From Pig Butchering to Tax Relief

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Pig butchering scams are one of the most destructive forms of modern fraud. They are not quick cons. They are patient, methodical, and deeply invasive, built on emotional manipulation, fabricated investment returns, and a steady escalation of trust. Victims are contacted through text messages, dating applications, Facebook, LinkedIn, Instagram and encrypted messaging platforms, then drawn into a false relationship or a fake investment opportunity that appears increasingly real with each passing day. By the time the scheme collapses, the victim has lost her life’s savings, retirement funds, borrowed money, or sale proceeds.

 

The financial damage is severe. The emotional damage is worse. Victims experience shame, anger, humiliation, insomnia, anxiety, and depression. In some cases, the psychological toll is so profound that victims contemplate and commit suicide. That reality should never be minimized. This isn’t just a tax matter or a criminal complaint, it’s a crisis that demands competence, discretion, and urgency.

 

The consequences of a pig butchering scheme should be handled in two coordinated ways: (i) the criminal referral, and (ii) the tax-loss analysis. Each has its own legal requirements, but together they form a practical response to a crime designed to isolate the victim and obscure the trail of the money.

 

The Criminal Side: Investigate First, Then Refer

 

Attorney Daniel Kron begins by evaluating the factual record. He is a highly accomplished attorney who focuses on tax and financial crimes, and brings the judgment needed to assess whether a matter can be advanced strategically and effectively. Kron and Selig are known for their superior negotiating skills and their ability to resolve delicate matters quietly and behind the scenes when discretion serves the client’s interests.

 

The first objective is to determine whether the perpetrators can be identified, whether any defendants can be located, whether any portion of the stolen funds can be traced, and whether the matter can be referred in a way that may assist law enforcement.

 

The work begins with the evidence the victim still has, viz. messages, screenshots, wallet addresses, wire confirmations, bank records, exchange statements, and any communications that reveal the structure of the fraud. The facts matter. In these cases, the paper trail is often the case.

 

The key federal reporting mechanism is the FBI Internet Crime Complaint Center, known as the IC3. Filing an IC3 complaint creates a formal federal record of the fraud. It does not promise recovery, and it does not guarantee prosecution, but it is an essential step. According to the IC3, it is “the central hub for reporting cyber-enabled crime,” and the FBI notes that complaints may be analyzed and referred to federal, state, local, or international law enforcement and partner agencies for possible investigation. The IC3 also states that reports help the FBI investigate crimes, track trends and threats, and, in some cases, even freeze stolen funds. It further notes that, while it cannot guarantee a response to every complaint, each report remains valuable and helps the FBI understand the broader threat landscape.

 

For the tax side of the case, the IC3 filing serves an additional purpose, specifically, it helps establish that the loss was treated as a real theft, reported contemporaneously, and not merely recharacterized after the fact to obtain a tax benefit. The IC3 also cautions that the information submitted should be accurate to the best of the complainant’s knowledge, and that knowingly false information may expose the filer to penalties under Title 18, U.S. Code, Section 1001. 

 

The Tax Side: What Kind of Loss Is This?

 

The tax question turns on the character of the transaction. The taxpayer did not send money for personal enjoyment, family consumption, or charitable reasons. The taxpayer was induced to transfer funds in what was presented as an investment opportunity. That distinction is central.

 

Under Internal Revenue Code § 165(c)(2), an individual may deduct losses incurred in a transaction entered into for profit, though not connected with a trade or business. Under Treasury Regulation § 1.165-1(b), a deductible loss must arise from a closed and completed transaction, fixed by identifiable events, and sustained during the taxable year.

 

That is why pig butchering losses generally belong in the profit-motive framework. The taxpayer’s intent was to earn a return. The fraudster exploited that intent. The loss therefore arises out of a transaction entered into for profit and then stolen by deception.

The IRS has already confronted a similar problem in the aftermath of Bernard Madoff’s Ponzi scheme and related investment frauds. In Revenue Ruling 2009-9 and Revenue Procedure 2009-20, the Service set out a framework for handling losses from specified fraudulent investment arrangements. Those authorities remain important administrative guideposts for evaluating whether a victim’s loss is deductible and how it should be reported.

 

Pig butchering scams are not identical to Ponzi schemes, but the legal logic is strikingly similar. In both settings, the victim parts with money in reliance on a supposed investment opportunity that is, in truth, fraudulent from the outset.

 

Why the Right Characterization Matters

 

A common mistake is to treat these losses as ordinary personal losses, or to assume they fall into some generic nondeductible category simply because the scam was sophisticated. That is too crude.

 

A pig butchering loss is not a lifestyle expense. It is not a gift. It is not a recreational wager. It is a theft arising from a profit-seeking transaction. The deduction depends on that characterization.

 

It also matters because tax law does not reward imprecise labeling. A correct return should reflect the actual facts: the taxpayer invested, the fraudster deceived, the funds were stolen, and the loss was sustained in the proper year.

 

Disclosure: Say What Happened, Plainly and Precisely

 

A clean disclosure is often the difference between a supported return and an unnecessarily vulnerable one. The taxpayer’s profit motive should be stated clearly in the return workpapers and, where appropriate, in a disclosure statement.

 

Depending on the position taken, the preparer should consider Form 8275 or Form 8275-R. If the position is contrary to a Treasury regulation, Form 8275-R is the proper form. If the issue is a supportable disclosure made to avoid understatement penalties, Form 8275 may be the more suitable vehicle. The correct form depends on the exact legal theory and should be selected carefully.

 

The disclosure should be concise and factual. It should explain that:

 

• the taxpayer entered the transaction with a bona fide intent to make a profit;

• the taxpayer transferred funds in reliance on a fraudulent investment scheme;

• the scheme was later discovered to be fraudulent;

• the loss was sustained in the proper tax year; and

• the deduction is claimed under the applicable theft-loss rules in I.R.C. § 165.

 

That is not advocacy by embellishment. It is advocacy by accuracy.

 

The TCJA Issue

 

The Tax Cuts and Jobs Act created confusion because it suspended certain miscellaneous itemized deductions for tax years 2018 through 2025. That led some people to assume that all fraud-related losses had somehow been swept away.

 

They were not.

 

If the loss is properly characterized as a theft loss arising from a transaction entered into for profit, it is analyzed under I.R.C. § 165(c)(2), not as a miscellaneous itemized deduction subject to the 2% floor. That distinction is critical. The statute matters. The label matters. The facts matter.

 

The correct filing position should therefore focus on the profit motive and the fraudulent taking, not on a simplified or mistaken analogy to personal casualty or miscellaneous deductions.

 

The Human Dimension

 

No one should underestimate the psychological damage these scams inflict. Victims often delay reporting because they feel ashamed. Many never tell their family at first. They may believe they were uniquely foolish, or that admitting the loss will expose them to ridicule.

 

That is exactly how the fraud works. The scam is designed not only to take money, but also to make the victim feel responsible for the theft. The emotional isolation is part of the scheme.

 

Professionals working these cases need to understand that reality. The right response is not embarrassment or blame. It is structure: preserve the evidence, report the crime, evaluate the tax treatment, disclose the position cleanly, and move the case forward.

 

From Madoff to the Present

 

Selig has worked on these issues since the Madoff era and has long advised victims of fraudulent investment schemes. That history matters because the legal architecture now used in these cases did not appear overnight. It was shaped by the massive frauds that forced the IRS and practitioners to develop a workable tax framework for victims.

 

Selig was among the practitioners who helped shape the framework later reflected in IRS guidance. The response to the Madoff scandal established a durable principle: when a taxpayer is induced into a profit-seeking investment arrangement and the funds are stolen by fraud, the tax law must provide a coherent method for recognizing the loss.

 

That same principle applies today, even though the fraudster’s tools have changed. The modern pig butchering case may involve crypto wallets, overseas exchanges, false dashboards, and multilingual criminal networks. But at bottom, the case is still about a victim being induced into a fraudulent investment and losing money through theft.

 

Why CPAs Refer These Matters

 

Many CPAs are understandably cautious when it comes to regulatory disclosures and other positions that may draw scrutiny from the IRS. That caution is usually not a matter of indifference or lack of skill; it reflects a professional concern about preparer penalties, documentation standards, and the risk of being pulled into a controversy outside their customary lane.

 

In a pig butchering case, that hesitation can leave a victim stuck between an unresolved fraud claim and an incomplete tax filing. Selig and Kron fill that gap. They prepare the tax return for the loss year, structure the disclosure appropriately, and help resolve the matter at the point where legal and factual uncertainty is highest. Once the case is stabilized and the return position is in place, the client’s regular CPA can continue handling ongoing compliance and future filings.

 

That division of labor is intentional. It allows CPAs to protect their practice, avoid unnecessary exposure, and refer the matter with confidence. Just as important, it removes any concern that referring the matter will mean losing the client’s continuing tax work. Selig and Kron handle the fraud-loss problem; the client’s CPA remains the long-term tax advisor. The result is a cleaner process for the client and a more comfortable referral path for the CPA.

 

Conclusion

 

Pig butchering cases require more than sympathy. They require execution.

 

The criminal side must identify the scheme, preserve the record, and determine whether a federal referral can be made. The tax side must classify the loss correctly, apply I.R.C. § 165, and disclose the position with discipline and precision.

 

For victims, the goal is not just to file a return or submit a complaint. It is to regain control of the narrative after a fraud built to strip it away. The law cannot reverse every loss, but it can recognize what happened, document it properly, and give victims the clearest path to the relief that remains available.

 

Authorities

 

• I.R.C. § 165(c)(2).

• I.R.C. § 165(c)(3).

• Treas. Reg. § 1.165-1(b).

• Rev. Rul. 2009-9, 2009-14 I.R.B. 735.

• Rev. Proc. 2009-20, 2009-14 I.R.B. 749.

• FBI, Internet Crime Complaint Center (IC3)

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Understanding IRS and New York State Installment Agreements 

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Selig & Associates represents individuals and businesses seeking IRS installment agreements, New York State installment agreements, and tax penalty abatements for serious federal and state tax liabilities. When tax debt exceeds $100,000, the matter requires detailed financial disclosure, strict compliance, and a strategic approach to resolving IRS tax debt or NYS tax debt. Call today for a free consultation (212) 974-3435.

 

Large tax cases often involve unpaid income taxes, payroll tax liabilities, and sales and use tax debt. These obligations are treated differently under federal and New York State law, and the proper resolution depends on whether the debt consists of trust fund taxes or non-trust fund taxes, and whether any individual may be personally liable.

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Understanding Trust Fund and Non-Trust Fund Tax Liability

 

A critical issue in both IRS tax resolution and New York State tax resolution is the distinction between trust fund and non-trust fund liabilities.

 

Trust Fund Taxes:

Trust fund taxes are amounts collected from others and held for the government, including:

 

• Federal income tax withheld from employees

• Employee Social Security and Medicare taxes withheld from wages

• New York State income tax withholding

• New York sales tax collected from customers

 

These taxes are considered funds held in trust and may create personal liability if not properly paid over to the taxing authority.

 

Non-Trust Fund Taxes:

Non-trust fund taxes generally include the employer’s own tax obligations, such as:

 

• The employer’s share of Social Security and Medicare taxes

• Other business-level tax liabilities

 

Although these amounts remain collectible, they typically do not carry the same personal exposure as trust fund taxes.

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Understanding Personal Liability for Payroll and Sales Tax Debt

 

Under federal law, the IRS may assess the Trust Fund Recovery Penalty (TFRP) against a responsible person who willfully fails to collect or remit trust fund taxes. New York State also imposes personal liability in certain cases involving withholding tax and sales tax.

 

For this reason, payroll tax and sales tax cases require careful analysis of responsible person exposure, collection risk, and available settlement options. For immediate assistance call (212) 974-3435.

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Specializing in IRS Installment Agreements for Tax Debt Over $100,000

 

The IRS has authority to enter into installment agreements under IRC § 6159. However, when the balance exceeds $100,000, the IRS generally requires a full financial review and may impose additional collection safeguards.

 

Common IRS Requirements:

To obtain an IRS installment agreement, taxpayers usually must:

 

• File all required tax returns

• Submit financial disclosure forms, e.g., Forms 433-A, 433-B, or 433-F

• Provide details regarding income, expenses, assets, and monthly cash flow

• Remain current with future tax filings and estimated tax payments

 

The IRS will file a Notice of Federal Tax Lien in large-balance cases to protect its interest while the debt remains unpaid.

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Specializing in New York State Installment Agreements

 

New York State installment agreements are available for taxpayers who cannot pay their full tax balance immediately. As with federal tax debt, NYS typically requires current compliance, accurate financial disclosure, and timely payment of ongoing tax obligations.

 

This is especially important in cases involving:

 

• NYS withholding tax debt

• NYS sales tax debt

• Business tax liabilities

• Penalty assessments

• Collection warrants and levies

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Tax Resolution for Businesses and Individuals

 

Selig & Associates assists with a wide range of IRS and NYS tax collection matters, including:

 

• IRS installment agreements

• NYS installment agreements

• IRS penalty abatement

• NYS penalty abatement

• IRS tax lien relief

• Tax levy release

• Payroll tax resolution

• Sales tax resolution

• Trust fund recovery penalty cases

• Back tax compliance and settlement

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We work to identify the best resolution strategy based on the nature of the tax debt, the taxpayer’s financial condition, and the applicable collection rules.

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Strategic, Confidential Tax Representation

 

Our approach is focused on strategic tax resolution, confidential representation, and practical settlement options. We help clients resolve serious tax problems efficiently and with as little disruption as possible. For immediate assistance call (212) 974-3435.

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