IRS Issues New Guideline for Crypto Donations

A new IRS guideline requires a qualified appraisal for crypto donations that exceed $5,000. The move is intended to clarify the value of these donations for tax purposes. However, it also results in a significant burden for donors and organizations that accept contributions of cryptocurrency.

The order is reflected in a memorandum released on Jan. 13, 2023. Individuals or organizations making a charitable donation of cryptocurrency (such as Bitcoin or Ethereum) must now obtain a qualified appraisal to claim a tax deduction for it. The appraisal has to be performed by a qualified appraiser independent of the donor and the recipient. It must also be completed no earlier than 60 days before the date of the contribution and no later than the due date (including extensions) of the return on which the crypto donation is first claimed.

Organizations have historically received non-cash donations, such as real estate or works of art, to support their missions. Donors can (and often do) include them as deductions on their tax returns, with an appraisal done to confirm the value of the gift. The IRS’s new guideline is meant to ensure crypto donations are treated like other forms of property donations.

There also remains some ambiguity. The guidance doesn’t clarify how the appraiser would determine the donation’s fair market value or which methodologies they could use. It also doesn’t take into account the volatility of the cryptocurrency markets.

While reasoning for the new requirement is understandable, is a significant burden for donors and recipients alike. Obtaining a qualified appraisal can be a time-consuming and costly process. Factor in the recent declines in the values of most cryptocurrencies, and crypto donations are likely to drop significantly. This requirement, along with the huge decline in cryptocurrency values and the ongoing scandals in the crypto industry could be the final nail in the coffin for cryptocurrency in the donation area.

Reach out to your higher education or nonprofit CPA if you have questions about crypto donations or the new guidelines.

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