Accepting Donations of Crypto Currency
More frequently, nonprofit development officers and fundraisers are asked by prospective donors about whether their organization will accept donations of “Crypto Currency”, or other types of virtual currency.[i] The most commonly known form of Crypto Currency is Bitcoin, however, there are many other types of Crypto Currency that can be bought, traded, and sold.
While nonprofit organizations are accustomed to handling donations of cash, real estate, or other real property, donations of Crypto Currency represent a new form of giving that many nonprofits are unwilling to discuss with donors about—let alone accept that type of donation. While many smaller to medium sized nonprofits may have yet to receive inquiries regarding donations of Crypto Currency, many large nonprofits, especially community foundations, have had discussions with donors about Crypto Currency and have accepted such donations. Whether or not your nonprofit plans to accept Crypto Currency, it’s important to be able to talk with prospective donors about Crypto Currency and the related IRS rules and regulations when dealing with it in regard to donations.
It is important to realize that the IRS treats Crypto Currency as non-cash asset similar to stock, which means that a nonprofit will need to report it as such to the IRS. When a nonprofit accepts a donation of Crypto Currency, it must acknowledge the donation to the donor. If the donation is more than $250, then the nonprofit must provide the donor with a contemporaneous written acknowledgement of the donation. If the donation is over $5,000, the donor may ask the nonprofit to sign Part IV of Form 8283—Donee Acknowledgement. By signing the Form 8283, the nonprofit acknowledges the receipt of the Crypto-Currency as described and dated on Form 8283 and understands the reporting requirements imposed by Form 8283. Please note: by signing Form 8283, the organization is not attesting to the Crypto Currency’s value.
As stated earlier, nonprofits that receive donated Crypto Currency should handle it as a non-cash contribution. As such, it should be reported on the nonprofit’s Form 990 as well as the Schedule M, if applicable. If the organization decides to sell, exchange, or liquidate a portion or the entire Crypto Currency donation within three years after the date of receiving it, the organization must then file the Form 8282, “Donee Information Return.”
One final consideration is that if a nonprofit plans to accept Crypto Currency, it must have the necessary technology in-place to accept, hold, and then eventually sell, exchange, or liquidate the donated Crypto Currency.
[i] The IRS defines virtual currency as a representation of value “that functions as a unit of account, store of value, and a medium of exchange.” Crypto currency is treated by the IRS as a type of virtual currency that uses cryptography to secure transfers recorded digitally on a ledger. For the purposes of this article, crypto currency will be used to refer to both virtual and crypto currency.
This article is provided for general information and should not be relied upon as legal advice for a specific situation. If you are in need of specific advice or legal representation, please do not hesitate to contact us.
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