Monetary donations are a large part of a not-for-profit organization’s funding portfolio. With many individual taxpayers contributing donations through non-cash means, it’s important to stay up-to-date on the implications and evolution of charitable deductions.
It has long been a practice for those holding appreciated, publicly traded securities to donate them to charity instead of contributing cash. As this effectively eliminates the recognition of capital gains and creates a charitable deduction on a taxpayer’s personal return, it’s a strategic way to contribute to charitable organizations. With the rise of cryptocurrency over the past several years, the question of “can you donate your appreciated cryptocurrency and take a charitable deduction in the same manner?” has often been raised. While it appears that cryptocurrency values are considered “readily valued property” the same way they are with publicly traded securities, the IRS has determined that tax treatment is different.
The Tax Treatment of Cryptocurrency Contributions
Generally, the amount recognized as a charitable contribution is easy to determine as fair market values are available on the date of contribution. As such, there is an exception to the appraisal requirement for contributions to an organization over $5,000. On January 13, 2023, the IRS issued Chief Counsel Advice (CCA 202302012) regarding qualified appraisal requirements for charitable contributions of cryptocurrency.
Per the advice, the IRS defines cryptocurrency as a digital asset, and as such, any donation greater than $5,000 will require a qualified appraisal under Section 170(f)(11)(E)(i). Qualified appraisals must be conducted by an appraiser that meets certain minimum education and experience requirements, in addition to other expectations. Any donation of $5,000 or more of cryptocurrency claimed on a personal tax return without the qualified appraisal attachment will be disallowed. While a not-for-profit organization can accept donations without an appraisal, individuals should note they cannot take the deduction on the personal side without an appraisal.
Implications for Not-for-Profit Organizations
Any tax-exempt organization that receives a contribution of cryptocurrency is required to provide a contemporaneous written acknowledgement for the donation to the donor and complete Part V of the donor’s Form 8283. The written acknowledgement should not mention the donated value but can be leveraged as a way to communicate the appraisal requirements to donors. This can prevent misstatements in donor’s personal tax reporting.
This nuanced requirement comes with the evolution of charitable contributions and the progression of cryptocurrency. For more information about its impact on not-for-profit organizations (or individual’s tax filing), please contact our team: