More people are using social media, dating apps, and messaging platforms to meet and connect with others. Sadly, scammers use these platforms too. One of the fastest-growing frauds on those platforms is the long, patient investment scam often called “pig butchering” — and it is no longer a small problem.
Americans filed more than one million complaints with the FBI’s Internet Crime Complaint Center in 2025 and reported losing nearly $21 billion. Complaints involving cryptocurrency accounted for more than $11 billion of that total, and investment fraud drove roughly 49% of all scam-related losses.
The name comes from the scammer’s method of gaining a person’s trust over time before convincing them to invest more and more money. By the time victims realize the investment is fake, their money is often gone, and because it is usually left in cryptocurrency, it is rarely recoverable.
These scams usually start with a friendly message, social media request, or dating app connection. The scammer may seem successful, trustworthy, or even interested in a romantic relationship.
Over time, they build a friendship and gain your trust. Then they tell you about what looks like a great investment opportunity, often involving cryptocurrency or foreign currency trading. The platform they point you to looks like a real trading site, with a login, a dashboard, and a balance that moves.
At first, they may encourage you to invest a small amount. They may even show fake profits to make it look like the investment is growing. Once you invest more money, the scammer disappears, the website stops working, or you find out you cannot withdraw your money.
Watch for these common red flags:
A live video call is no longer proof. The FBI’s 2025 report is the first in the program’s history to break out artificial intelligence separately: 22,364 complaints and nearly $893 million in losses, much of it involving voice clones and generated video of people the victim believed they recognized.
Anyone can be a victim of these scams. However, scammers often target:
Being outside that profile is not protection. Adults over 60 file a minority of complaints but reported approximately $7.7 billion in losses in 2025, up 37% from the prior year — the largest dollar exposure of any age group.
You can lower your risk by following these simple steps:
If you lose money in an investment scam, a deduction may be available — but not the one most people have in mind. Ordinary personal theft losses have been off the table since 2018, and the One Big Beautiful Bill Act made that permanent. Beginning in 2026, a personal casualty or theft loss is deductible only if it is attributable to a federally or state-declared disaster (IRC §165(h)(5)).
What remains is the narrower route for a loss on a transaction entered into for profit (IRC §165(c)(2)). The IRS addressed this directly in Chief Counsel Advice 202511015, which walks through five common scam patterns and treats a loss like this one as profit-motivated — and therefore not blocked by the personal-loss suspension — where the money was handed over in pursuit of an investment return.
Three things generally have to line up: the transaction was entered into for profit, the conduct is theft under the law of your state, and there is no reasonable prospect of recovering the money. Whether they line up in your case is a question of fact. One more wrinkle for higher earners: beginning in 2026, a new overall limit on itemized deductions can reduce the benefit even when the loss qualifies. Because these rules can be complicated, speak with a qualified tax professional before claiming a deduction related to a scam loss.
Most of this money leaves in cryptocurrency, and that creates a paper-trail problem worth flagging. Beginning with 2025 transactions, custodial exchanges issue Form 1099-DA reporting gross proceeds; cost-basis reporting begins with assets acquired on or after January 1, 2026. If you sold or converted holdings on an exchange to fund what turned out to be a fake platform, the IRS sees the proceeds. It does not see that the coins went to a scammer.
That leaves two separate items to handle: the disposition reported by the exchange and the theft loss, if one is allowable. They are not the same event, and netting them informally is how a matching notice starts. If you hold digital assets in Maryland, New Jersey, or New York, add a third — state treatment of theft losses does not automatically follow the federal answer, and the three states do not agree with each other.
If you believe you are a victim of an investment scam:
File early. Those reports are also the documentation behind a theft-loss claim — they are what shows the conduct was theft and that recovery was pursued — and they are far easier to obtain now than two years from now.
“Pig butchering” scams combine emotional manipulation with fake investment opportunities to steal money from unsuspecting victims. The best defense is skepticism. If an online friend, romantic interest, or social media contact is encouraging you to invest in cryptocurrency or promising quick profits, proceed with extreme caution.
If you have already experienced a loss, call our office at (410) 643-4477 and ask for a 30-minute loss-documentation review, or schedule a confidential consultation. We will tell you what to gather, how the disposition and the loss are reported separately, and whether a §165(c)(2) claim is realistic on your facts — while there is still time to do it properly.
Sources: FBI, 2025 Internet Crime Report and press release “Cryptocurrency and AI Scams Bilk Americans of Billions,” April 6, 2026. IRS Office of Chief Counsel, CCA 202511015. IRC §§165(c)(2), 165(h)(5), 68, as amended by P.L. 119-21 (One Big Beautiful Bill Act, July 4, 2025). IRS final regulations on broker reporting of digital asset sales, Form 1099-DA.
This article is provided for general informational purposes only and does not constitute tax, legal, or accounting advice. It should not be relied upon as a substitute for consultation with a qualified professional regarding your specific circumstances and was prepared by KMAF with the assistance of AI-powered editing tools.
