Charities need to address several issues when considering whether to accept donations of digital assets, including cryptocurrency, virtual currency, non-fungible tokens (NFTs), and digital currency. They should consider the appropriateness of such donations in the first place; its protocols for accepting digital assets; the ways in which they will convert the digital assets to US dollars or other fiat currency; and your documentation and reporting obligations.
Is it appropriate to accept cryptocurrency donations?
As a starting point, a charity must determine if it is suitable to accept donations of digital assets. Some initial considerations include whether such donations are permitted under applicable laws, whether they are permitted under the charitable organization's enabling documents and fulfill its mission, and whether the digital assets are appropriate given your financial situation. As an initial matter, a charity needs to determine if the value of donated digital assets is greater than the risks and effort involved in accepting it.
Learn how to donate cryptocurrency and digital assets
Assessing whether to accept direct donations of digital assets
When evaluating whether to accept direct donations, a charity should consider the following:
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If the donation will be channeled through a third-party provider or a Donor Advised Fund (DAF), the charity will not receive digital assets. Rather, you will receive US dollars (or another fiat currency). This allows the charity to avoid setting up a digital asset account or digital wallet, and does not bear the market risks and expense of converting digital assets to fiat currency. One downside to this approach is that there may be a time lag between the time the donor contributes to the DAF account and the charity actually receives the donation.
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Donations through a third-party provider or DAF can insulate the charity from the risk of accepting donations from unwanted donors that could put its mission or reputation at risk.
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Accepting direct contributions from digital assets could increase the charity's pool of potential donors by attracting some donors who do not want to use a third-party provider or DAF.
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Accepting direct contributions would subject the charity to fluctuations in the value of digital assets, allowing the charity to benefit from increases in market value and forcing it to suffer falls in market value while holding the digital assets. .
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Policies and procedures for organizations to accept crypto donations
A charity should consider whether to update its current gift acceptance policies and procedures or adopt policies regarding the acceptance of digital assets. Some obvious questions include:
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Can you meet a potential donor's timeline for the donation?
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Will it work with a third-party processor or platform to set up a digital asset donation program?
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What digital assets will you accept? Will you accept NFTs if the NFTs are not connected with your charitable mission? For example, will a charity accept NFTs of art if it's not a museum or educational institution?
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If you accept direct contributions, will you immediately convert the digital assets to US dollars (or other fiat currency)?
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Under what circumstances (if any) would the charity be willing to retain digital assets after donation? What investment guidelines should the charity set and follow?
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Will you accept anonymous or pseudonymous gifts? Some charities have policies against accepting anonymous gifts. Does the charity want to require donors to provide information about themselves? The charity should consider its compliance obligations when considering the disincentive for donors seeking anonymity.
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What procedures should the charity adopt to protect itself from security breaches and hackers? For example, the charity should not post your public digital wallet address on its website where it is visible to everyone. This could result in a "redirect hack", where a hacker changes the wallet address published on the website to an address the hacker controls.[1] Instead, the charity could require all potential digital asset donors to fill out an information form before providing the donor with a wallet address, and each donation is then assigned a unique digital address.[2]
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Should I hire a blockchain analytics firm, like Chainalysis or Elliptic, to analyze transactions and wallet addresses? These companies have software products that can allow the charity to see if it could be exposed to criminal activity, reputational risk, money laundering, terrorist financing, or engaging in transactions with bad actors.[3]
Documentation of donations of cryptocurrencies and other digital assets
A charity that accepts direct donations of digital assets must provide donors with documentation to meet recordkeeping and reporting obligations:
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For donations valued at less than $250, the charity must provide the donor with a tax receipt that includes the name and address of the charity.
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Donations over $250 require a contemporaneous written acknowledgment.
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For donations of more than $5,000, the charity must sign IRS Form 8283, Part V, acknowledging that the charity is a qualified charity under Code ยง 170(c) and that it did, in fact, receive a donation of nonmonetary property as described in form. By signing the form, the charity disagrees with the appraised value.[4] Rather, it is simply acknowledging receipt of the donation and that the charity meets its reporting requirements by getting rid of the crypto.[5] (Donor must meet qualified appraisal requirements.)[6]
IRS reporting obligations
Digital assets are reported as non-monetary contributions on Schedule M (Non-monetary Contributions) of IRS Form 990. If the charity disposes of all or a portion of the digital assets within three years of receipt, the charity must file IRS Form 8282 (Return of Grantee Information) and provide a copy of the form to the donor.[7]
Conclusion
As more people amass substantial portfolios of prized digital assets and charities establish policies for accepting contributions of such assets, charitable recipients must consider several difficult issues. With careful attention, these obstacles can be addressed and overcome.
[1] andy greenberg Hacker Redirects Traffic From 19 Internet Providers To Steal Bitcoinswired, https://www.wired.com/2014/08/isp-bitcoin-robo/ (August 7, 2014).
[2] Third party service providers are available to serve as intermediaries for such transactions. Jane M. Searing and Deby Macleod, Cryptocurrency Gifting Strategies for NonprofitsAccounting Journal, https://www.journalofaccountancy.com/issues/2019/feb/cryptocurre ncy-gift-strategies-for-nfp.html (February 1, 2019)
[3] See โTop Blockchain Analytics Firms and What They Doโ, Analytics India Magazine, Jul 24, 2020, https://analyticsindiamag.com/top-blockchain-analytics-companies- and-what-do/. (site visited May 12, 2021).
[4] Frequently asked questions 36.
[5] Frequently asked questions 36.
[6] Lead Counsel Memorandum 202302012 (January 10, 2023).
[7] Form 8283.
