Yes, you read that right. In a bizarre twist straight out of Wall Street, the IRS has decided that greed is good—at least when it comes to deducting losses from scams.
Most people think of the IRS as a strict, unforgiving agency. But there’s a strange rule buried deep in the tax code that says if you lose money in a scam because you were trying to get richer, you might actually qualify for a tax deduction. But if your motive was kindness, love, or generosity? Sorry, you’re out of luck.
Let’s break this down.
Scam Losses and the IRS: What Counts as a Theft Loss?
A “theft loss” under tax law can include:
Robbery
Embezzlement
Larceny
Fraud
These types of losses are potentially deductible—but only if the scam meets certain legal and motive-based criteria. And that’s where things get weird.
Motive Matters: The IRS Draws a Line Between Greed and Goodwill
According to current IRS rules and tax court precedent:
If you were scammed because you wanted to make money fast (think: investing in a fake crypto scheme or falling for a “too good to be true” business opportunity), you can often deduct the loss.
If you were scammed because you wanted to help someone, donate to what you thought was a real cause, or find love (romance scams), you cannot deduct the loss.
It’s not about how much you lost or how real the scam was—it’s about why you fell for it.
The IRS’s Bizarre Incentive: Be Greedy, Not Generous
This creates a strange situation where the IRS essentially rewards greed while punishing goodwill. It’s not about morals—it’s about motive. And in the eyes of the tax code, your motive determines your eligibility for relief.
Here’s an example:
You wire $50,000 to a fake investment fund that promises 100% returns in 90 days. You were trying to make a quick buck. Deductible.
You wire $50,000 to someone claiming to be a wounded veteran in need. You were trying to help. Not deductible.
Sound backward? It is. But that’s the tax system we live under.
The Takeaway: Motive = Money (or Not)
The lesson here isn’t to be cold-hearted. It’s to understand how the IRS views your financial losses. When it comes to tax deductions:
“If your heart led the way, the IRS looks the other way. If your wallet led the way, the IRS might pay you back.”
In other words, greed opens the door to deductions. Goodwill leaves it closed.
So next time you hear about a scam or someone tells you they were swindled, don’t just ask, “What happened?” Ask, “Why did you fall for it?” Because in the world of taxes, motive is everything.
Want to make sure you’re keeping every dollar the IRS says you can? Book a tax planning consult with Quartermaster Tax and start saving the smart, legal way.