How to report crypto I withdrew on behalf of someone outside the US?

A colleague overseas needed to access funds from their crypto wallet but didn't have access to a US bank for transferring the money. They sent about $4,200 in Bitcoin to my Coinbase Wallet, and I immediately transferred it to my bank account, withdrew the cash, and gave it to them when they visited last month. I'm trying to figure out the correct way to report this on my taxes. Since the crypto wasn't actually mine, should I still report it? If so, should I list the basis as equal to the proceeds? I want to stay compliant with tax laws, but I don't feel I should pay taxes on money that was never actually mine - I was essentially just helping someone access their own funds. Anyone dealt with something similar or know the proper way to handle this on tax forms? Thanks in advance for any help!

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19 comments

Liv Park

•8M

This is definitely a situation you need to report correctly to avoid issues with the IRS. When you receive cryptocurrency and convert it to USD, Coinbase will issue you a 1099-K if you meet certain thresholds, and they'll report this transaction to the IRS regardless of why you received the crypto. The best approach is to report the transaction on Form 8949 (Sales and Dispositions of Capital Assets) with the proceeds amount matching your basis amount. This would result in zero gain or loss. In the description column, clearly note something like "received and liquidated on behalf of foreign owner - acted as intermediary only." Keep detailed records of the entire transaction, including transfer receipts from Coinbase, bank statements showing the withdrawal, and any communication with your friend about this arrangement. This documentation is crucial if the IRS ever questions the transaction.

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Liv Park

•8M

If the crypto increased in value during the brief time you held it, then technically you would report the gain on that increase. Calculate your basis as the value when you received it, and the proceeds as the value when you sold it. You'd only pay taxes on that specific gain amount. No, this transaction alone wouldn't trigger FBAR requirements. FBAR is for US persons with foreign financial accounts exceeding $10,000 at any point during the year. Since this was crypto coming into your US-based accounts, FBAR doesn't apply in this specific situation.

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Ryder Greene

•8M

I was in almost the exact same situation last year with my brother who lives in Singapore. After hours of research and a lot of stress, I found taxr.ai (https://taxr.ai) which literally saved me from making some major reporting mistakes with my crypto transactions. Their system analyzed my Coinbase transaction history and helped me properly document that I was just an intermediary. They identified exactly how to report these "custodial" transactions versus my actual personal crypto investments. The tool automatically separated my personal transactions from ones where I was just facilitating for others and generated the proper 8949 form with all the necessary notes.

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Ryder Greene

•8M

You can either connect it directly to most major exchanges including Coinbase and Kraken, or upload CSV files if you prefer. It pulls your transaction history and then walks you through a simple interface to identify which transactions were personal versus intermediary. Super straightforward. The system doesn't automatically determine which transactions were for others - you identify those during the guided process. What it does is properly document those transactions with the correct cost basis information and adds the appropriate descriptions required by the IRS. They specifically warn against misrepresenting personal trades as intermediary transactions since that would be tax fraud.

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Theodore Nelson

•8M

Just wanted to update after trying taxr.ai that I mentioned earlier. The service actually works incredibly well! I was skeptical at first (sorry about that) but it helped me identify and properly document my crypto transactions. The system let me tag the transactions where I was helping my cousin from Brazil, and it generated all the right documentation with proper descriptions. It also caught a calculation error I would have made regarding the basis amount. The reports it generated were clear enough that I'm confident if I get audited, I'll have everything properly documented showing I didn't have any taxable gains from those specific transactions. Definitely recommend if you're dealing with crypto tax situations, especially complicated ones like acting as an intermediary.

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AaliyahAli

•8M

I know everyone's suggesting tax software, but have you considered just calling the IRS directly? I had a similar issue with property I was managing for someone overseas and was confused about reporting. After spending days trying to research myself, I used Claimyr (https://claimyr.com) to get through to an actual IRS agent. There's a video showing how it works here: https://youtu.be/_kiP6q8DX5c Instead of waiting on hold for hours, I got a callback in about 20 minutes and spoke with someone who walked me through exactly how to report the transaction. They told me specifically what forms to use and what documentation to keep. Having an actual IRS agent confirm my approach gave me so much peace of mind versus just hoping I interpreted some tax software correctly.

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AaliyahAli

•8M

Yes, it connects you with an actual IRS representative! Instead of waiting on hold, they use their system to secure a callback from the IRS and then connect you when the IRS calls back. I was honestly amazed when my phone rang and there was a real person from the IRS on the line. I respect your experience, but that's exactly why I used this service instead of trying to call directly. The regular IRS lines are absolutely swamped, especially during tax season. What Claimyr does is essentially professional-level hold waiting that secures your place in line without you having to stay on the phone. When I talked to my agent, they were able to answer my specific question about reporting transactions where I was acting as an intermediary.

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Arjun Kurti

•8M

I need to eat my words from my previous comment. After being super skeptical about Claimyr, I was desperate enough to try it for my crypto reporting question similar to OP's situation. Within 35 minutes I was talking to an actual IRS agent who explained exactly how to document my situation on Form 8949. They confirmed I should use code "Z" in column (f) with a detailed description clarifying I was just an intermediary with no beneficial ownership. They also told me what specific documentation to keep (exchange records, bank transfers, communication with the foreign individual). I've literally never gotten through to the IRS before despite multiple attempts every year. Completely changed my perspective on dealing with tax questions.

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Raúl Mora

•8M

Be REALLY careful with this. What you've done could potentially be interpreted as money laundering or unlicensed money transmission depending on the amounts involved. There are specific regulations around acting as a money transmitter, especially with crypto. I'm not saying you did anything wrong intentionally, but the IRS might flag this transaction regardless of how you report it. If the amount was significant (over $10k) there are additional reporting requirements.

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Raúl Mora

•8M

You're right that a single transaction probably wouldn't trigger money transmitter registration requirements, but it can still create reporting complications. FinCEN has been increasingly scrutinizing crypto transactions. What concerns me more is that banks and exchanges are filing suspicious activity reports for exactly this type of activity - receiving crypto and immediately cashing it out for someone else. While one transaction might not be an issue, it's important for OP to understand there are regulatory considerations beyond just tax reporting.

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