The IRS quietly added more guidance in the virtual currency arena to their frequently asked questions (FAQ), this time adding new questions and answers related to how charities should deal with the receipt of a virtual currency donation, as well as how the donor deals with the donation.[1]

Two questions related to the donor had previously been in the FAQ. To provide a complete discussion, we’ll cover those two first.

The first question deals with the donation of virtual currency from the viewpoint of the donor concerned he/she may have to recognize income due to disposing of the virtual currency by making a donation. Question 33 provides:

Q33. If I donate virtual currency to a charity, will I have to recognize income, gain, or loss?

A33. 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.

This is consistent with the IRS view that cryptocurrency is a capital asset in the hands of the taxpayer. A donation of the asset is not considered to be a sale or exchange of the asset—after all, nothing except a “good feeling” is received by the donor, or what is received is of relatively minor value. If that wasn’t the case, we’d likely be looking at a part-sale, part-gift situation at best.

Question 34 confirms that virtual currency is treated as just another capital asset for donation purposes:

Q34. How do I calculate my charitable contribution deduction when I donate virtual currency?

A34. 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.

Next we turn to the charity itself—what are the charity’s responsibilities when it receives virtual currency as a contribution?

The charity is receiving a non-cash contribution, and that contribution may very well be worth more than $5,000 and likely even more often worth more than $250. The IRS provides the following description of the charity’s responsibilities when dealing with donor notification:

Q35. When my charitable organization accepts virtual currency donations, what are my donor acknowledgment responsibilities? (12/2019)

A35. 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)

But the charity’s responsibilities do not end there. The IRS goes on to describe the charity’s responsibilities when reporting to the IRS when it receives a donation of virtual currency:

Q36. When my charitable organization accepts virtual currency donations, what are my IRS reporting requirements? (12/2019)

A36. 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 as described in FAQ #4 - 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. (12/2019)

[1] “Frequently Asked Questions on Virtual Currency Transactions,” IRS website, December 31, 2019 revision, https://www.irs.gov/individuals/international-taxpayers/frequently-asked-questions-on-virtual-currency-transactions (retrieved January 1, 2020)