Scam loss opinions: a signed legal opinion that your crypto loss is deductible.
If you lost crypto to a pig butchering scheme, a fake exchange, a rug pull, or a hack, the loss may be deductible. An opinion letter is how you show the IRS why.
Key takeaways
- Theft losses on investments entered into for profit remain deductible under IRC Section 165(c)(2), even after the 2018 limits on personal casualty and theft losses.
- In March 2025 the IRS Office of Chief Counsel (CCA 202511015) analyzed five scam patterns and concluded that losses from investment-style scams were deductible while romance and ransom-style losses generally were not.
- The deduction is claimed in the year the theft is discovered, reduced by any reasonable prospect of recovery.
- Documentation decides these cases: transaction records, communications with the scammer, exchange correspondence, and a law enforcement report.
- An opinion letter applies that authority to your facts and gives your preparer and the IRS a written basis for the deduction.
Can you deduct stolen crypto?
Sometimes, and the answer depends on why you handed the crypto over. Since 2018, personal casualty and theft losses are deductible only in federally declared disasters. Losses on transactions entered into for profit are treated differently, under Section 165(c)(2). In March 2025 IRS Chief Counsel Advice 202511015 worked through five 2024 fact patterns and allowed deductions where the victim was pursuing an investment return (fake platforms, pig butchering, phishing that emptied an investment account) while disallowing losses driven by romance or ransom, which the memo treated as personal. The line is fact-specific. That is what the letter is for.
What the opinion letter does
The letter sets out your facts, applies Section 165, the regulations, the Chief Counsel memo, and the relevant case law, and states our conclusion on deductibility, the year of the loss, and the amount. Your preparer uses it to support the return. If the IRS questions the deduction, the letter is the first thing the examiner reads, and it documents that you relied on qualified legal advice.
Who this is for
Losses of roughly 100,000 dollars or more [VERIFY threshold with Andrew], where the deduction is large enough that documentation matters. For smaller losses, a consultation is usually enough to tell you whether a deduction is available and how to claim it.
What we need from you
- Wallet and exchange transaction history showing the transfers
- Every message with the scammer or platform, including screenshots
- Correspondence with the exchange or platform after the loss
- A police report, FBI IC3 complaint, or other law enforcement filing
- Anything showing recovery attempts and their result
Process and timeline
Scoping call, document collection, analysis, draft for your review, signed final letter. Typical time from complete documents to final letter is two to four weeks [VERIFY].
Questions we hear most
The law does not strictly require one, but a report to law enforcement or the FBI’s IC3 is strong evidence that a theft occurred and that you had no reasonable prospect of recovery. We ask every client to file one before the letter is finalized.
The year you discovered the theft, not necessarily the year the money left. If a recovery is still possible, the deduction may be delayed until that prospect ends. The letter addresses timing for your facts.
Yes. Once the letter is final, our tax team can prepare or amend the return and attach the supporting documentation.
Results depend on the facts of each matter and are not a prediction of the outcome in your case.
Schedule a confidential consultation
Tell us what is going on. A member of our client success team will follow up, explain how we work, and match you with the right attorney.
