Legal framework, burden of proof and forensic analysis in scam cases
Victims of crypto fraud are often faced with the question of whether their losses are tax-deductible. For law firms, tax advisors, and compliance teams, the legal situation in Germany in 2026 is complex: While regular crypto losses can be deducted under Section 23 of the German Income Tax Act (EStG), recognition in scam cases encounters structural limitations. This article outlines the current framework and highlights key aspects of tax assessment and forensic documentation within a client's case.
Cryptocurrencies and Section 23 of the German Income Tax Act (EStG) as a tax starting point
Cryptocurrencies are considered under German tax law as other economic assets. Gains and losses from their sale fall under the private sales transactions according to Section 23 of the Income Tax Act (EStG). The decisive factor for the recognition of a loss is whether a Sale transaction The tax implications must be met, and the one-year holding period must not have been exceeded. Only losses realized within the holding period are generally tax-deductible; after the one-year period, they – like profits – are disregarded.
Furthermore, losses from private sales transactions are only offset to a limited extent: They can only be offset against gains from other private sales transactions in the same year or within the framework of the loss carryforward according to Section 23 Paragraph 3 of the German Income Tax Act (EStG). Offsetting against income from other types of income, such as wages or capital gains, is excluded. For client work, this means that even if a loss is recognized in principle, the tax effect is often reduced to offsetting it against concurrently realized cryptocurrency gains.
Have the tax implications of a scam case reviewed early on – especially if the client has concurrent capital gains during the tax year. A sound assessment tax classification is the basis for every further decision.
Why crypto fraud is not treated like a sale for tax purposes
The core problem with loss recognition lies in the missing consideration. In a regular sale or exchange, the owner transfers the coins and receives fiat currency or another cryptocurrency in return. In scam cases—for example, through fictitious trading platforms, pig butchering schemes, or phishing attacks—the coins are transferred from the victim without any economic exchange taking place in the tax law sense. From the tax authorities' perspective, this means that a key element of Section 23 of the German Income Tax Act (EStG) is missing.
Consequently, tax offices often reject the tax deductibility of such losses. While the economic damage is not disputed, the prevailing opinion is that the rule does not apply due to the lack of a sale transaction. It is important to distinguish this from cases in which the coins were exchanged for worthless assets – for example, tokens from a sham exchange that technically exist but are economically worthless. In such situations, it can be argued that a (loss-making) sale transaction formally took place, even if the received value is economically zero.
In practice, several types of fraud can be distinguished, each with different tax implications. In classic pig butchering, the victim transfers coins to a platform controlled by the perpetrator and receives only a balance indication that is never available for withdrawal – there is no actual exchange. In phishing or wallet drainer attacks, coins are withdrawn without any compensation. In theft via compromised hardware wallets, coins are siphoned off without the client's authorization. Each of these variants presents a different tax vulnerability; a blanket classification of all "fraud" as non-deductible is insufficient.
Categories of cases for tax recognition of the loss
Despite the restrictive general stance, there are categories of cases in which recognition of loss is possible. The focus is on... Sham purchase scenarios, These are transactions in which the victim exchanges coins for worthless tokens or for a fictitious credit balance. Under certain conditions, such transactions can be classified as taxable sales transactions with a negative result. The crucial factor is proof that a formal exchange took place, even if the received value was economically worthless.
Another category of cases concerns Total losses due to platform insolvency or exit scam. If a client loses coins because an exchange suspends payouts and files for bankruptcy, a loss may be recognized under Section 23 of the German Income Tax Act (EStG) if the default is documented as final. Losses resulting from technical manipulation, such as the targeted redirection of transactions—for example, address spoofing or clipboard hijacking—are sometimes treated differently for tax purposes than classic contract fraud. Case law regarding these categories is evolving; there is no general answer, and each situation requires an individual assessment based on the specific transaction and contract data.
The distinction between theft and hacking is particularly important. If coins are stolen from a wallet without the owner's consent, for example through compromised private keys or attacks on hot wallets, the prevailing opinion is that this does not constitute a sale. The resulting loss is relevant under civil and criminal law, but generally remains outside the scope of Section 23 of the German Income Tax Act (EStG). However, if the cryptocurrency was fraudulently exchanged for another position within the holding period – for example, for a worthless scam token on a manipulated DeFi platform – a formal exchange transaction with a negative outcome can be argued. In practice, this means that the specific technical details of the loss are just as important for tax classification as its legal classification.
Have the type of scam clarified early on – a non-binding initial assessment shows whether tax loss recognition can realistically be pursued.
Required evidence: What tax authorities demand in scam cases
The more complex the legal issue, the more important the documentation becomes. For tax recognition, the following evidence is typically required: complete documentation. Transaction histories with timestamps and counterparty addresses, unambiguous Wallet assignments to the beneficial owner, who Proof of fraud in the form of written communication, platform screenshots or contract documents, as well as a Criminal charges at the responsible public prosecutor's office. In addition, tax authorities expect comprehensible documentation of the asset outflow, showing when which coins were transferred to which address and why this outflow is considered final.
A simple statement of victimization is generally insufficient. Tax authorities increasingly require structured evidence that reconstructs the economic sequence of events and plausibly establishes the link between the client, wallets, and the fraudulent activity. In this context, the following are also... Proof of origin of funds This is relevant because the original deposit of the lost coins must be fully documented. Without this proof, the very basis for a tax claim often disappears. Tax advisors should therefore check as early as possible which data gaps need to be filled before the loss is presented to the tax office.
Typical data sources for evidence include CSV and API exports from the affected exchange, on-chain data on inbound and outbound transactions, chat and email histories with the perpetrators, and screenshots of the fake platform. Each of these sources has its limitations: exchanges delete accounts, fake platforms are taken offline, and screenshots alone are of little value without metadata. Therefore, structured data backup should be carried out as early as possible – ideally concurrently with filing a criminal complaint, while the perpetrators are still actively communicating and platform access is still functioning.
Forensic documentation, criminal complaint and wallet analysis
The forensic preparation It forms the backbone of any reliable loss documentation. A structured forensic blockchain analysis It assigns the transactions to the client, shows the flow of coins from the originating wallet to the perpetrator's recipient addresses, and reveals whether the funds were mixed, exchanged, or converted into fiat currency in the meantime. This analysis is not only relevant for tax purposes but also important for civil claims and criminal proceedings.
The Criminal charges From a tax perspective, this is more than just a formal act. It documents the intent to pursue legal action and is an important indicator for tax authorities that the loss was not fabricated retroactively. A structured legal support This improves the quality of the display and creates starting points for tax arguments. Parallel proceedings – criminal law, civil law, tax law – benefit directly from a shared, forensically developed database, because the same transaction and wallet data serve as the basis in all three lines of inquiry.
Have the forensic documentation prepared early – the longer ago the fraud occurred, the more difficult it becomes to reconstruct reliable transaction chains, especially if coins were moved via decentralized mixers or cross-chain bridges.
When external crypto-forensic support makes sense in a tax mandate
Not every scam case requires specialized forensic analysis. In simple scenarios—few transactions, one platform, clear documentation—the existing data is usually sufficient. Things become complex when clients have suffered losses across multiple wallets, chains, or mixing services, when coins have been exchanged in the meantime, or when the perpetrators professionally employ multi-tiered recipient structures. In such cases, reconstructing the transaction chain is virtually impossible without specialized tools and methods.
The Financial Forensics GmbH supports Law firms, tax advisors and compliance departments We assist with the research, analysis, and legally sound documentation of cryptocurrency fraud cases. Our focus is on the forensic analysis of asset outflows, the identification of relevant recipient addresses, and the structured presentation of information for tax authorities, law enforcement, and civil courts. This collaboration does not replace tax or legal advice but rather provides the reliable data foundation upon which such advice can be provided. The emphasis is on methodological transparency and auditable documentation – criteria that purely victim-based accounts regularly fail to meet.
Bring crypto-forensic expertise on board early – especially in scam cases involving multi-tiered wallet structures or cross-border elements. non-binding case discussion shows the sensible next steps.
Conclusion: Crypto losses due to fraud – documentation determines the tax implications
The tax deductibility of losses from crypto fraud will be difficult in Germany in 2026, but not impossible. Crucially, losses from crypto fraud must be clearly distinguished between classic scams without consideration – where recognition under Section 23 of the German Income Tax Act (EStG) regularly fails – and situations involving a (formal) sale transaction, where tax deductibility can be argued. Between these two extremes lie categories such as platform insolvencies or sham purchases of worthless tokens, each of which must be assessed individually.
For law firms, tax advisors, and compliance teams, the following applies: The legal leeway is limited, but manageable. Those who correctly classify the case and create robust forensic documentation significantly increase their chances of tax relief. Without structured evidence, however, even a theoretically possible loss carryforward remains unattainable in most cases.
FAQs – Frequently Asked Questions about Crypto Fraud and Taxes
Generally, recognition is difficult because crypto fraud does not usually constitute a sale transaction within the meaning of Section 23 of the German Income Tax Act (EStG). However, in certain cases—such as sham purchases of worthless tokens or total loss due to platform insolvency—tax deductibility may be considered. This requires complete documentation and a comprehensible explanation of the specific circumstances.
Section 23 of the German Income Tax Act (EStG) governs the taxation of private sales transactions, which also include cryptocurrencies. Losses are generally deductible if a sale transaction has occurred and the one-year holding period has not been exceeded. In classic scams without consideration, the element of a sale transaction is missing, which is why the provision does not apply in many cases.
Because the typical processes involved in scams – transferring data to fraudulent platforms, phishing, address manipulation – do not constitute an economic exchange. Without consideration, a key element of Section 23 of the German Income Tax Act (EStG) is missing. While tax authorities acknowledge the economic damage, they usually reject tax deductibility due to the lack of a sale transaction.
Recognition as a taxable offense is particularly relevant in cases of sham purchases where the victim exchanges coins for worthless tokens. Total losses due to platform insolvency or certain technical manipulations are also sometimes treated differently for tax purposes than classic contract fraud. Each category of case requires individual examination based on the specific transaction and contract data.
Filing a criminal complaint is not legally required, but it is strongly recommended from a tax perspective. It documents the intention to pursue legal action and increases the plausibility of the loss to the tax authorities. Without a criminal complaint, loss recognition is frequently rejected in practice, even if the rest of the documentation is conclusive.
No. Losses from private sales transactions under Section 23 of the German Income Tax Act (EStG) can only be offset against gains from other private sales transactions in the same year or within the framework of the loss carryforward under Section 23 Paragraph 3 of the EStG. Offsetting against wages, capital gains, or other types of income is not permitted.
A sham purchase occurs when the victim formally exchanges coins for worthless tokens or a fictitious credit balance. While an exchange formally takes place, the received value is economically worthless. This situation may, under certain circumstances, be classified as a tax-relevant sale with a negative result, thus providing grounds for claiming a loss deduction.
A forensic blockchain analysis reconstructs the outflow of assets and proves which coins were transferred from which wallet to which recipient address. It thus provides the data basis for reporting losses for tax purposes and makes the financial damage comprehensible. Without structured documentation, a sound argument regarding losses to tax authorities is virtually impossible.
External support is particularly worthwhile in complex scam cases involving multiple wallets, cross-chain transfers, or multi-tiered recipient structures. Even if coins have been exchanged, mixed, or transferred through several intermediaries in the meantime, reconstructing the transaction chain is virtually impossible without specialized tools. Forensic analysis provides the data basis for tax, civil, and criminal assessments.
