By Mike Ring, CEO — Blockchain Crypto Tax Prep
If you’re reading this because it happened to you, start here: you are not stupid, and you are not alone. Pig butchering scams are run by organized groups who do this full time, with scripts, fake platforms and weeks of patience. People with finance degrees lose money to them. The question now is what to do next, and the first answer is to stop sending money and start writing everything down.
How the scam usually works
The name comes from the scammers’ own slang: “fatten the pig” before the “slaughter.” It tends to follow the same arc.
- First contact. A wrong-number text, a dating app match, a LinkedIn message, a WhatsApp or Telegram hello. Friendly, patient, nothing about money for a while.
- Trust building. Days or weeks of conversation. They share their life, ask about yours, and eventually mention how well they’ve been doing trading crypto.
- The platform. They walk you through opening an account on a “trading platform” or app. It looks professional. Early on, a small withdrawal works, which is the point.
- The dashboard. Your balance climbs fast. You deposit more. Sometimes they push you to borrow or move retirement money.
- The squeeze. When you try to take real money out, there’s suddenly a fee, a “tax” you have to pay first, a “security deposit,” or a frozen account that needs one more payment to unlock. That payment never unlocks anything.
A real exchange does not hold your balance hostage until you wire more. If a platform tells you to pay taxes or fees up front before you can withdraw, that is the scam’s final step.
Stop, then document everything
The single most useful thing you can do right now is build a complete record while the details are fresh and the accounts still exist. Law enforcement, your exchange, and your own tax professional will all need it, and it is much harder to rebuild months later.
Gather:
- Every exchange account you used, with full transaction history exported (CSV from each one, covering the whole period).
- Every wallet you used, including any the scammer had you create. Write down the wallet addresses.
- Transaction hashes (TXIDs) for every transfer you sent toward the scam. Each one is a permanent public record on the blockchain.
- The scammer’s receiving addresses, exactly as given to you.
- The platform itself: the website address, app name, any account number or “user ID” they gave you, and screenshots of your dashboard and balances.
- The conversations: screenshots or exports of the chats, with the usernames, phone numbers and profile names they used.
- Bank and card records for the money you moved into crypto in the first place.
- A simple timeline: dates of first contact, each deposit, each request for money, and when you realized.
Don’t delete the chat apps or close accounts until you have copies. Don’t confront the scammer or tell them you’re reporting them.
Who to report it to
Report it even if you think the money is gone. Reports are how these groups get traced, and some victims do see funds frozen when an exchange acts quickly.
- FBI Internet Crime Complaint Center: ic3.gov. Include the wallet addresses and transaction hashes.
- Federal Trade Commission: reportfraud.ftc.gov.
- Your local police, for a report number. Some banks and insurers ask for one.
- The exchange you sent from. Their fraud or compliance team can flag the receiving addresses and sometimes freeze funds that land on a regulated platform.
- Your bank, if money left your bank account recently.
Keep a copy of every report and the confirmation number.
Watch for the second wave
Within weeks, many victims get contacted by “recovery agents,” “blockchain investigators,” fake law firms or even people claiming to be from a government agency, promising to get the money back. They want an upfront fee, a wallet connection, or your seed phrase.
These are scams too, often run by the same groups or by people who bought the victim lists. Nobody legitimate charges you upfront to recover stolen crypto, and nobody legitimate needs your seed phrase. If someone reaches out to you first offering recovery, treat it as the next attempt.
What about taxes?
This is where people tend to get stuck, and where the details matter.
The IRS has issued guidance in recent years on how losses from scams like this are treated for some victims. In 2025, IRS Chief Counsel guidance (CCA 202511015) said some investment-scam victims can claim a theft loss as a loss from a transaction entered into for profit, which isn’t caught by the suspension of personal theft losses. It describes three conditions: you put the money in to make a profit, there’s no reasonable prospect of getting it back, and the scheme counts as theft under state law. Scams with no investment motive, such as pure romance or “kidnapping” scams, generally don’t qualify. Whether any part of your loss affects your taxes, and how, depends on the facts: how the money was moved, why, when you discovered the loss, and whether any recovery is still possible. It is not automatic, and it is not the same for everyone.
Two practical points regardless of your situation:
- The records above are what any answer will rest on. A loss you can’t document is a loss you can’t support.
- Your exchange may still report activity on your 1099-DA. Transfers out to a scammer can show up oddly on broker forms, and the form won’t explain what happened. If the numbers on yours look wrong, see what to do if your 1099-DA is wrong.
Talk to a tax professional about your specific facts before you file.
How we help victims
We’ve worked with people going through this, and the part we do is the reconstruction.
- We rebuild the full transaction trail, from your bank to each exchange, through any wallets, to the scam addresses. Every hop, in order.
- We document every transfer with on-chain evidence: transaction hashes, dates, amounts and receiving addresses, organized so someone else can follow it.
- We produce clean records that you and your own tax professional can work from, and that you can attach to reports for law enforcement or your exchange.
- We reconcile it against your broker forms, so the rest of your crypto activity for the year is right too, which matters if your exchange reported proceeds that don’t reflect what happened.
We can’t get the money back, and we’ll never tell you we can. What we can do is turn a mess of screenshots and exports into a record that holds up.
If that would help, book a free 30-minute consult or call 410-216-4632. Bring whatever you’ve gathered; it doesn’t need to be organized.
This post is general information, not tax advice. Your situation may differ. Talk to a qualified tax professional about your specific facts.
Need help with your crypto taxes? Mike Ring and the BCTP team handle the messy stuff — multi-chain DeFi, 1099-DAs that don’t add up, prior-year amendments. Free consult at cryptotaxprep.io or call 410-216-4632.
This isn’t tax advice. Talk to a professional about your specific situation.
