Decoding Tax Scams: Navigating The New Age Of Financial Deception

Crypto investment fraud, commonly described as ‘pig butchering’, has become one of the most “prevalent and damaging fraud schemes today”[1] according to the Federal Bureau of Investigation (FBI). In its Cryptocurrency Fraud Report for 2023[2], the FBI revealed that last year its Internet Crime Complaint Centre received over 69,000 complaints about cyber-enabled crimes and financial fraud involving crypto investments, resulting in more than $5.6 billion in reported losses. Meanwhile, a joint action by the European Union Agency for Law Enforcement Cooperation (Europol) and the European Union Agency for Criminal Justice Cooperation (Eurojust) across Germany, Bulgaria, Romania, Georgia, and Israel, uncovered an illegitimate online investment platform in 2023, which defrauded approximately 33,000 victims and caused an estimated EUR 89 million in losses[3]. Many of such crypto scams also exploit tax-related vulnerabilities, targeting unsuspecting investors navigating complex financial regulations. The annually published Dirty Dozen list of tax scams, released by the US Internal Revenue Service on 27 February 2025, highlights the increasing role of cybercriminal activity in exploiting tax-related vulnerabilities.[4]   

This article explores the common tax scams investors face, how these schemes operate, and the steps you can take to protect yourself in a constantly evolving financial environment.

Complex International Tax Landscape Fuels Growth Of Tax Scams

Tax scams are fraudulent schemes designed to deceive individuals into paying illegitimate taxes, providing personal information, or making payments that ultimately benefit the scammer. Investors in the digital asset space are particularly vulnerable because they deal with complex transactions that may actually trigger legitimate tax obligations. However, the ever-changing international crypto tax landscape makes it challenging to stay informed about current tax policies.

It is important to note that victims of tax scams may not always be able to deduct the losses incurred. The deductibility of scam-related losses depends heavily on local tax laws and the classification of the loss, ie whether as a capital loss, theft loss, or another category. In some cases, personal investment losses may not qualify as tax deductible, underscoring the importance of consulting a tax professional when assessing the financial impact of a scam.

Reliance on intermediaries such as tax advisors or platforms further creates opportunities for fraud, especially in emerging investment areas like crypto assets, where regulatory uncertainty is high. Fraudsters exploit this confusion, leveraging urgency and the fear of penalties to manipulate victims.

Common Steps Used By Scammers

In general, crypto investment scams often follow a structured process, with tax-related demands typically appearing in the final stages. Drawing on cases reported by authorities such as the FBI, Fedpol, Europol, Eurojust, and other investigative bodies, these scams commonly unfold as follows[5]:

1. Selecting the victim: Scammers typically use social media, texting, or dating sites to reach out. They establish trust through friendly or romantic connections, often pitching a crypto investment opportunity soon after contact.

2. Building trust: Fraudsters create personas to gain the victim’s confidence, using tactics like flattery, shared interests and hardships, or romantic interest. They may promise meetings or video calls but find excuses to avoid real-life interaction.

3. The ‘pitch’: Once trust is built, scammers introduce the idea of investing, claiming expertise or connections to lucrative opportunities. Common pitches include binary trading, liquidity mining, or other high-yield schemes.

4. The initial investment: Victims are guided to open crypto accounts, transfer funds, and deposit them into fake investment platforms that mimic legitimate websites, complete with professional designs and customer portals.

5. The ‘growing’ investment: Early returns appear lucrative, sometimes allowing small withdrawals to reinforce legitimacy. Victims are encouraged to invest more, with scammers offering ‘matching funds’ or claiming limited-time opportunities.

6. Taxes, fees, and the end of the scam: When victims try to withdraw funds, they are asked to pay additional ‘taxes’ or ‘fees’ to unlock their accounts. These payments are simply another layer of the scam, while the whole investment is already lost. There are different types of tax scams to be differentiated.

Common Tax Scams To Monitor

Investors face a variety of tax scams that exploit complex financial systems where keeping track of legitimate obligations can be challenging. Recognising these common schemes is crucial to safeguarding investments[6]:

• False authorities: Scammers in this option pose as tax authorities, claiming unpaid taxes on gains realised on crypto investments and demanding immediate payment in digital assets. Fake platforms offering ‘tax optimisation’ services may also steal funds rather than file legitimate returns.

• Phishing and impersonation: Fake emails or calls from ‘tax authorities’ pressure victims into sharing sensitive information or making immediate payments under the threat of penalties. These are common precursors to identity theft or financial fraud.

• Offshore investment fraud: Promises of tax-free returns or exploitation of double-tax treaties often turn out to involve fake companies or funds. Victims’ investments vanish without a trace.

• Fake tax advisors: Fraudulent advisors claim they can secure significant tax savings but fabricate deductions or credits, leaving victims liable for audits, penalties, and repayment of false refunds.

• Advance fee scams: Scammers offer to resolve tax issues, take care of false tax filing obligations or secure refunds for an upfront fee. After payment, they disappear, leaving victims without resolution.

Proactive Measures Against Tax Scams

Protecting against crypto investment and tax scams requires diligence, informed decision-making, and the implementation of proactive measures. The following strategies can mitigate risks and enhance financial security:

Verify communications
Legitimate tax authorities and financial institutions do not demand immediate payments or sensitive information through email, phone, or text. It is essential to exercise caution when receiving unsolicited communications and to verify authenticity through official channels. Independent confirmation of any suspicious requests is a critical step in preventing fraud.

Engage trusted advisors
Engagement with credentialed and reputable tax professionals is essential. Advisors or services that promise overly aggressive tax savings, require upfront fees, or request unconventional payment methods should be avoided. Conducting thorough due diligence and relying on recommendations from reliable sources ensures credibility and professionalism in financial guidance.

Exercise caution with digital assets
Crypto investments are frequently targeted by scammers due to their complexity and relative anonymity. Transactions should be conducted only through established platforms, and a comprehensive understanding of tax obligations related to digital assets is imperative. Caution is particularly advised with unsolicited offers claiming to simplify crypto tax filings or guarantee substantial savings, as these are common tactics employed by fraudsters.

Pursue ongoing education
Continuous education is a fundamental safeguard against tax scams. Familiarity with tax rules, particularly in rapidly evolving areas such as crypto assets and cross-border transactions, is critical. A solid understanding of legitimate tax processes enables the detection of inconsistencies and potential fraud.

Remaining informed about common scams and emerging threats is essential for protecting financial interests. Key sources include the above mentioned Dirty Dozen[7] list published annually by the US Internal Revenue Service (IRS), which highlights current tax scams to monitor, and the IRS Crypto Scam Tracker[8], which provides detailed insights into crypto assets fraud. Additionally, organisations such as the FBI and Europol[9] release comprehensive reports on fraud trends and offer guidance on identifying and avoiding scams.

Prompt reporting of suspected fraud to the relevant authorities is a critical component of combatting tax scams. In the United States, agencies such as the IRS, FBI, and state-level fraud reporting bodies provide avenues for addressing fraudulent activity. In Europe, Europol[10] maintains an updated overview of reporting mechanisms for each country, enabling individuals to report tax-related or investment fraud directly to national authorities.

International Collaboration Is Required

Taxes are an integral part of crypto investment scams, often serving as a final mechanism for fraudsters to extract additional funds from their victims. These schemes exploit the complexities of tax regulations, leveraging confusion and urgency to manipulate investors. Addressing this growing threat requires a combination of international collaboration, regulatory clarity, and proactive measures to protect investors.

As the financial ecosystem evolves, it is imperative to develop transparent tax frameworks that address the unique challenges posed by digital assets. For investors, staying informed about legitimate tax obligations, engaging trusted professionals, and leveraging resources from organisations like the IRS and Europol, are essential steps in mitigating risks.

By fostering global cooperation and emphasising investor education, it is possible to build a financial landscape that is resilient against scams, upholding trust and integrity in both traditional and emerging markets.

[1] FBI. Cryptocurrency Investment Fraud. https://www.fbi.gov/how-we-can-help-you/victim-services/national-crimes-and-victim-resources/cryptocurrency-investment-fraud

[2] FBI. FBI Releases 2023 Cryptocurrency Fraud Report. https://www.fbi.gov/contact-us/field-offices/philadelphia/news/fbi-releases-2023-cryptocurrency-fraud-report.

[3] Eurojust. Further action against fraudulent online investment platform: five arrests of high-value targets. https://www.eurojust.europa.eu/news/further-action-against-fraudulent-online-investment-platform-five-arrests-high-value-targets

[4] IRS. Dirty Dozen tax scams for 2025: https://www.irs.gov/newsroom/dirty-dozen-tax-scams-for-2025-irs-warns-taxpayers-to-watch-out-for-dangerous-threats

[5] Visit the following pages for further information:
Financial Conduct Authority of UK. Crypto investment scams. https://www.fca.org.uk/consumers/crypto-investment-scams
FBI. Cryptocurrency Investment Fraud. https://www.fbi.gov/how-we-can-help-you/victim-services/national-crimes-and-victim-resources/cryptocurrency-investment-fraud;
Europol. Crypto investment scams – how do they work? https://www.europol.europa.eu/sites/default/files/documents/EP_Scenario%20Crypto%20Scams%20infographic_EN.pdf
City Bank: https://www.cnb.com/personal-banking/insights/crypto-scams.html#:~:text=In%20the%20case%20of%20crypto,entering%20sensitive%20information%20into%20it.

[6] Find more information here: FBI. Recognize tax scams and fraud. https://www.irs.gov/help/tax-scams/recognize-tax-scams-and-fraud.
FBI: Tax Season Scams and Taxpayer ID Theft Tax Season Scams and Taxpayer ID Theft. https://www.fcc.gov/tax-season-phone-scams-and-taxpayer-id-theft
City Bank: https://www.cnb.com/personal-banking/insights/crypto-scams.html#:~:text=In%20the%20case%20of%20crypto,entering%20sensitive%20information%20into%20it.
Forbes: 5 Crypto Scams To Watch Out For. https://www.forbes.com/advisor/investing/cryptocurrency/top-crypto-scams/

[7] IRS. Dirty Dozen: https://www.irs.gov/newsroom/dirty-dozen

[8] IRS. IRS-CI issues alert about potential cryptocurrency phishing scam. https://www.irs.gov/compliance/criminal-investigation/irs-ci-issues-alert-about-potential-cryptocurrency-phishing-scam

[9] The Crypto Scam Tracker by the California Department of Financial Protection and Innovation, offering real-time updates on cryptocurrency-related scams: https://dfpi.ca.gov/consumers/crypto/crypto-scam-tracker/. Massachusetts’s Beware Cryptocurrency Scams page, providing guidance on avoiding crypto fraud.: https://www.mass.gov/info-details/beware-cryptocurrency-scams

[10] Europol. Report Cybercrime online. https://www.europol.europa.eu/report-a-crime/report-cybercrime-online

Stéphanie Fuchs
Stéphanie Fuchs is the CEO and Founder of Stéphanie Fuchs Consulting, a tax advisory firm based in Switzerland. She advises Swiss and Liechtenstein corporate, individual and private clients in national and international tax matters. Her expertise comprises Swiss and Liechtenstein legislative core knowledge as well as international tax policy questions. In addition, she has a special focus on digital taxes, the application of new technologies in the tax sphere and advising clients in the Emerging Technologies sector especially the Blockchain technology applying industry and DAO setups. Before she was working several years as Economics journalist. Stéphanie Fuchs has worked for various advisory firms, including a top-tier law firm and international consulting firms within the so-called ‘Big 4’ group.