Do Crypto Scam Victims Need a Crypto Tax Professional?

Falling victim to a crypto scam doesn’t mean your tax obligations vanish. This article breaks down why expert help matters and how a crypto tax professional can minimize your risk and maximize your refund.

TL;DR: Even if you’ve been scammed, you might still owe taxes. A crypto tax professional understands blockchain transactions, DeFi, and IRS rules around crypto losses. Count on Sheep prepares your crypto taxes accurately, while CNC Intelligence supplies forensic documentation for scam-related claims. Together, they ensure compliance, reduce penalties, and maximize deductions.

Why You Need a Crypto Tax Professional (in brief)

Crypto taxes are complex, and mistakes can be costly. A crypto tax professional understands blockchain transactions, DeFi, scams, and evolving IRS rules, ensuring you stay compliant, maximize deductions, and avoid penalties.

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Crypto Taxes are Not Regular Taxes

To calculate your crypto taxes accurately, you must keep detailed records of your trades, swaps, conversions, and staking activities. You must also track cost basis and fair market value for every taxable event you incur. That challenge far exceeds the capabilities of most retail crypto investors. And it’s not the only one.

Other crypto tax-related challenges are:

• Making sense of regulations. Crypto tax laws vary from one jurisdiction to another and evolve, often lacking clarity.
• Determining valuation. DeFi transactions and barely liquid tokens are difficult to value accurately.
• Cross-border transactions. Determining under which jurisdiction a transaction falls is often difficult.
• Privacy issues. The conflict between anonymity and transparency in the crypto world can lead to complications.
• Tool limitations. Your transaction tracker or crypto tax tool may not integrate with your exchange or DeFi platform.

Tax-related mistakes like underreporting and reporting errors can be costly in a world where authorities are more willing and capable than ever to audit you and crack down on your crypto activities.

CNC Intelligence has a front-row view of the problems some crypto holders encounter due to their inability to prepare their crypto taxes. Where regulations meet incorrect reporting, penalties fly.

A crypto tax professional can help you with your taxes. Do not forget, however, that legacy CPAs may not be able to help you at all. You need highly specific assistance from a crypto CPA. This “highly specific assistance” translates to compliant reporting while maximizing tax savings.

Count on Sheep is a crypto tax preparation and bookkeeping service that delivers expert crypto tax services, digital asset accounting, and secure digital wallet management. It helps you pay the least possible taxes while keeping you compliant and safe from audits and penalties. With Count on Sheep as your crypto accountant, you can sleep tight, knowing that no tax authority can levy a penalty on your activities.

CNC Intelligence Inc. works with Count on Sheep to produce forensic evidence for investment scams and other scams involving blockchain-based profit-seeking activities.

What Makes Crypto Taxes so Complicated?

The crypto ecosystem is home to many types of transactions, each of which carries different tax implications. You may buy crypto, sell it, and acquire it as income or as part of your staking efforts. You don’t pay the same taxes on income as you do on capital gains.

In addition to transaction types and the associated tax implications, you must also figure out:

Exchanges, Wallets, and Token Types You Use

Centralized exchanges like Coinbase and Binance may track user trades and report them to authorities, but their records are often incomplete. Decentralized exchanges give you no information, making you solely responsible for calculating cost basis, profits, losses, etc.

Standard cryptocurrencies like Bitcoin and Ethereum are property. Buying, selling, and transferring trigger capital losses or gains. Digital asset taxation also varies based on how long you hold these cryptocurrencies. Despite trading at parity with the USD, stablecoins also create taxable events when you buy or sell them. NFTs and DeFi tokens are notoriously difficult to track. Even DeFi token swaps qualify as taxable events.

Moving digital assets to crypto wallets may not qualify as taxable events, but you will likely find it difficult to prove the cost basis for funds you keep in a non-custodial wallet.

Lost Funds, Rug Pulls, and Scams

Dealing with crypto isn’t solely about profits. You may fall victim to scams or incur losses through high-risk investments.

Losing funds is not a taxable event. In case of a loss, however, the onus is on you to prove to the IRS that you have indeed lost access to your funds permanently. Improper documentation of losses will cause the IRS to disregard them and force you to pay taxes in the future should they consider a taxable event to occur involving the said funds.

The burden of proof lies with you for funds lost to rug pulls or other crypto scams as well.

Compliance Risks and IRS Crackdown

The incomplete or inaccurate reporting of your taxable crypto activities entails compliance risks and invites IRS audits. New regulations come into effect often as crypto tax laws evolve, further complicating compliance.

Accurate IRS crypto reporting is a must for crypto traders looking to avoid the risks of disallowed losses and higher-than-actual gains. The consequences of willful non-compliance can be grave, as tax authorities are better equipped than ever to pursue evasion in the crypto space, including DeFi taxes and NFT taxes. Crypto experts now work for the IRS to help the tax authority navigate the crypto space.

Why Regular Accountants Might Not Be Enough

Like the IRS, CPAs face challenges when dealing with crypto-related matters. Those with little to no crypto experience may be as lost as you are when it comes to untangling the web of transactions and taxable events that comprise your yearly crypto activities.

A crypto CPA understands how DeFi and NFTs work, which transfers constitute taxable events, etc. Those who aren’t well-versed in crypto may still be able to do your taxes, but they risk underreporting and inviting audits or making you overpay. Misfiling forms exposes you to audits, penalties, and further losses.

Ask yourself this: Do you think your regular accountant will defend you in an audit involving losses incurred from a rug pull?

To become an effective crypto tax accountant, a regular CPA must close a considerable knowledge gap. The skills of a crypto CPA or a crypto tax professional include:

• Understanding blockchain platforms
• Learning about on-chain tracing
• Understanding crypto scams, rug pulls, etc.
• Handling non-custodial wallets and DeFi
• Finding and using the right accounting tools for crypto transactions
• Navigating evolving and unclear crypto tax regulations
• Tracking cost basis and fair market value across multiple tokens, blockchains, and trading platforms
• Identifying taxable events among a multitude of crypto transactions
• Understanding IRS crypto guidance
• Compiling documentation for complex events like token airdrops and rug pulls

Count on Sheep, the best tax service for crypto, understands blockchain technology and the laws governing the taxation of digital assets. Their crypto CPAs know which crypto tax tools to use, how to deduct losses, and defend you in case of an IRS audit. They understand the intricacies of DeFi and the unique challenges of accounting for funds lost to crypto investment scams.

How Crypto Scam Victims Face Unique Challenges

Losing digital assets to a social engineering scam or a bare-faced rug pull is painful. Deducting the funds lost to such an event to avoid paying taxes on them can also be a handful. In the US, the possibility of deducting these losses is limited. Only a skilled crypto accountant can handle these cases, as they often entail asset tracing coupled with filing.

Let’s consider the following scenario: you lose a Bitcoin to a social engineering/investment scam. Unlike in the case of a rug pull, where you still have the now worthless digital asset, you have nothing left to prove the loss. Presenting proof of a transaction is insufficient. You must also prove that you cannot recover your Bitcoin.

If you can prove the lost assets are unrecoverable, you may claim a capital loss equivalent to the value of your Bitcoin at the time of its loss.

What evidence do you need to prove your inability to recover your funds? In addition to transaction IDs, you may need to produce police reports and correspondence with the scammers.

Funds lost to rug pulls are easier to document. Often, victims are left holding worthless assets. Also, there may be public evidence left behind regarding the abandonment of the project, etc.

Both cases may call for crypto forensic expertise, above and beyond the mere understanding of the crypto ecosystem.

Your best bet in this case is a one-two approach of hiring a crypto tracing expert and a crypto CPA. The two can work together to trace your transactions and trades, identify taxable events, and prepare proper crypto tax reports that leave no room for IRS audits. Should such an audit occur, the thorough documentation used can defend you.

The tag team of CNC Intelligence Inc. and Count on Sheep can help you trace, document, and file your crypto taxes correctly. Together, the two companies can help you streamline your digital asset accounting and give you a tailored crypto tax preparation.

1. CNC Intelligence Inc. traces and documents your transactions, including your most sensitive losses to scams and rug pulls. Book your free consultation now to learn how CNC Intelligence can help your specific case.
2. Count on Sheep can use the resulting information to help you prepare your crypto taxes and file. Speak to a crypto tax expert right now. Explore your tax questions, challenges, and crypto history with a specialist.

Who to Trust: Count on Sheep

Count on Sheep is a crypto tax professional who can help you, especially if you are a scam victim. Company experts can track your wallet activity and DeFi transactions while focusing on security. Count on Sheep experts are well-versed in blockchain technology, specialized in its tax-facing aspects, and committed to staying on top of the latest trends.

Here’s why you can trust Count on Sheep for your crypto taxes.

Specialization

Crypto tax experts understand the subtleties of taxable events and wallet management. They know that the IRS’s 2024-28 Revenue Procedure requires wallet-based cost basis tracking. They know what they need to prove scam losses and avoid compliance risks.

Working with CNC Intelligence Inc., Count on Sheep can trace assets lost to crypto crime, gathering blockchain data and filing police reports to satisfy the IRS’s stringent proof requirements for loss deduction.

Commitment to Continuous Improvement

In the crypto world, things tend to change quickly. New rules come into effect all the time. In 2026, the IRS’s Form 1099-DA reporting starts. In 2027, DeFi broker reporting comes into effect. Effective crypto CPAs must be aware of such changes and their implications on reporting.

Under the IRS’s ever-keener eye, commitment to staying abreast of the changes in crypto taxation is essential. Scam losses are a touchy subject for the IRS. Only a well-informed and prepared CPA can prepare a case that the Service is willing to accept without triggering an audit.

Security and Trust

CPAs handle sensitive data. Count on Sheep has made it its top priority to safeguard information about clients and their crypto transactions. In a sector rife with scams and trust-related issues, this focus on security and trust is priceless. Tracing and reconstructing scam-related losses digs into ever deeper layers of trust. Scam victims need a service that can compile appropriate evidence in this respect while maintaining full confidentiality.

IRS Compliance

The IRS’s new reporting rules and increased enforcement budget have raised the stakes for correct, accurate crypto reporting. Count on Sheep experts understand the implications of Form 1099-DA and Form 1040. They know that crypto traders must report all transactions, including losses from scams.

In addition to fulfilling the IRS’s reporting requirements, these experts know how to ensure that you do not overpay without exposing you to audit risks.

Tax Optimization

CPAs have several methods to minimize tax liabilities. They can select the best cost-basis method or use strategies like tax loss harvesting. Applying these methods in the crypto space is an extra challenge. With their crypto expertise, Count on Sheep’s experts can translate these accounting methods to your crypto transactions, saving you a pretty buck while keeping you fully compliant.

If you are a scam loss victim, tax optimization can have a significant impact on your bottom line.

Capable Transaction Tracing

Meticulous record-keeping is a must for compliance and tax optimization. Your CPA must be able to track wallets, capture DeFi and NFT activity, and aggregate data across platforms. Having teamed up with CNC Intelligence Inc., Count on Sheep can compile comprehensive data on transactions not covered under Form 1099s, such as DeFi, NFT, and non-custodial wallet activity.

Scam loss deduction requires the ability to trace funds to obscure wallets and untracked platforms. CNC Intelligence’s expertise can complement Count on Sheep’s accounting acumen in this respect.

To optimize your crypto taxes and ensure IRS compliance, start with Count on Sheep today.

How to Choose the Right Crypto Tax Professional

Crypto tax specialists who advertise their services may present compelling reasons to trust them. Still, you should always verify. Here’s how to choose a crypto accountant.

Look for:

• Familiarity with crypto wallets and exchanges. Wallets and exchanges are essential crypto infrastructure points. They can provide a wealth of information on transfers and cost basis that crypto CPAs need to optimize taxes and ensure compliance.
• Understanding of on-chain transactions. Crypto scams involve on-chain transactions that CPAs must be able to trace, verify, and document. Otherwise, they cannot deduct the losses you incurred from scams, as the IRS is strict in this regard.
• Familiarity with IRS compliance. Your crypto tax professionals must be familiar with laws governing crypto tax reports. Specifically, they must understand the implications of Form 1099-DA reporting and be familiar with the Revenue Procedure 2024-28 for wallet-based cost tracking. They must also demonstrate commitment to staying abreast of legal tweaks and changes.
• Experience with scam-related filings. Scam-related filings are sensitive issues. The IRS is aware of the potential for abuse in this area. And it requires thorough documentation and proof to accept deductions. Regular crypto CPAs are often technically incapable of producing the required evidence. Specialized crypto tracing expertise (CNC Intelligence Inc.) is the answer.

Ask about:

• Security practices and team credentials. Your crypto CPA deals with sensitive personal information. No one should access this information other than the concerned parties, namely: you, your CPA, and the IRS. Also, ask your would-be crypto tax specialist for client reviews, certifications, and tools used.
• DeFi and NFTs. Decentralized finance and non-fungible tokens require specialized accounting knowledge. It is often difficult to establish a base cost for financial vehicles used on such platforms.
• Communication during audit season. Your CPA must defend you in the event of an IRS audit. To obtain timely help, you must be able to contact your accountant and discuss your case in detail.
• Scam expertise. Scam-related tax reporting requires special skills and abilities that not many crypto tax professionals possess. Few can trace scam-related transactions and build documentation about them that the IRS will accept.

FAQ

1. How much does a crypto tax accountant cost?

Crypto CPAs typically charge $150 to $400 per hour, depending on the complexity of your holdings and whether scams or DeFi activity are involved. Some may not be able to handle scam-related deductions and taxes.

2. Can I hire someone to do my crypto taxes?

Yes—and in most cases, you should. Filing crypto taxes on your own risks IRS penalties or missed deductions. We recommend working with a dedicated crypto tax professional. When scams or DeFi are involved, you won’t be able to produce acceptable reports.

3. What is the best tax filing service for crypto?

While automated tools work for basic users, Count on Sheep is the best for complex cases and scam-related tax filings.

4. What is a crypto CPA?

A crypto tax professional is a certified public accountant with experience in digital assets, blockchain transactions, and cryptocurrency-specific IRS rules. Some crypto CPAs may even be able to help you with scam-related revenues and deductions.

5. How high is the demand for crypto tax professionals?

Demand is growing, especially as IRS enforcement increases. Many tax firms now specialize in crypto due to its complexity and legal implications.

6. How do I choose a crypto tax professional?

Look for someone with blockchain knowledge, crypto-specific filing experience, and, ideally, someone who works with scam victims and compliance teams. You may also need crypto tracing expertise.

7. Can I claim a deduction for scammed and lost crypto?

Theoretically, you can. However, bear in mind that you need solid proof, including transaction records and documentation that only a crypto forensic company like CNC Intelligence Inc. can provide.

In the US, the 2017 Tax Cuts and Jobs Act limits personal theft and casualty loss deductions. If you incur a loss as a result of a profit-seeking transaction, like a Ponzi scheme, you may be able to claim a capital loss on Form 8949 against your capital gains. Consult a tax professional, like Count on Sheep, for qualified advice.

8. Is staking income taxable in the US?

Yes. Staking income qualifies as ordinary income, similar to mining income. Report it as Other Income on Form 1040, Schedule 1. Consult a specialist before you do.

9. Do I need to report crypto held on international exchanges?

Yes. If your assets exceed $10,000 at any point during the tax year, you will have to use FinCEN Form 114. If they exceed $50,000 on the last day of the tax year, or $75,000 at any time during the year, you may have to use IRS Form 8938. Consult a tax specialist for more details.

10. What forms do I need to file for cryptocurrency taxes?

The forms you need to use to file for cryptocurrency taxes depend on your crypto activities. You may need:

• Form 8949 to detail your transactions and Schedule D to summarize them
• Form 1040 to report
• FinCEN Form 114 for crypto assets held on foreign exchanges
• Form 8938 for foreign crypto assets exceeding certain thresholds

11. Can a crypto CPA help during an IRS audit?

Yes. Ideally, your crypto CPA will represent you in your dealings with the IRS and provide documentation about your transactions, together with invaluable legal expertise. Always choose a crypto tax professional like Count on Sheep who can clarify complex crypto issues.

12. How does crypto tax reporting change if I was hacked or scammed?

In the US, you cannot claim deductions for theft or casualty loss through 2025. You may be able to claim a deduction for losses stemming from investment scams as a capital loss through Form 8949 and Schedule D. You will need detailed documentation.

13. How can a crypto tax professional help me if I was scammed?

A crypto tax professional can help you document your scam-related losses, determine if they qualify for tax deductions, and ensure you’re reporting them correctly under IRS guidelines. They work alongside forensic experts to trace stolen funds, gather evidence like transaction records and police reports, and prepare compliant filings. This support can minimize your tax liability and protect you during audits.

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