@xmasbaby0 @texasgirl71
On March 14, 2025, the IRS Office of Chief Counsel (Chief Counsel) released advice memorandum number 202511015, addressing the deductibility of theft losses under IRC § 165 for scam victims. The memo offers important clarification on when and how taxpayers may claim a theft loss deduction.
The Chief Counsel memo affirms that taxpayers who are victims of scams may claim a theft loss deduction under IRC § 165, but only if their situation meets specific conditions:
1) The loss must result from criminal conduct classified as theft under applicable state law;
2) The taxpayer must have no reasonable prospect of recovering the stolen funds; and
3) The loss must arise from a transaction entered into for profit.
The memo clarifies that a taxpayer can establish a profit motive not only through a traditional investment scam but also in situations where a scammer misleads a taxpayer into moving money under the false belief that they are protecting it. However, those who lose money through personal scams – such as romance scams or false kidnapping schemes – do not qualify for the deduction under current law due to the TCJA’s restrictions on personal casualty and theft losses.
That the scam be a Ponzi scheme is not necessary.
Number 1) is a legal issue that cannot be answered in this forum
Number 3) is crucial. There must have been a profit motive.
