Pig Slaughter Crypto Scams: Can You Claim a Tax Loss?

July 8, 2024

In the investment world, cryptocurrency mining and trading is still relatively new, making it a prime target for scammers. If you are looking to get into crypto or are already trading or mining, it’s important that you stay abreast of common crypto scams that are circulating.

One of the newest scams is the “pig slaughter” or “pig butchering” scam. Despite its colorful name, this scam is a complex, personal con that can cost an entire life savings.

In 2024, these scams are on the rise. Many victims of pig slaughter scams have reached out to our crypto tax attorneys, wondering if they can use their cryptocurrency losses to lower their tax bill. The good news is that you do have options. However, it’s much more difficult to claim these losses now than it was a few years ago, and you should speak to an experienced tax professional to understand your best path forward.

Let’s examine your tax options after a pig slaughter cryptocurrency scam.

What is a Pig Slaughter or Pig Butchering Scam?

A pig slaughter scam usually begins somewhere on the internet where people communicate, such as a social media site, dating app, message board, or WhatsApp. The scammer will use a fake profile to contact their victim and start a digital relationship with them. The scammer may contact you to discuss an interest you listed in your dating profile or a community you seem to be a part of on social media.

After the scammer gains your trust, they will discuss an investment opportunity in cryptocurrency where you can make a lot of money by initially contributing a little. From there, they will direct you to a crypto exchange that may seem legitimate but is entirely controlled by the scammer. As you add money, the scammer will post fake gains to encourage you to contribute more.

Over time, you will see gains that make you want to contribute more money for a bigger payout. You will only know something is amiss once you try to withdraw your gains and cannot, or when they claim you will have to pay taxes or some kind of fee on your profits. Once you try to withdraw your money, the scammer will cut contact and vanish, taking your entire investment with them.


Pig slaughter scams began in Southeast Asia and are gaining ground worldwide. Unlike many other internet scams, pig slaughter scams require a significant time investment by the scammer into each con.

The scam is referred to as “pig slaughter” or “pig butchering” because it’s a long con in which the scammer slowly fattens up the victim’s investment before vanishing, much like how farmers fatten up a pig before eventually being slaughtered.


Pig slaughter scams are relatively new in the world of investment scams, but they are thought to have already stolen billions in a few short years. Once the victim realizes they are the victim of a scam, there is little they can do besides file a police report.

What to Do if You Have Been a Victim of a Pig Slaughter Scam

File a Police Report

If you are the victim of any crime, you should always file a report with your local law enforcement. While this does not guarantee you will get any of your money back, it can help authorities in their investigation.

Report It to the Internet Crime Complaint Center

In the US, you can submit a complaint to IC3, an FBI division that deals with internet-related crimes.

Document as Much as You Can

Keep detailed records of all interactions related to the scam, including transaction IDs, usernames, times and dates, and correspondence. This information can be crucial for any investigation.

Check Your Security

Even though a pig slaughter scam isn’t a hack, it’s always wise to double-check your internet security once you have been the victim of a scam. Remember to update your passwords, enable two-factor authentication, and take other steps to secure your digital assets.

Can You Claim a Loss from a Pig Slaughter Scam on Your Taxes?

Several years ago, taking tax deductions when you had a loss was much easier because an itemized deduction was available. However, after 2018, the Tax Cuts and Jobs Act reduced the application of casualty or theft losses to only those that occurred in federally declared disaster zones.

Unfortunately, you usually cannot claim a deduction from a crypto scam on your taxes. However, there are a few exceptions. Be sure to consult an experienced tax professional about your specific situation.

165(c)(2) Deduction

You can claim a casualty or theft loss if the transaction was entered into for profit under Section 165(c)(2) of the Internal Revenue Code. As long as it meets the definition of this type of transaction, you can still claim a deduction. However, there is still some debate as to whether a crypto investment is eligible for this type of deduction.

Ponzi Theft Deduction

Another option is a Ponzi theft deduction. The Ponzi deduction has a safe harbor that the IRS released a few years ago after the Madoff investment scandal, allowing taxpayers to claim up to 90% of the loss in the year the loss was discovered. However, as with the 165(c)(2) deduction, there is little precedent for using the Ponzi deduction for a pig slaughter-type scam.

Capital Loss

The final potential avenue is taking a capital loss. Typically, in a pig butchering scheme, you’ll buy cryptocurrency, Bitcoin or Ethereum, on an exchange like Coinbase and then transfer it to fake exchanges. When you transfer a legitimate token there, an argument could be that it is transferred for nothing in return, generating a capital loss.

Pro Tip: Keep in mind that if you claim a loss on your taxes and then recover any of your funds later, the recovered funds will be considered taxable income.

Get an Opinion Letter from a Tax Attorney

If you lost hundreds of thousands to millions of dollars to a crypto scam and are using one of the three avenues above to recoup some of your losses, you need to get an opinion letter from a tax attorney.

Opinion letters provide a lot of value, especially if you are audited in the future. If you get audited, the IRS may disagree with your position that a Ponzi loss, 165(c)(2) deduction, or capital loss applies to your situation. If so, you’ll have to repay any tax that was saved by claiming the loss—plus IRS penalties and interest.

The value of an opinion letter is that you’ve got the written advice of a tax attorney. While a legal opinion letter doesn’t guarantee that the IRS will accept your loss write-off, it increases your odds of a favorable outcome. At a minimum, it provides protection against some of the penalties the IRS might otherwise assess.

Legal opinion letters must conform to specific standards. They include the facts of your specific case, analysis of the law as it applies to your situation, and ultimately, an opinion from the professional on whether or not they think the IRS would uphold your tax position.

At Gordon Law, we’ve helped several victims of pig slaughter scams write off their losses of $100,000 or more. The cost of meticulous legal research isn’t cheap (the average legal opinion letter costs $20,000), but if the facts are in your favor, you may be able to deduct the entire loss and significantly lower your tax bill. Reach out to our industry-leading cryptocurrency tax attorneys today to discuss your case.

Need Tax Help After a Crypto Pig Slaughter Scam? Talk to a Professional

If you have been a victim of a pig slaughter scam and are looking to claim a loss or deduction on your taxes, talk to a tax professional ASAP.

The experienced Chicago tax lawyers at Gordon Law have focused on cryptocurrency for a decade, helping more than 1,000 investors save on their taxes. We’ll guide you through your options, provide honest advice, and—in the right circumstances—put a silver lining on your situation by substantially lowering your tax bill. Give us a call today to get started.

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