Dear Scammed,
Once a scammer has gained your confidence, it’s hard to break that trust. When you start to suspect that something may be wrong, you learn to suspend your disbelief. It’s a horrible cycle that goes against all logic and, in many cases, everything we have been taught to watch out for — strangers approaching us online, “too-good-to-be-true” offers and requests to throw good money after bad. When our confidence fails, fear and desperation take over. It can seem easier to keep the illusion alive than to admit to ourselves we’ve been had.
That’s likely why you are still unsure whether or not this is a scam, despite the fact the fake Cryptonex.com website no longer exists. A spokesperson for the real Cryptonex says it has issued an alert about situations such as this. That warning says: “Don’t rush — scammers often create an illusion of urgency. Verify the accuracy of the information provided to you. Do not share personal information. Cryptonex will never ask for payment or personal data.”
Such confidence tricks happen gradually and are known as “pig butchering.” It’s a nasty term for a nasty business. The scam artists scour social-media sites, public records and dating sites for marks. It’s called “pig butchering” because they take their time fattening up their marks, establishing trust and gradually feeding the victim information promising bigger and better returns. Slowly, the victim compromises their own instincts with the excitement of a big payday. And then they get bled dry.
“The scammer’s goal is not to request money from you, but to convince you to invest in a fake trading website or platform that will show you a bogus balance with lots of profit,” according to this warning from the Georgia Secretary of State. They allow you to withdraw profits early so you invest more. “They may even ‘lend’ you money so that you can make larger trades.” Imposter websites are one of the most popular methods.
It’s hard to claim a tax loss on such scams. The Tax Cuts and Jobs Act of 2017 limited individual casualty and theft deductions to federal disasters. There are exceptions for Ponzi-scheme scams, if the loss is considered a business-theft loss rather than a personal-theft loss; for that to happen, the scammer must be charged with theft, fraud or embezzlement, and the writeoff must be made in the same year as those charges are made.
George Dimov, a New York-based CPA, says he receives roughly two requests a week from people who wish to take this kind of deduction. There may be some possibility — however slim — to write off such losses, he says. “Claiming a capital loss is the least risky, typically resulting in a relatively minor deduction of up to $3,000 per year as capital losses. Of course, this does not help victims much, especially in cases that we have seen where the victim has lost millions.”
The IRS Revenue Procedure 2009-9/20, or the Ponzi Scheme Safe Harbor, generates a greater deduction of up to 95%, Dimov adds, “yet it also comes with potential audit risks and IRS rejection. To determine qualification for Ponzi loss deductions, we must evaluate the client’s situation on a case-by-case basis. Before making any concrete tax-reporting decisions, it is also important to assess the taxpayer’s own risk tolerance for potential audits.”
He cites a “lack of clarity” on deducting such investment losses as one of several “loose ends” created with the Tax Cuts and Jobs Act of 2017. Although Dimov says he has successfully navigated numerous cases involving Ponzi-loss deductions, the interpretation of the IRS tax code on scams could help some victims but, as I noted above, not others. “I do not want to provide general tax advice as a blanket statement, one-size-fits-all strategy,” Dimov says.
It sounds like a slim chance, at best. Please let me know if you have any success.
You can email The Moneyist with any financial and ethical questions at qfottrell@marketwatch.com, and follow Quentin Fottrell on X, the platform formerly known as Twitter. The Moneyist regrets he cannot reply to questions individually.
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