Q –

Angela,

I am a victim of one of the fake publishing companies you’ve been warning your readers about. I lost $22,000. They never published my book and. I stopped sending them money, and they stopped responding to me.

Can I deduct that $22,000 from my taxes?

A –

DISCLAIMER: I am not a CPA. Please consult with your tax representative for answers to specific questions about your situation.

I researched your question on several websites.

According to the IRS:

“Theft losses. A theft is the taking and removal of money or property with the intent to deprive the owner of it. The taking must be illegal under the law of the state where it occurred and must have been done with criminal intent. The amount of your theft loss is generally the adjusted basis of your property because the fair market value of your property immediately after the theft is considered to be zero. Beginning with tax year 2018, individual taxpayers with theft losses are allowed a deduction if the theft is attributable to a federally declared disaster. Individual taxpayers may also be able to deduct theft losses incurred in a trade or business or a transaction entered into for profit. Losses from Ponzi-type investment schemes – Special rules may apply to theft losses from Ponzi-type investment schemes.”

Notice the “federally declared disaster” part.

HOWEVER, Sarah McGregor, the Tax Services Director at Cherry Bekaert Advisory LLC, an advisory, assurance, and tax firm, writes that you may be able to deduct the financial losses due to scammers under specific circumstances. IMPORTANT! You must first report the theft to financial institutions and law enforcement.

Her article is a must-read for scam victims! It specifically mentions:

1. Compromised Account Scams
2. Pig Butchering Investment Scams
3. Phishing Scams
4. Romance Scams
5. Kidnapping Scams (also known as ransom scams)

I believe victims of publishing scams would also be eligible.

If you paid the scammer through your business, it’s a lot easier to claim the loss as a deduction on your business tax return. There are far more details about theft losses and the ability (or not) to deduct those from your tax return on Publication 584 on IRS.gov.

If more victims start deducting these losses from their taxable income, perhaps the federal government will start doing more to stop the scams. U.S. citizens alone are losing billions per year to the overseas crime cartels.

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