Cryptocurrency’s popularity only seems to grow in certain segments of the population. Accepting crypto donations could present an opportunity for your not-for-profit organization to boost revenue while also helping you to connect with new groups of donors. Accepting crypto is not without risk, though.

Pros and cons

Cryptocurrency generally refers to a decentralized form of digital currency. Millions of people now own cryptocurrency, including many younger and tech-savvy donors. Notably, The Giving Block, a crypto donation-processing platform, reports that the average crypto donation in 2022 was almost 31 times larger than the average online gift. And more than 90% of those donations came from gifts worth at least $5,000 at the time of donation, with an average donation of nearly $6,300.

Tax incentives are likely a major reason crypto donations appeal to donors. Crypto is treated as property for federal tax purposes, meaning its sale or exchange can result in a taxable capital gain. Owners can avoid the tax by donating crypto directly to a 501(c)(3) charity, while simultaneously securing a potentially hefty charitable contribution deduction.

Accepting crypto donations is not all upside, though. The volatile nature of the value of crypto is well established, with prices soaring high or plunging low on a dime. But not-for-profits can mitigate this risk by immediately converting crypto donations to cash.  If you do plan to accept crypto donations you should consider updating your gift acceptance policy.

Tax reporting

Because crypto is considered property, you should issue donors noncash donation receipts and report their contributions appropriately on IRS Form 990. If you convert a crypto donation to cash within three years of receipt, you generally must file IRS Form 8282, “Donee Information Return.”

Crypto donors must file Form 8283, “Noncash Charitable Contributions,” for donations exceeding $500. The IRS has taken the position that crypto donations exceeding $5,000 must be substantiated with a qualified appraisal because crypto is not considered a publicly traded security or other type of readily valued property that would make it exempt from the requirement. Moreover, the value reported on a crypto exchange does not satisfy this requirement. The donor must use a qualified appraiser, and the organization receiving the donation must sign the Form 8283.

First steps

Taking on crypto donations can be daunting, so you will want to weigh the administrative costs prior to accepting the donations.  You will need staff expertise to manage and track the donations, collect requisite donor information and implement controls to protect the crypto assets. You also must stay on top of market trends and legal and regulatory developments. You do not have to handle all this yourself, though — third parties can help.

You could, for example, work with a donor-advised fund (DAF). The DAF would accept the donations, disburse them as cash and assume responsibility for complying with reporting requirements.

DAFs seem to be popular with crypto investors. Fidelity Charitable received $49 million in crypto donations in 2023 — 25% more than the previous year. It has received more than $565 million since 2015. Payment processing platforms, such as The Giving Block and Engiven, are another option. They accept crypto donations, convert them to cash for disbursement and do the reporting. They may provide marketing assistance for targeting the crypto community, as well. You will need to pay fees, though, and must perform due diligence before selecting a platform.

Plan ahead

Regardless of the route you choose for receiving crypto donations, as previously mentioned, you should update or develop new gift acceptance and, if you decide to hold donated crypto rather than converting it to cash, then investment policies and procedures as well. Schedule a review of these policies regularly and revise them as necessary to keep up with relevant changes.

For more information, contact Caitlin Gibbs at [email protected] or 312.670.7444. Visit ORBA.com to learn more about our Not-For-Profit Group.