The Internal Revenue Service recently updated its guidance on virtual currency transactions, adding questions and answers to its website FAQ page about how donors and recipient organizations should deal with charitable donations of virtual currency.
The additional guidance was first reported Jan. 1 on the Current Federal Tax Developments website.
In December, the IRS addressed a charity’s responsibilities upon receiving virtual currency as a contribution in questions 35 and 36.
First, what are the nonprofit organization’s donor acknowledgment responsibilities?
The IRS said a charity can assist the donor by providing written acknowledgment immediately upon receipt of the contribution that the donor must obtain if he or she claims a deduction of $250 or more for the virtual currency donation.
It said the charity is generally required to sign the donor’s Form 8283, Noncash Charitable Contributions, which acknowledges receipt of charitable deduction property, if the donor is claiming $5,000 or more as a deduction and if he or she presents Form 8283 to the charity for signature to substantiate the tax deduction.
The IRS notes that the charity’s signature does not represent agreement with the appraised value of the contribution, but only acknowledgement of receipt of the property described in the form on the date specified and that the donee understands the information reporting requirement imposed by section 6050L on dispositions of the donated property.
The charity also has responsibilities when it reports to the IRS receipt of a virtual currency donation.
The IRS says a nonprofit that receives virtual currency donation should treat it as a noncash contribution. The organization then has these responsibilities:
- Report noncash contributions on a Form 990-series annual return and its associated Schedule M, if applicable
- File Form 8282, Donee Information Return, if the charity sells, exchanges or otherwise disposes of charitably deduction property or any portion of it within three years after the date it first received the property, and give the original donor a copy of the form
The Current Federal Tax Developments report noted that the IRS’ FAQ had already covered virtual currency donations from the donor’s perspective in questions 33 and 34.
One question had to do with whether the virtual currency donor had to recognize income because of having disposed of the virtual currency by donating it.
No, the IRS said, the donor would not recognize income, gain or loss from the donation.
CFTD said this was consistent with the agency’s view that cryptocurrency is a capital asset in the hands of the taxpayer. It does not consider a donation of the asset to be a sale or exchange of the asset.
The second question asked how the donor should calculate the charitable contribution deduction after a contribution of virtual currency.
The IRS said the deduction was generally equal to the fair market value of the currency at the time of donation if it had been held for more than one year. If held for a year or less at the time donation, the deduction would be the lesser of the donor’s basis in the virtual currency or the currency’s fair market value at the time of contribution.