More and more charities are accepting cryptocurrency as donations. Before an organization decides whether or not to accept cryptocurrency, it should understand some of the related issues.
Gift acceptance policies for charities are a best practice for determining what type of donations will be accepted. An organization needs a policy that specifies who will approve a cryptocurrency donation, what cryptocurrencies will be accepted, and whether currency will be sold immediately or held in the hope of appreciating. As with stock donations, there is no tax effect to the exempt organization for an increase in value, but there is the added volatility to consider.
Before a charity can accept a crypocurrency donation, it must determine whether to control the cryptocurrency internally or utilize a payment processor, which may make sense for the added expertise and security. Some well-known processors include Engiven, the Giving Block and Every.org. These processors can also assist with tax issues.
Cryptocurrency is considered a capital asset for income tax purposes. A donor can avoid capital gains tax on appreciated cryptocurrency by donating it to a charity. The donation would also be deductible as an itemized deduction. If the gift is over $5000, the nonprofit must also sign the Noncash Charitable Contributions form (Form 8283) acknowledging the receipt of property, as well as have the cryptocurrency donation appraised by a “qualified appraiser.” There are firms that offer crypto appraisal services. This differs from donations of publicly traded stock, which do not require an appraisal.
If the charity sells the donated cryptocurrency within three years of donation, the charity must provide the Donee Information Return form- also known as Form 8282 to the IRS (and a copy to the donor) within 125 days of sale. Also, as with any other donation, if the value of the cryptocurrency donation was over $250, the organization must provide a donor acknowledgement letter.
Financial statement/audit issues
Under generally accepting accounting principles (GAAP), cryptocurrency is treated as an intangible asset, rather than cash, investments, or inventory. The gift of the cryptocurrency donation would be recorded at fair value at the time of donation, but if the cryptocurrency is held for a longer period, you would not adjust the value of the crypocurrency for market fluctuations. You would, however, need to test for impairment each year.
We are staying abreast of the current developments with respect to both the IRS and with GAAP. If you have any questions, feel free to reach out to a member of our team.
By Keith Jennings