Lastly, I feel compelled to raise the issue of theft. Under current tax law, a theft loss is not deductible. The difference between a theft loss and an investment loss is not always clear, but one of the principles the IRS uses is that in a theft loss, there must be an actual thief. I know that in some cryptocurrency scams, the founder pumps up the value of a brand new currency and disappears with the initial investments in just a few days or weeks. On the other hand, a cryptocurrency exchange which is an honest attempt to create a new business, but which fails because the founders can’t run the business properly, is more likely to be treated as an investment loss. If your funds were stolen, the IRS is likely to deny any attempt to deduct the loss under current tax law. (But Ponzi scheme losses are still deductible to the extent that you previously paid tax on earnings that didn’t actually exist.) You may want to have your situation reviewed by an attorney or a tax accountant who is familiar with the law, and with the legal situation of this particular exchange.
