If you’ve ever worried about losing your retirement nest egg to a scammer—or if it has already happened to you or someone you love—a little-known IRS legal memo could help you recover some of your lost savings in the form of tax relief.

The IRS Office of Chief Counsel recently issued guidance on a question that affects thousands of Americans every year: if a scammer steals your money, can you at least get a tax deduction for the loss?

The answer, it turns out, depends entirely on why you sent the money.

The Good News: Some Scam Losses Are Deductible

The IRS walked through five real-world scam scenarios, and in three of them, the victims were entitled to deduct their losses on their tax return. The key legal requirement is that the money lost must have been part of a “transaction entered into for profit”—meaning you were trying to invest or protect an investment when the scammer struck.

If you were victimized by a compromised account scam (someone called pretending to be your bank and convinced you to move your money to a “safe” account), an investment scam (a fake crypto platform that showed impressive fake returns before vanishing with your money), or a phishing scam (a fraudulent email that gave a hacker access to your accounts), your losses likely qualify for a deduction.

The IRS confirmed that all three victims in these scenarios could deduct their losses in the year they discovered the theft, provided there was no realistic chance of getting the money back.

The Painful Exception: Emotional Scams Don’t Qualify

Here’s where the news gets harder. If you were targeted by a romance scam or a kidnapping scam—where a criminal manipulates your emotions rather than your investment instincts—the IRS says your loss is a “personal casualty loss,” not an investment loss.

Under current law, personal casualty losses are rarely deductible. Heartbreakingly, even though these victims were defrauded just as thoroughly as the others, they get no tax relief.

What About “Ponzi Schemes”?

You may have heard that Ponzi scheme victims can use a special IRS safe harbor to simplify their deduction. Unfortunately, none of the five victims in this memo qualified.

The safe harbor requires that the scammer be formally charged or indicted—and in most modern scams, the perpetrators are overseas, anonymous, or never get caught.

What You Should Do Right Now

If you or someone you know has been scammed, act quickly: report the theft to your financial institution and law enforcement in the same year the loss occurs, and document everything.

The deduction clock starts ticking the moment you discover the theft and confirm there’s no realistic prospect of recovery.

And critically, speak with a qualified tax professional. The difference between a deductible investment loss and a non-deductible personal loss could be worth tens of thousands of dollars on your return.

Being a scam victim is devastating. But at least the IRS offers some tax relief in many cases.