A third-party recovery claim is a claim to recover a loss from someone other than the person who caused it or an insurer: a bank that processed the transfers, an exchange that hosted the scheme's accounts, a promoter, an auditor or a feeder fund. In crypto it also covers claims against the platforms and intermediaries through which stolen assets passed.
When the thief cannot be found or has nothing left, victims look for a solvent party who can be held responsible. Claims are brought against exchanges that onboarded the fraudulent platform or failed to freeze flagged funds, against promoters and influencers who marketed the scheme, against banks that processed the fiat leg, and against custodians or wallet providers whose security failed. Class actions are common, and so are demands to exchanges holding frozen proceeds after a hack.
These claims are slow and uncertain. They can pay years after the theft, in amounts unrelated to the original loss, and they frequently produce nothing. They are separate from a claim against the scheme itself or its operator, which is a direct recovery, and from an insurance claim.
Outside the safe harbor, a third-party claim is a claim for reimbursement, and Treasury Regulations section 1.165-1(d) applies. If the claim carries a reasonable prospect of recovery at the end of the discovery year, the portion of the loss it may cover is not sustained until the year in which the outcome can be ascertained with reasonable certainty. A lawsuit against a well-capitalised exchange with a plausible theory is a reasonable prospect, and it defers that part of the crypto theft loss for as long as the case is live. A claim with no realistic chance of payment defers nothing, but the taxpayer carries the burden of showing that.
The Ponzi scheme safe harbor handles the same claim differently. Revenue Procedure 2009-20 defines potential third-party recovery as claims for recovery that are not against the scheme, its lead figure or its associated entities, and are not insurance or SIPC claims. An investor who is not pursuing and does not intend to pursue any such claim deducts 95 percent of the qualified investment in the discovery year. An investor who is pursuing one, or intends to, deducts 75 percent. The claim is not otherwise subtracted and its progress is not analysed year by year: the 20 percent difference is the price of keeping the claim, and any part of the qualified investment left undeducted can be claimed in a later year under the general rules once the claim is resolved.
The percentage is determined by the investor's position when the discovery-year return is filed, and the return should record which position was taken and why. Recoveries actually received in a later year, under either route, are included in income in the year received to the extent the loss was previously deducted.
The intention question gets answered by conduct the taxpayer did not think of as a claim. Registering with a class action administrator or retaining a recovery firm on a contingent fee can amount to pursuing a third-party recovery. An investor who took the 95 percent figure while either was in motion has overstated the deduction by 20 percent of the qualified investment, and the correction comes with an amended return.
Read our 2026 Guide to Claiming Crypto Losses from Fraud, Scams, Theft
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