Pig Butchering Scams and Tax Relief: What Victims Need to Know Before Year-End

Across the country, investors are discovering that what looked like an easy way to profit in crypto or foreign currency trading was in fact an elaborate tax scam. 

Known as “pig butchering” scams, these schemes lure victims into fake investment platforms, often through social media or messaging apps, by promising steady returns. 

The term comes from the idea of “fattening up” victims before the final cut. Scammers show false gains to convince people to invest more before the entire account vanishes.

For victims, the financial and emotional damage can be overwhelming. But in some cases, the IRS now recognizes a path toward relief through theft-loss deductions. 

A 2025 IRS Chief Counsel memorandum (CCA 202511015) explains when victims of investment scams may qualify for a theft-loss deduction under Internal Revenue Code §165(c)(2), especially those scam victims whose losses arose from transactions entered into with the genuine intent of earning a profit.

And there’s an important deadline ahead: to claim a theft-loss deduction for 2025, victims must take action before December 31.

Because theft-loss deductions hinge on the year the theft is discovered, victims should begin documenting their case before year-end to maximize their options. 

If you wait, you risk losing the opportunity to claim the deduction for 2025 and make it harder to prove when and how the theft was discovered.

How Pig Butchering Scams Work

Pig butchering scams often begin innocently for the taxpayer. 

Victims are approached online by someone posing as a friendly investor or romantic interest, sometimes over weeks or months. 

The scammer gains trust, introduces a “trading opportunity,” and provides access to a realistic-looking investment app that falsely displays growing profits.

Each new “profit” encourages a larger investment, until, suddenly, the entire balance disappears. The scammers then cut contact or move the conversation to new channels to hide their tracks.

While these crimes were once viewed as outside the IRS’s scope, the explosion of crypto and online trading losses has forced tax authorities to act. 

The Chief Counsel memo reflects a growing understanding: these aren’t poor investment choices – they’re thefts.

The IRS’s Updated Guidance on Scam-Related Losses

In Chief Counsel Advice 202511015, the IRS acknowledged that victims of pig butchering and similar scams may be eligible to deduct their losses under Internal Revenue Code §165(c)(2), which covers theft losses incurred in profit-motivated transactions.

Taxpayers may be eligible to deduct their losses if they can show that:

• They intended to make a legitimate profit from the activity.
• The loss resulted from theft, not from market fluctuation or personal misjudgment.
• They can substantiate what happened through documentation such as text messages, bank records, and police or FBI reports.

This clarification marks a turning point. 

In the past, taxpayers were often told that scams like these were nondeductible “personal losses.” 

Now, the IRS recognizes that profit-driven scams – such as those involving crypto investment – can meet the standard for theft-loss treatment.

An experienced IRS tax attorney can help you pursue theft-loss deductions in qualified cases, including filing amended tax returns and providing additional documentation.

Why Acting By December 31 Matters

Timing is critical. 

That’s because, under IRS rules, theft-loss deductions must be tied to the year the loss occurred or was discovered. 

For taxpayers who were defrauded in 2025, that means the event and supporting reports must be documented by December 31, 2025, to claim the deduction on their 2025 tax return (filed in 2026).

Even for taxpayers who aren’t ready to file their tax returns, it’s important to document everything now so you can claim the theft-loss deduction for this tax year.

Theft-loss claims are often reviewed by the IRS and may be examined to confirm the facts and documentation. 

Such a review, known as an audit, gives the taxpayer a chance to explain what happened to the IRS, which can be beneficial if you have a skilled tax attorney on your side.  

What Victims Of Pig butchering Scams Should Do Now

First and foremost, be sure to act before December 31. 

Here are some concrete steps to take immediately if you’ve fallen victim to a pig butchering or other crypto-related scam:

• Report the fraud. File a complaint with the FBI’s Internet Crime Complaint Center at IC3.gov and your local police department. These reports are essential to document that the loss resulted from theft. Some victims feel ashamed and do not report the entire loss which may hinder their ability to take deductions on their tax returns.
• Preserve all evidence. Keep records of text messages, emails, trading app screenshots, wire transfers, and crypto wallet transactions. These wallets may block your access if they discover certain transactions involving fraud.
• Gather tax documentation. Collect the bank or brokerage statements showing when funds left your account and where they were sent.
• Consult a qualified tax attorney. Because these cases involve complex timing rules, coordination with the IRS, and possible audit review, legal guidance is critical.

Take Action For Tax Relief From Pig Butchering Scams Before Year-End

If you have been targeted by a pig butchering or crypto scam, you’re not alone, and there may still be a way to recover part of your loss. 

Tax Attorney Sammy Kim has already assisted clients in filing theft-loss claims and working with the IRS to validate their cases. She has filed amended tax returns to claim such losses, defended clients against IRS audit, and involved IRS Appeals channels as well as the Taxpayer Advocate Service to comprehensively help her clients to defend their cases.

With the December 31 deadline, now is the time to take action.

Contact The Law Offices of Sammy Kim to discuss your pig butchering scam case now and determine whether a theft-loss deduction may apply to your situation.

Frequently Asked Questions About Pig Butchering Scams

What is a pig butchering scam?

A pig butchering scam is a long-con investment fraud where criminals build trust with victims and then lure them into fake trading platforms that show fabricated gains. The victim is “fattened up” to invest more before the scammers vanish with the funds. These scams often originate through social media or dating apps and may involve cryptocurrency, foreign exchange, or stock-trading platforms.

Can victims really deduct losses from pig butchering scams on their taxes?

In some cases, yes. The IRS’s 2025 Chief Counsel memorandum confirmed that profit-motivated scams, such as crypto or trading frauds, may qualify as theft losses under §165(c)(2) of the Tax Code. Victims must prove that the money was invested with a genuine profit motive and that the loss resulted from theft, not investment risk or volatility.

What documentation do I need to support my pig butchering scam claim?

The IRS expects victims to show a paper trail, including:

• Communication records (texts, emails, or chat logs) with the scammer.
• Financial records showing the transfer of funds.
• A police report or FBI IC3 report confirming the incident.
• Proof that the platform or account is now inaccessible.

The more clearly you can show intent, theft, and timing, the stronger the case for deduction.

What if I withdrew money from a 401(k) or IRA to invest and got caught in a tax scam?

This scenario is common, and it complicates the tax picture. When funds are withdrawn from a retirement account, they become taxable income, even if later lost to fraud. However, under the new IRS interpretation, victims may be able to reduce taxable income through a theft-loss deduction. Legal guidance is critical in structuring and documenting this correctly. 

Does claiming a theft-loss deduction in a pig butchering scam case trigger an audit?

It can. The IRS often reviews theft-loss claims closely to confirm their legitimacy. However, an audit isn’t necessarily negative. When your case is well-documented and supported by evidence, an audit gives your attorney an opportunity to present the facts directly and ensure that the loss is recognized properly.