A qualified loss is a loss from a Ponzi-type scheme that meets the Revenue Procedure 2009-20 condition for the IRS safe harbor: the scheme's lead figure has been charged by indictment or information with fraud, embezzlement or a similar crime, or is the subject of a criminal complaint alleging one alongside an admission, an appointed receiver or trustee, or frozen assets.
The test asks what the authorities did about the scheme, not what the scheme did to investors. It is satisfied by public legal documents: an indictment or information filed under state or federal law, or a criminal complaint together with one of the supporting facts. Investors learn whether their loss qualifies by following the case against the operator. In practice the moment of qualification is often a Department of Justice press release, a court docket entry or a receiver's website going live.
Crypto schemes reach that point less often than traditional ones. Operators are frequently offshore, pseudonymous or beyond the reach of a charging authority, and many schemes are exposed by blockchain analysts rather than prosecutors. Where nobody is charged, there is no qualified loss, whatever the facts.
Revenue Procedure 2009-20 defines a qualified loss as a loss resulting from a specified fraudulent arrangement in which, as a result of the conduct that caused the loss, the lead figure or an associated entity was charged by indictment or information, not withdrawn or dismissed, with fraud, embezzlement or a similar crime that would meet the definition of theft under IRC Section 165 and Treasury Regulations section 1.165-8 if proven. Alternatively, the lead figure was the subject of a state or federal criminal complaint alleging such a crime, and either the complaint alleged an admission by the lead figure or the execution of an affidavit admitting the crime, or a receiver or trustee was appointed over the arrangement or its assets were frozen. Revenue Procedure 2011-58 extended the definition to a lead figure whose death prevented a charge, where a criminal complaint was filed and a receiver or trustee was appointed or assets were frozen.
The charge fixes the discovery year for the safe harbor. Under the procedure the discovery year is the year in which the indictment, information or complaint is filed, which is why the qualified loss test and the timing of the deduction are the same question. A charge filed in January 2026 puts the deduction on the 2026 return even for an investor who knew in 2024 that the money was gone.
The qualified loss is then measured as the qualified investment, reduced to 95 or 75 percent depending on whether the investor is pursuing a third-party recovery claim, less actual recoveries in the discovery year and any potential insurance or SIPC recovery. Claims against the scheme itself and its lead figure, including through a receivership or bankruptcy, are not subtracted; the percentage haircut stands in for them.
A loss that fails the test is not lost. It is a Ponzi scheme loss claimed under the general rules, with the discovery year and the reasonable prospect of recovery decided on the facts rather than by the procedure.
Timing runs off the charge, so the return has to be matched to the court record. An investor who deducts in the year the platform froze, when the charge comes two years later, has claimed the safe harbor in a year it does not cover and has no safe harbor deduction in the year it does. The docket entry showing the filing date of the indictment or complaint belongs in the file with the return, and the qualified investment schedule has to be built up to the last day of that year.
Read our 2026 Guide to Claiming Crypto Losses from Fraud, Scams, Theft
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