IRS Says That Large Crypto Donations Need a Qualified Appraisal

IRS Says that Large Crypto Donations Need a Qualified Appraisal

March 27, 2023

Cryptocurrency has become increasingly popular as a means of investment in recent years, and many individuals and businesses have started using it to make charitable donations. In a recent IRS Chief Counsel Memo (CCA 202302012), the IRS stated that a qualified appraisal would be required for charitable contributions of cryptocurrency exceeding $5,000.   This IRS guidance affects both donors of cryptocurrency and charitable organizations that receive cryptocurrency donations.

What this Means for Donors

Since the IRS has determined that cryptocurrency donations exceeding $5,000 should be treated like other donated property that requires a qualified appraisal, a donor will need to go to the trouble and expense of hiring a qualified appraiser to value the cryptocurrency that was donated.   In addition, the donor will need to properly complete Form 8283, Noncash Charitable Contributions. This form will need to be signed by the qualified appraiser as well as by the charitable organization receiving the donation. This form should be filed with the donor’s tax return. As with any donation exceeding $250, a contemporaneous written acknowledgement with the required information should also be received from the charitable organization.

What this Means for Charitable Organizations

Charitable organizations that accept large donations of cryptocurrencies should be familiar with the rules so that they can properly guide their donors to seek the professional help and required documentation needed to support the charitable donation. While not offering specific tax advice, the organization should make the donor aware of the general requirements for an appraisal, Form 8283, and provide the donor with a proper written acknowledgement of the gift. As a refresher, the acknowledgement should include the following information:

• The name and address of the donee organization
• The date of the donation
• A description of the donated property
• State whether any goods or services were provided in exchange for the donation
• A description and good faith estimate of the value of any goods or services provided in exchange for the donation

The charitable organization may also be required to file Form 8282, Donee Information Return, with the IRS. This form is required to be filed if the organization sells or exchanges the cryptocurrency within three years after receiving the donation. The form should be filed within 125 days of selling the property.

Final Thoughts

In my opinion, the requirement to obtain a qualified written appraisal for large donations of cryptocurrency is burdensome to the taxpayer if the market value is readily available on a crypto exchange. The Internal Revenue Code and Regulations should be updated to provide the same exception to cryptocurrency that is given to publicly traded securities. Until then, the donor must follow the rules to ensure that the donation will be upheld if challenged by the IRS.

For more information, contact Larson & Company today.