Cryptocurrency Charitable Contributions
Cryptocurrency taxation came up recently again in the media when the IRS confirmed the tax treatment of cryptocurrency charitable contributions. Most laypeople have some idea of the rules regarding tax deductible charitable contributions. When you make a donation to a recognized charity, the donor may take a deduction for this contribution. The rules can get complex, but this is the basic overview of the situation. When cryptocurrency was first taking off, many people wondered about the implications of crypto donations as charitable contributions. Some clarification was brought to this issue when the IRS declared cryptocurrency a form of intangible personal property in Notice 2014-21. Further clarification and guidance was then provided in IRS’ later statement, IR-2019-167.
In this post, we will go over the tax treatment of digital currency charitable contributions in detail. This treatment has been confirmed by the IRS. The big issues which the IRS recently clarified relate to the estimation of value for crypto contributions and reporting requirements. Let’s explore this issue in detail.
IRS Confirms Crypto Charitable Contributions
The first part of the IRS’ confirmation of crypto charitable contributions relates to whether cryptocurrency donations to charity produces capital gain or loss for donors. The IRS confirmed that, if the charity is a recognized organization under IRS rules, donating cryptocurrency will not result in income, gain or loss. This essentially means that cryptocurrency has the same treatment as other capital assets, including stocks. This is consistent with the IRS’ classification of cryptocurrency as an intangible personal property (just like stocks and bonds). This is a simple point, but it’s basically the first hurdle of cryptocurrency charitable contributions. The IRS is basically saying that cryptocurrency won’t receive treatment which is different from that given to other forms of legitimate property.
Calculating Value of Crypto Contributions
The next big confirmation by the IRS relates to the calculation of the value of contributed cryptocurrency. Calculating the value of contributed cryptocurrency depends on the holding period of the donor. If the donor holds the cryptocurrency for one year or longer, than the value of the contribution is equal to the current fair market value of the cryptocurrency. But, if the donor holds the property for less than one year, then the value of the contribution is the lesser of the donor’s adjusted basis or current fair market value of the cryptocurrency.
The value of the contribution equals the amount of the tax deduction available to the donor. This is a key point. If someone is planning to donate cryptocurrency, they need to think about how their holding period may affect their deduction. If a person has only held his or her cryptocurrency for six months, and he or she has already seen a significant gain, that person may want to postpone the contribution.
Reporting Requirements for Crypto Contributions
The rules for reporting bitcoin and other cryptocurrencies charitable contributions are essentially the same as those for non-cryptocurrency charitable contributions. When accepting bitcoin donations above $250, the public charity should provide a contemporaneous written receipt of the contribution. For deductions of at least $5,000, the charitable organization must sign the donor’s Form 8283. This form is specifically for non-cash charitable contributions of at least $5,000. However, even though Form 8283 is required, this form by itself doesn’t substantiate the amount of the deduction. Substantiation of the amount is an additional responsibility for the donor when donating bitcoin. As for charitable organizations, these organizations must report when they accept cryptocurrency donations on Form 990 of their annual return. If the recipient organization sells, exchanges or disposes of the cryptocurrency within three years of receipt, the organization must file Form 8282.
Tricky Treatment
As you can see, the tax treatment of crypto contributions can get a bit tricky when we examine the details. This is similar to the capital gains tax treatment of cryptocurrency in other areas. But hopefully this summary sheds light on the basics for our readers.
Contact MC&C for Further Information
At Mackay, Caswell & Callahan, P.C., we stay on top of cutting-edge tax issues. Lately, this has caused us to spend a good amount of time mastering the finer points of cryptocurrency taxation. This is why we’ve gone over the key IRS statements and documents on this issue. If you’d like additional information on crypto charitable contributions, give us a call today. Also, give us a call if you need assistance with any of our other areas of expertise. We regularly handle federal tax debt resolution, NY state tax debt resolution, sales tax debt, and other areas as well. Contact one of our top New York City tax attorneys today for help.
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