With cryptoassets gaining exponentially in popularity, gifts of digital currency to nonprofits and foundations are becoming more common. As generous and potentially impactful as these offers may be, accepting crypto donations should be evaluated carefully—with the help of experts and, ideally, buy-in from all levels of your client’s organization.
While you’ve likely heard of bitcoin, it’s just one of around 10,000 virtual currencies. In 2021, we saw precipitous surges and declines in many of these cryptoassets, whose value tends to be extremely volatile. Some wealthy individuals who’ve profited are looking to divest their holdings without having to pay taxes on the appreciation: doing good without reporting costly gains. Yet when it comes to donations of cryptocurrency to nonprofits and foundations, discretion is the better part of valor as this concept remains in its infancy.
Assessing the Benefits of Crypto Donations
The Internal Revenue Service classifies donated cryptocurrency as property, not currency. That means donors can avoid capital gains by making an in-kind gift. As with any other complex gifts your client may have received, documentation and risk assessment are paramount. A third-party organization can be helpful in valuing these assets.
Here are some other high-level considerations:
- What risks are involved in accepting a potentially volatile asset?
- Will your client incur additional operating costs or complexities in trying to accommodate this new type of request?
- Does it make sense to sell the cryptoassets immediately, or hold onto them as part of your client’s investment portfolio?
Answering those big-picture questions means digging deeper and consulting experts in the legal and