In 2014, the IRS declared that virtual currency is treated as property for Federal income tax purposes and providing examples of how long standing tax principles applicable to transactions involving property apply to virtual currency.
Simply, this means that cryptocurrency is NOT treated like the currency of a sovereign nation, such as the US Dollar or Euro.
Why is this important? Every time you exchange one cryptocurrency for another, you have a taxable transaction that must be reported at year end on your tax returns.
The Q & A below attempts to answer the basic questions related to giving or accepting cryptocurrency as a charitable donation.
As always, call me immediately if you have any questions, 732-673-0510.
Q1. If I donate virtual currency to a charity, will I have to recognize income, gain, or loss?
A1. If you donate virtual currency to a charitable organization described in Internal Revenue Code Section 170(c), you will not recognize income, gain, or loss from the donation. For more information on charitable contributions, see Publication 526, Charitable Contributions.
Q2. How do I calculate my charitable contribution deduction when I donate virtual currency?
A2. Your charitable contribution deduction is generally equal to the fair market value of the virtual currency at the time of the donation if you have held the virtual currency for more than one year. If you have held the virtual currency for one year or less at the time of the donation, your deduction is the lesser of your basis in the virtual currency or the virtual currency’s fair market value at the time of the contribution. For more information on charitable contribution deductions, see Publication 526, Charitable Contributions.
Q3. When my charitable organization accepts virtual currency donations, what are my donor acknowledgment responsibilities?
A3. A charitable organization can assist a donor by providing the contemporaneous written acknowledgment that the donor must obtain if claiming a deduction of $250 or more for the virtual currency donation. See Publication 1771, Charitable Contributions Substantiation and Disclosure Requirements (PDF), for more information.
A charitable organization is generally required to sign the donor’s Form 8283, Noncash Charitable Contributions, acknowledging receipt of charitable deduction property if the donor is claiming a deduction of more than $5,000 and if the donor presents the Form 8283 to the organization for signature to substantiate the tax deduction. The signature of the donee on Form 8283 does not represent concurrence in the appraised value of the contributed property. The signature represents acknowledgement of receipt of the property described in Form 8283 on the date specified and that the donee understands the information reporting requirements imposed by section 6050L on dispositions of the donated property (see discussion of Form 8282 in FAQ 36). See Form 8283 instructions for more information. (12/2019)
Q4. When my charitable organization accepts virtual currency donations, what are my IRS reporting requirements?
A4. A charitable organization that receives virtual currency should treat the donation as a noncash contribution. See Publication 526, Charitable Contributions, for more information. Tax-exempt charity responsibilities include the following:
Charities report non-cash contributions on a Form 990-series annual return and its associated Schedule M, if applicable. Refer to the Form 990 and Schedule M instructions for more information.
Charities must file Form 8282, Donee Information Return, if they sell, exchange or otherwise dispose of charitable deduction property (or any portion thereof) – such as the sale of virtual currency for real currency – within three years after the date they originally received the property and give the original donor a copy of the form. See the instructions on Form 8282 for more information.
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Chris Whalen, CPA
(732) 673-0510
81 Oak Hill Road
Red Bank, NJ 07701
www.chriswhalencpa.com
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