Several years ago, when cryptocurrency was still a novel concept, many not-for-profits chose not to accept crypto donations. Now, crypto is so ubiquitous that it’s difficult — and probably a mistake — to refuse it. Yet crypto remains a risky and even unstable form of currency. Here are a few things to think about when accepting these donations.

The basics

Cryptocurrency 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 their scarcity. In the case of Bitcoin, for example, the supply is limited to 21 million “coins.”

One of the most significant risks related to cryptocurrencies is their price volatility. Although Bitcoin has enjoyed periods of lower price volatility than even the S&P 500 index, it’s also capable of shifting in value more than 10% in a single day. Imagine a donation that drops that much in value within hours of receipt. Cryptocurrency prices can also shoot up rapidly.

Big price gains is one reason some owners choose to donate crypto holdings to charity — to avoid capital gains tax on the appreciation. But there are other benefits. Most traditional electronic donation apps charge transaction fees, but donors can avoid them by gifting crypto. The result: More money is available to serve your mission. Also, using the blockchain makes record-keeping easy, and without the hassle of currency exchange, global donors may be more likely to give to your nonprofit.

Containing risks

Given crypto’s price volatility, you need to contain the risks of accepting it. One way is through a third-party facilitator, such as The Giving Block, Engiven or Bitpay. These platforms allow nonprofits to convert crypto donations into dollars — before their value can fall. However, they typically charge a small fee, similar to credit card transaction fees.

If, on the other hand, 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. Be sure to implement internal controls and security measures to secure your keys and wallets if you go this route.

IRS requirements

When it comes to reporting, the IRS says nonprofits should treat crypto donations as noncash contributions on Form 990. You must 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’re required to 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.

Most benefit

When it comes to accepting crypto, don’t sit on the fence. Most nonprofits benefit when they accept donations in whatever form supporters want to contribute. However, you’ll need to establish crypto gift acceptance policies and vet any facilitator or service you want to work with. Contact us for help.

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