There’s a cruel irony in the aftermath of being scammed. First, someone deceives you into giving up your hard-earned savings. Then, as you’re trying to piece together what remains of your financial life, the government comes knocking. Not to help—but to collect taxes on money you never even really had.
This is the grim reality facing victims like Jacqueline Crenshaw, a Connecticut woman who fell prey to a “pig butchering” scam. Over the course of nearly a year, she was conned into believing she had found not only love but a lucrative investment opportunity in cryptocurrency. When the dust settled, she had lost nearly $1 million, drained from her 401(k) and other retirement accounts. Her supposed prince charming? Gone. The money? Vanished. And the IRS? Still very much present.
The Mechanics of the Scam
The scam Jacqueline fell for is as sophisticated as it is devastating. It started innocuously enough: a connection on a dating site, a man who seemed perfect, sending songs, prayers, even pizza. Over time, the relationship morphed into a pitch for what seemed like a legitimate investment in cryptocurrency.
Here’s how they got her:
- Emotional Manipulation: The scammer spent months cultivating trust. They didn’t rush—these schemes take time. It’s all about getting the victim comfortable.
- The Bait: A $100,000 check (stolen from another victim) gave the impression of credibility. “See? I’m not just asking for money—I’m giving it to you!”
- The Fake App: An accomplice, posing as a broker, walked her through setting up an account on a phony crypto trading platform. The app was designed to look real and show massive gains, feeding into the victim’s confidence.
- The Bleed-Out: Once the victim was hooked, they poured in more—retirement savings, loans, whatever they could scrape together.
By the time Jacqueline realized she had been conned, the scammers had made off with everything.
The Second Blow: Taxes on Phantom Income
What makes this tragedy worse is how the U.S. tax code compounds the harm. When victims like Jacqueline liquidate retirement accounts or investment portfolios to send money to scammers, the IRS sees it as income.
Here’s the kicker: it doesn’t matter that the money was stolen.
- Withdraw $100,000 from a 401(k)? That’s taxable income.
- Pull $50,000 out of an IRA? The IRS will be expecting its share—plus a 10% early withdrawal penalty if you’re under 59 ½.
For Jacqueline, this meant that in addition to losing her savings, she was hit with a massive tax bill. She now faces foreclosure, ruined credit, and the inability to even declare bankruptcy because the IRS doesn’t forgive tax debt from scams.
“It’s like being punished for being gullible,” she said. “I worked my whole life, and now I’m in debt because I trusted the wrong person.”
Why Does This Happen?
At the heart of this issue is how the tax system defines “income.” The IRS taxes withdrawals from retirement accounts, regardless of how the money is spent. Once it’s out of the account, it’s taxable—end of story.
Unlike credit card fraud, where federal law limits your liability, the government offers little protection when it comes to money voluntarily handed over to scammers. This leaves victims not only broke but legally obligated to pay taxes on money they were tricked into losing.
A System That Can’t Keep Up
The problem is compounded by the novelty of scams like these. Cryptocurrency’s anonymity and decentralized nature make it the perfect tool for criminals. Combine that with the emotional manipulation of “pig butchering” scams, and you have a recipe for financial disaster.
Legislators in Connecticut are pushing for reforms, including the ability to freeze scammers’ assets and create victim restitution funds. But these efforts are slow-moving and often fall short of addressing the immediate devastation victims face.
Meanwhile, the scammers—often operating from overseas—continue to exploit outdated laws and enforcement gaps.
Fighting Back
For victims, the road to recovery is long and arduous. Jacqueline, for example, is now part of a support group for scam victims and spends her time advocating for stricter regulations. But her financial future remains uncertain.
“It’s not just about the money,” she said. “It’s about rebuilding my life and not letting this destroy me.”
For the rest of us, her story is a cautionary tale. Be skeptical of anyone who comes on too strong, too fast. Verify investment opportunities through independent sources. And if you find yourself in a situation where something feels off, trust your gut—before it’s too late.
The Lesson: When Scams Hit, They Hit Hard
Getting scammed isn’t just a financial loss. It’s an emotional and psychological wound. But the double whammy of losing your savings and facing a tax bill for the privilege? That’s a uniquely American form of heartbreak.
Until lawmakers and regulators catch up, the burden of vigilance falls squarely on the rest of us. Scammers may be ruthless, but with the right awareness and skepticism, you can protect yourself—and your hard-earned money.
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