’s crucial to bolster your security measures. Update passwords, enable two-factor authentication, and take other steps to secure your digital assets.
Remember, the best defense against cryptocurrency scams is prevention. Stay vigilant and informed about the different types of crypto scams and how to avoid them. If you’ve been scammed, taking the right steps immediately can make a significant difference, even if recovery of funds is not guaranteed.
Can You Recover Stolen Cryptocurrency?
While results are not guaranteed, there are professionals who can analyze blockchain transactions and potentially help you recover lost funds. This type of forensic work is complex and time consuming, so we typically only recommend this path if you’ve lost $30,000 or more.
While Gordon Law Group cannot help with recovery of funds, we’d be happy to refer you to someone who can. Contact us at [email protected] or call (847) 580-1279 to learn more.
Can You Write Off Stolen Crypto on Your Taxes?
Typically, you cannot write off lost or stolen crypto on your taxes.
Historically, you could take an itemized tax deduction for theft losses or casualty losses. This went away in 2018 with the Tax Cuts and Jobs Act, except in very limited circumstances. These days, you can only deduct losses that occurred as part of a federally declared disaster.
In the case of a rug pull, your losses can provide a tax benefit, even offsetting capital gains in future years. However, for most other scams, the options are limited. Like most tax issues, it depends on your specific circumstances, so contact us if you have questions about stolen crypto and your taxes.
How to Prevent Cryptocurrency Scams
Research Before You Invest
Make sure to thoroughly investigate before investing in a cryptocurrency or a crypto-related project. Scrutinize the credibility of the exchange, wallet, or ICO project.
Secure Your Crypto Assets
Opt for hardware wallets or other secure methods for storing your cryptocurrencies. Never divulge your private keys or sensitive data to anyone.
Beware of “Too Good to Be True” Offers
Scammers often dangle the bait of high returns with low risk. If an offer appears too good to be true, it most likely is.
Verify the Legitimacy of Exchanges and Links
Always double-check the authenticity of exchanges and links before clicking on them or sharing your personal information. An extra moment of caution can save you from potential scams.
At Gordon Law Group, we are dedicated to helping you maneuver the crypto tax landscape. While we are not able to assist with scam recovery, we hope this information equips you with the knowledge to safeguard your crypto assets effectively.
The world of cryptocurrencies, though thrilling, can also be fraught with risks. Stay vigilant, stay safe. For any queries or concerns related to crypto taxes, feel free to reach out to our experienced crypto tax lawyers. Contact us using the form below or call (847) 580-1279. Our team is always at your disposal for any tax or legal issues!