Should Your Nonprofit Accept Cryptocurrency Donations?

Cryptocurrency has gone mainstream, and it’s time to decide if your nonprofit will accept donations in virtual currency. Before your nonprofit says “yes” to a Bitcoin or other cryptocurrency gift, make sure you understand the issues involved.

Risks of cryptocurrency

cryptocurrencyCryptocurrency refers to a decentralized form of digital currency that’s tracked in a blockchain ledger. Unlike traditional currencies, the ledger doesn’t reside with a central authority, such as a bank or government, but across public peer-to-peer networks. The value of cryptocurrencies derives in part from its scarcity. In the case of Bitcoins, for example, the supply is limited to 21 million “coins.”

One of the most significant risks related to cryptocurrencies is their price volatility. The price for Bitcoin can shift more than 10% in a single day. Imagine a donation that drops that much in value within hours of receipt. Cryptocurrencies also can quickly appreciate in value dramatically. One reason owners might want to donate them is to avoid capital gains tax on the appreciation.

Third-party facilitators can help

Given such price volatility, you need to decide whether your nonprofit can assume the risks. Accepting cryptocurrency through a third-party facilitator, such as The Giving Block, BitPay or Engiven, can help manage the risks. These platforms allow nonprofits to convert crypto donations into dollars before their value can fall.

Facilitators typically charge a small fee, like credit card transaction fees. Check with your financial institution before signing an agreement with a facilitator, though, as some are wary of transactions involving players in the virtual currency industry.

If you decide to accept cryptocurrency donations directly, and perhaps benefit from appreciation, you must create a “digital wallet” through a bank or mobile phone app. Wallets store the public and private “keys” required to send and receive coins. You’ll also need to implement internal controls and security measures to secure your keys and wallets.

Your reporting obligations for cryptocurrency

When it comes to reporting, the IRS says nonprofits should treat these obligations as noncash contributions on Form 990. You must also file Schedule M if you receive more than $25,000 in noncash contributions or contributions of art, historical treasures or similar assets, or qualified conservation contributions.

If you accept cryptocurrency directly and convert it to cash within three years after receipt, you must file Form 8282, Donee Information Return, and give the donor a copy. If the donation is worth more than $5,000, your organization will need to sign the donor’s Form 8283, Noncash Charitable Contributions.

Be prepared

It’s only a matter of time before you’ll be approached by a supporter offering a cryptocurrency contribution, so prepare now. You’ll need new security and compliance policies and should make a gift acceptance policy addendum. Contact us for more information and help.

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