Cryptocurrency is a virtual currency, which is a decentralized system based on blockchain technology. There are thousands of cryptocurrencies, which offer a digital medium of exchange for instantaneous purchasing and sales transactions, the most famous being Bitcoin. Bitcoin was the first established cryptocurrency, which had its 10-year anniversary in 2018. The cryptocurrency industry has come a long way since inception, and we can expect to continue seeing developments within the industry during 2019. With all the hype surrounding cryptocurrency over the past couple of years, it may become a popular way of donating to both local and international organizations. The following will cover some of the difficulties and benefits of accepting cryptocurrency gifts and assist in determining if accepting cryptocurrency as a donation is appropriate for your not-for-profit.
The following are difficulties you can expect to encounter when accepting cryptocurrency donations as a not-for-profit:
- There are over 2,000 cryptocurrencies listed on Coinmarketcap.com, which is a website that tracks virtual currency and shows the current value in dollars for each coin. Tracking and selling various coins can be challenging. Some of these coins are more well known than others and can be exchanged on popular U.S. exchanges; however, other less established coins are not available to be traded on the popular U.S. based exchanges.
- Not all cryptocurrencies are convertible to cash without converting to another coin first, and not all coins have a value; therefore, your organization may want to consider which types of cryptocurrencies they will accept, if any. If cryptocurrencies are not being converted to cash upon receipt, your organization may want to limit the amount of this type of asset it is willing to receive to help mitigate any losses because of the rapidly changing values.
- With fluctuating values of cryptocurrencies, losses often occur depending on the timing of purchases and sales; therefore, donors may not be looking to donate cryptocurrency at this time, as they would be more interested in claiming a tax loss for themselves.
The following are benefits received when accepting cryptocurrency donations as a not-for-profit:
- Virtual currencies have been around for a decade and trends show that this type of property isn’t going away anytime in the near future; therefore, taking the necessary actions now to accept a virtual currency donation either directly or indirectly through a facilitator might be an effective way to ensure your organization is not missing out on potential gifts from donors. If receiving donations indirectly, the facilitating organization will act as an agent converting the property donation to cash on your organization’s behalf, net of a small fee.
- With the right processes in place, converting virtual currencies to cash can be easy and will allow your organization to benefit from the donation quickly by putting the cash to use as intended by the donor. By converting cryptocurrency on the day it is received by your organization, it also limits the risk of loss.
- For tax purposes, a cryptocurrency donation will be treated as ‘property’ (noncash contribution) and regardless of gains, is not taxable income for your organization. A Form 8283, Noncash Charitable Contributions, and donor acknowledgment letters, will be required during the donation process for gifts received greater than $500.
If your organization is not yet accepting cryptocurrencies as a charitable donation, there is potential to tap into a new funding stream. Cryptocurrencies being treated as noncash contributions for tax purposes is enticing, as the donor will be entitled to a larger tax deduction when donating cryptocurrencies held at an appreciated value by avoiding capital gain tax. Taxpayers and not-for-profit organizations alike benefit from cryptocurrency giving if the organization is willing to take on the risk in the ever-changing cryptocurrency market.
If you have questions about if accepting cryptocurrency as a donation is appropriate for your not-for-profit, please reach out to Rebecca Jackson or your local Blue & Co. advisor.
References:
https://www.journalofaccountancy.com/issues/2019/feb/cryptocurrency-gift-strategies-for-nfp.html
https://blog.wetrust.io/12-nonprofits-that-accept-cryptocurrency-504e4285622b
https://www.investinblockchain.com/cryptocurrency-trends-2019/
