Bitcoin and Other Virtual Currency Donations – What Charities Need to Know

Virtual currency, also referred to as cryptocurrency, is a type of unregulated currency that is only available in digital form. They are not issued or guaranteed by a central bank or public authority. A few of the most popular are Bitcoin, Ethereum and Ripple. They are stored and transacted only through designated software sometimes referred to as digital wallets and the transactions occur over the internet. Their value can be extremely volatile. An example is illustrated in a U.S.News & World Report entitled “Bitcoin Has Lost Half Its Value in 2018”. The article states “After another tough month in March, bitcoin has now lost half of its value since Jan. 1 and approximately two-thirds of its value since hitting an all-time high of about $20,000 in December.” That is a better than 50% decline in only four months.

If your charity received a donation of virtual currency, the IRS wants to know.

The IRS says virtual currency donations must be declared.

Recording and reporting

Nonprofits that receive a virtual currency donation should treat it as a non-cash contribution reported on Form 990. The value is based on the fair market value at the time of receipt.

Written acknowledgement

Typically, a charitable organization should provide written acknowledgement for donations of more than $250, that remains true for virtual currency.

Further reporting requirements – IRS Forms 8283 and 8282

A charitable organization receiving non-cash contributions of more than $5,000 are required to complete and sign a donor’s Form 8283 Non-Cash Charitable Contributions. The signature confirms date and receipt of the property and is not a confirmation of value.

If an organization sells, exchanges or otherwise disposes of property reported on form 8282 within three years of receipt, an organization must file Form 8282 Donee Information Return and send a copy of the Form to the donor unless the value of the contribution was less the $500.

As a matter of policy, just as in the case of donated stock, it is recommended that the virtual currency should be sold as soon as possible to convert the contribution to cash and protect the value. This is very important with the receipt of virtual currency because of the volatility issues mentioned above. Virtual currency donations can be sold on cryptocurrency exchanges. The charity should make extensive inquiries before selecting an exchange for the transaction.