Updated IRS FAQs Require Appraisals for Charitable Donations of Virtual Currencies
In December of 2019, the Internal Revenue Service (IRS) added two new “Frequently Asked Questions” (FAQs) on its webpage regarding the responsibilities and reporting obligations for charitable organizations that received donations in the form of virtual currencies.1 One of these FAQs imposes an appraisal requirement for large donations of virtual currencies-increasing already existing concerns that such a requirement will discourage charitable giving.
On the IRS FAQ webpage, Q35 asks: “[w]hen my charitable organization accepts virtual currency donations, what are my donor acknowledgment responsibilities?”2 The IRS answers in A.35, as follows:
A charitable organization can assist a donor by providing the contemporaneous written acknowledgment that the donor must obtain if claiming a deduction of $250 or more for the virtual currency donation. See Publication 1771, Charitable Contributions Substantiation and Disclosure Requirements (PDF), for more information.
A charitable organization is generally required to sign the donor’s Form 8283, Noncash Charitable Contributions, acknowledging receipt of charitable deduction property if the donor is claiming a deduction of more than $5,000 and if the donor presents the Form 8283 to the organization for a signature to substantiate the tax deduction. The signature of the donee on Form 8283 does not represent concurrence in the appraised value of the contributed property. The signature represents an acknowledgement of receipt of the property described in Form 8283 on the date specified and that the donee understands the information reporting requirements imposed by section 6050L on dispositions of the donated property (see discussion of Form 8282 in FAQ 36). See Form 8283 instructions for more information. (12/2019)3
In other words, if a donor purports to make a virtual currency donation exceeding $5,000, the donor will need to have that amount verified by a qualified appraiser. However, finding IRS approved virtual currency appraisers may not be easy or even possible just yet. And the cost of having appraisals done may further discourage donors.
While the IRS maintains that virtual currency is “property” for tax purposes, and “property” is subject to the appraisal requirement, many professionals and taxpayers argue that virtual currency is more akin to stock than to a piece of artwork, for example.
As the FAQs read now, there is a real risk that donors will be deterred from making charitable donations of their virtual currencies. Since much remains uncertain, especially since the IRS has not provided any guidance at this point regarding who is considered a qualified appraiser for virtual currency purposes, individuals should consult with a tax professional if they are considering making a charitable donation of their virtual currencies.
If you have questions or concerns regarding virtual currencies, contact Frost Law today at 202-618-1873.