What nonprofits need to know about accepting cryptocurrency donations.
Cryptocurrency, a decentralized digital asset, has grown rapidly in recent years, prompting nonprofits to consider accepting the asset in the form of a donation. In the last year, over $300 million in cryptocurrency was gifted to nonprofits, and that number is expected to grow.
There are several advantages to accepting cryptocurrency donations, including:
- Cryptocurrency donations are tax-efficient for both the donor and the charity. Donors pay no capital gains tax, and nonprofits receive 100% of the donation tax-free. Nonprofit charities are exempt from paying capital gains tax when they sell assets, so the full value of the gift stays intact.
- Crypto donations are transmitted and tracked more easily.
- Nonprofits have flexibility in how to realize the gift value – they can convert to a currency-based asset type, or they can hold the funds as an investment in the form of an endowment to fully realize it’s value over time.
Getting Started with Cryptocurrency Donations
All nonprofits should have a gift acceptance policy that addresses whether it will accept cryptocurrency donations. Those that do should address how long it will be held, where it will be held, how it should be valued and reported, and what the liquidation process will be.
There are several options nonprofits can use to accept and hold crypto donations.
A wallet is a place where you can send, receive, and store crypto currency. It stores the public and private keys required to authorize the blockchain transactions and keep track of the balances. A crypto wallet can be a physical device like a thumb drive, or it can be online software such as crypto.com.
Practical consideration: Nonprofits that use crypto wallets need to consider how the wallet will be securely stored and who can access the credentials.
2) Crypto Processors
Processors such as BitPay or Coinbase can facilitate the receipt of cryptocurrency donations through embeddable checkout experiences, and automatically convert it to cash for minimal fees.
There are also specialized nonprofit crypto processors, such as The Giving Block, that help nonprofits accept cryptocurrency to their own wallet and allow them to hold onto it as an investment or convert it into cash.
3) Donor-Advised Fund (DAF)
Another option is to have the donation made to a donor-advised fund (DAF) that has experience in handling cryptocurrency. The donor-advisor can then advise the DAF to make a cash distribution to the charity. The charity has no need to arrange its own processing, thereby avoiding all the risks and expenses.
Compliance + Other Considerations
Cryptocurrencies meet the definition of intangibles assets under U.S. Generally Accepted Accounting Principles (GAAP). When a donation is received by a non-profit, it is recognized at fair value as a contribution. Cryptocurrencies are then subsequently evaluated for impairment in accordance with GAAP in accordance with FASB ASC 350. When sold, and converted to cash, any gains or losses from the sale are recognized separately on the statement of activities.
To provide a contemporaneous written acknowledgement of the donation, the nonprofit will need information about the donor’s carryover basis and holding period. If the donation is over $500, the donor will need to file Form 8283, Noncash Charitable Contributions. For donations over $5,000, an appraisal is required.
Nonprofits may be required to disclose the noncash donation on Form 990 Schedule M, Noncash Contributions, and on Schedule B, Schedule of Contributors. Since transactions on the blockchain do not contain information about the identity of the donor, organizations are generally permitted to identify a donor as “Anonymous” on Schedule B if it has made a good faith effort to identify the donor and truly does not have the required information.
Furthermore, if the charity disposes of the cryptocurrency within three years, it must complete Form 8282, Donee Information Return, and provide a copy to the donor. Completing Form 8282 requires the donor’s name and social security number or employer identification number, so anonymous donations present a challenge.
Contact D+L for Guidance
For nearly 50 years, Dugan + Lopatka has partnered with nonprofit organizations to navigate every step of the financial journey. At D+L, our CPAs and consultants are always on the cutting edge of changes in the nonprofit sector. We understand the challenges you face—the special accounting, auditing and reporting requirements of your organization—and we use our deep expertise to deliver exceptional service tailored to your needs.