(Photo
by
Tayfun
Coskun/Anadolu
via
Getty
Images)
Earlier
this
year,
Hailey
Welch
became
an
internet
superstar
when
she
said
“Hawk
Tuah
and
Spit
On
That
Thang”
to
make
a
man
go
crazy.
She
used
her
fame
to
sell
merchandise
and
start
her
own
podcast
(called
“Talk
Tuah”)
which
became
the
third
most
popular
podcast
(behind
Tucker
Carlson
and
Joe
Rogan).
Recently,
she
promoted
her
new
cryptocurrency
called
$HAWK.
Unfortunately,
soon
after
the
coin’s
launch,
its
value
plummeted
to
less
than
5%
of
the
original
value.
People
online
have
claimed
to
have
lost
their
life
savings
and
their
children’s
college
fund.
$HAWK
has
been
deemed
a
memecoin
because
it
originated
from
Welch’s
“Hawk
Tuah”
catchphrase.
Almost
all
memecoins
fall
flat
and
eventually
become
worthless.
The
DOGE
coin
is
one
notable
exception.
Welch
and
her
crypto
partners
have
been
accused
of
“rug
pulling.”
In
rug
pulling,
investors
hype
a
coin
(or
similar
crypto
product),
causing
its
value
to
initially
skyrocket.
Soon
after,
a
key
group
of
investors
(typically
insiders
who
received
the
coins
before
the
initial
coin
offering)
sell
their
holdings
at
the
inflated
price,
causing
the
value
of
the
coin
to
plummet.
The
remaining
investors
are
left
holding
the
bag
with
a
nearly
worthless
coin.
An
investigation
showed
that
96%
of
the
$HAWK
coin
was
held
by
10
addresses.
There
was
also
a
significant
selloff
of
the
coins.
Welch
claims
that
neither
she
nor
anyone
else
on
her
team
sold
any
of
their
$HAWK
coins,
implying
that
they
did
not
profit
from
the
hype.
They
blame
“snipers”
—
bots
that
buy
designated
cryptocurrencies
to
take
advantage
of
price
discrepancies
or
arbitrage
opportunities.
But
skeptics
questioned
the
high
fees
and
who
took
those
fees.
Welch
also
claimed
that
she
did
not
intend
to
defraud
investors.
At
first
glance,
she
does
not
seem
to
be
the
type
to
know
the
intricacies
of
cryptocurrencies.
She
has
attended
several
cryptocurrency
conferences,
but
she
claims
to
have
done
so
to
better
connect
with
her
fans.
Regardless
of
her
knowledge,
she
has
a
team.
She
partnered
up
with
people
who
appear
to
be
crypto
experts.
She
hired
an
attorney
after
becoming
famous,
although
it
is
not
clear
whether
she
consistently
followed
her
attorney’s
advice.
Until
someone
issues
refunds
or
gets
a
court
judgment,
what
can
investors
do
to
minimize
their
losses?
Aggrieved
investors
can
file
a
complaint
with
the
government.
Given
the
intense
publicity,
an
investigation
is
likely,
and
the
government
could
take
action
to
help
investors
get
their
money
back
and
deter
similar
conduct
in
the
future.
Investors
can
contact
the
Securities
and
Exchange
Commission,
the
Commodities
Future
Trading
Commission,
and
the
FBI’s
Internet
Crime
Complaint
Center
if
they
think
criminal
activity
could
be
involved.
Private
law
firms
could
also
help
investors.
One
law
firm,
Burwick
Law
has
posted
on
X,
requesting
$HAWK
investors
contact
them
to
learn
about
their
legal
rights.
So,
can
investors
write
off
the
loss
on
their
tax
return?
The
position
of
the
IRS
is
that
cryptocurrency-related
losses
are
treated
like
a
capital
loss.
Capital
losses
can
offset
any
capital
gains.
Unfortunately
for
taxpayers,
capital
losses
can
only
offset
$3,000
of
ordinary
income
every
year,
with
the
remainder
to
be
carried
forward.
This
hard
rule
has
been
around
for
years
without
adjusting
for
inflation
and
will
provide
a
meager
tax
benefit.
A
taxpayer
in
the
cryptocurrency
trading
business
full
time
can
claim
the
loss
as
an
ordinary
loss.
In
2023,
the
IRS
publicly
released
its
Office
of
Chief
Counsel
Memorandum
stating
its
position
on
the
deductibility
of
worthless
and
abandoned
cryptocurrency.
A
taxpayer
cannot
claim
a
deduction
for
worthlessness
if
the
cryptocurrency
can
be
traded
on
the
open
market,
even
if
there
is
a
significant
loss
in
value.
To
claim
a
worthlessness
deduction,
the
taxpayer
must
relinquish
dominion
and
control
of
the
cryptocurrency
and
take
affirmative
steps
to
abandon
the
cryptocurrency
during
the
tax
year.
However,
the
memorandum
does
not
elaborate
on
how
to
abandon
the
cryptocurrency.
The
memorandum
points
out
that
even
if
the
cryptocurrency
became
worthless
or
abandoned,
taxpayers
still
cannot
claim
the
loss
because
it
is
considered
a
miscellaneous
itemized
deduction.
The
Tax
Cuts
and
Jobs
Act
(TJCA)
disallowed
the
miscellaneous
itemized
deduction
from
2018
until
2025.
Whether
the
TJCA
provisions
will
be
extended
for
2026
and
later
is
not
yet
clear.
The
taxpayer
may
be
eligible
to
claim
a
theft
loss
so
long
as
the
transaction
was
made
with
the
expectation
of
a
profit,
such
as
an
investment.
This
nonpersonal
theft
loss
is
not
considered
a
miscellaneous
itemized
deduction.
Generally,
to
be
eligible
to
claim
a
nonpersonal
theft
loss,
several
requirements
must
be
met.
First,
the
theft
must
be
connected
to
a
trade
or
business
or
as
part
of
a
transaction
made
with
an
expectation
of
a
profit.
Second,
the
theft
must
be
illegal
in
the
jurisdiction
where
the
victim
lives,
although
a
theft
conviction
is
not
required.
Third,
the
stolen
funds
must
go
directly
to
the
scammer
and
not
to
an
unconnected
third
party
(the
people
who
lost
money
on
Enron
stock
learned
this
the
hard
way).
Lastly,
there
must
not
be
a
reasonable
prospect
of
recovery.
From
my
experience
on
matters
like
this,
the
IRS
is
likely
to
disallow
a
theft
loss.
They
will
argue
that
the
since
the
taxpayers
are
still
in
possession
of
the
$HAWK
coins,
no
theft
took
place.
Also,
since
some
of
the
parties
on
the
other
side
of
the
transaction
—
namely
Welch
and
others
who
created
and
promoted
the
$HAWK
coin
—
are
still
present,
there
may
be
a
reasonable
prospect
of
recovery
either
through
voluntary
refunds
or
a
legal
judgment.
Until
that
is
established,
the
taxpayers
cannot
claim
the
theft
loss.
Welch’s
fame
will
shoot
down
just
as
quickly
as
it
went
up.
Hopefully
this
will
serve
as
a
warning
for
people
thinking
about
getting
into
questionable
cryptocurrencies.
Steven
Chung
is
a
tax
attorney
in
Los
Angeles,
California.
He
helps
people
with
basic
tax
planning
and
resolve
tax
disputes.
He
is
also
sympathetic
to
people
with
large
student
loans.
He
can
be
reached
via
email
at
[email protected].
Or
you
can
connect
with
him
on
Twitter
(@stevenchung)
and
connect
with
him
on LinkedIn.