Crypto donations to nonprofits are on the rise as younger, charitable generations invest in this new asset class and learn about the potential tax savings they can see from donating crypto to charity over cash. One in three crypto owners have donated crypto assets to charity, with more than half donating over $1,000.
If your organization has embraced the opportunity to tap into this new way of giving and is prepared to join the growing number of nonprofits accepting cryptocurrency donations, you may need to define and implement a policy — internally and with your donors — for how you’ll accept and liquidate these gifts.
Make accepting crypto donations easy
Ready for some great news? You may not need to update your gift acceptance policy at all. Crypto with FreeWill is set up so that 501(c)(3) organizations don’t need their own wallet or exchange to benefit from crypto philanthropy. The intermediary accepts and liquidates the crypto and then sends USD (the net cash proceeds) on to your nonprofit. Since you’re not actually managing the crypto transaction (the third-party is), then all you are doing is accepting the liquidated cash — and you should already have policies in place for receiving cash gifts.
In this instance, you could simply display the following paragraph on your crypto donation page:
“Cryptocurrency donations are processed by the FreeWill Impact Fund, and the net proceeds are promptly sold and transferred to [NONPROFIT NAME] in U.S. dollars. We do not maintain a reserve of cryptocurrency, therefore all crypto donations to [NONPROFIT NAME] are final.”If your organization has decided to set up its own crypto wallet to accept crypto donations directly, then you will likely need to update your gift acceptance policy accordingly.
What is a gift acceptance policy?
Gift acceptance policies make it clear what types of gifts your nonprofit accepts, and the important details relevant to accepting those gifts.
A gift acceptance policy serves a dual function: it sets expectations for donors and provides guidance to staff who solicit, accept, and field questions about donations. Having a current and well-defined gift acceptance policy in place is considered a best practice for many reasons, including fostering good donor relations and managing your nonprofit’s own risks.
When updating your gift acceptance policy to add cryptocurrency, there are six key things you should do:
1. Define cryptocurrency
State clearly that you accept cryptocurrency and briefly define what that is. You may want to use a broad definition like “digital or virtual currency” or get more detailed, and specify types of coins. You can also opt to leave room for some interpretation by calling out “commonly-traded crypto, including Bitcoin, Ethereum, Litecoin, and more.”
An important part of your overview should include that, for certain tax purposes, the IRS defines cryptocurrency as property and, as a result, cryptocurrency is subject to the same rules as non-cash charitable gifts. This affects how crypto is taxed, and the reporting requirements that go along with gifting crypto for your organization and your donors.
2. Outline the approval process
Some gift types, like real estate, are closely reviewed by the nonprofit before acceptance because of possible inherent risk (e.g., property subject to environmental hazards). Cryptocurrency gifts are sometimes subject to a review process as well. If you go this route, you can specify if the review is conducted by a gift acceptance committee (typically composed of board members, leadership, legal counsel, and/or fundraising professionals) or an individual.
Implementing a gift review process may be helpful if you’d like the option to refuse a gift for any reason. If anyone in your organization has voiced concerns about crypto, this may help address some of those fears.
3. Determine how and when the crypto donation will be liquidated
Most nonprofits choose to liquidate gifts like stock and crypto immediately into cash since the value of the non-cash gift could otherwise change from minute-to-minute. This is even more true with most cryptocurrencies because their values have historically been volatile. The least risky way to handle these donations is by selling the crypto immediately after receiving it. This prevents discrepancies between the amount donated and the amount actually received by and available to the nonprofit.
Holding crypto long-term is generally only a viable option for nonprofit organizations with a robust fundraising program or a strong interest in promoting cryptocurrency (and the financial wherewithal to invest in doing so, such as dedicated training for their staff). If your organization wants the option to hold on to crypto, that should be expressly stated in your gift acceptance policy as well. If you decide to hold on to crypto, your nonprofit should consider the volatility of the assets and set policies around when to liquidate.
To factor in some flexibility, some organizations elect to use language specifying that donations will be liquidated immediately unless other instructions are communicated by the donor.
Transparency in terms of liquidation is important, especially if a crypto owner wants to donate as a way to promote crypto. It’s a good idea to put this understanding in writing and upfront. Some crypto owners are invested in crypto as a social movement that challenges the current financial system, and specifically donate to organizations that hold it to promote this idea as well. By specifying that crypto will be liquidated immediately, you transparently set expectations for your crypto donors.
Whether you liquidate or hold, your policy should note that crypto donations are non-refundable. This may be an overarching policy for all the donations your organization accepts, but it doesn’t hurt to call out a no refund policy for cryptocurrency specifically. Because the value of cryptocurrency can be volatile, refunds could get especially complicated.
As mentioned above, using third-party payment processors makes it easy to accept crypto donations, and receive the liquidated funds. It’s a similar concept to funding and gifting from a donor-advised fund, such as Fidelity Charitable.
4. Explain how the value of crypto donations is established for tax deduction purposes
If you liquidate donated crypto immediately, your donors can claim tax deductions for less than $5,000 by citing the price at which the gift was liquidated. For deductions above that amount, however, the IRS requires donors to obtain an independent appraisal of the donated crypto. This is because the IRS does not currently consider cryptocurrency exchange markets to be as reliable for determining asset value as securities exchange markets.
Your policy should therefore note that if the donor is claiming a deduction for gifts valued above $5,000, an independent appraisal is required in order to substantiate the value of the donated assets. Be sure to specify who bears the cost of the crypto donation appraisal.
Many nonprofits elect to have the donor bear responsibility to secure and pay for the appraisal for income tax reporting purposes, if one is required. Your policy can also note that the nonprofit has the discretion to secure and pay for the appraisal, or reimburse the donor for the cost of the appraisal.
5. Encourage the donor to seek independent financial and tax advice
When it comes to crypto donation tax considerations, you may want to suggest that the donor seek advice from their accountant or tax advisor. As a nonprofit, you don’t want to imply that you’re giving tax or financial advice.
That being said, it may be helpful to include some general tax information in your gift acceptance policy. If you use a third-party payment processor and intermediary nonprofit to accept crypto gifts, specify that and note that tax receipts will come from the intermediary 501(c)3.
While a crypto gift can sometimes feel no different than a gift of publicly-traded stock, there are differences when it comes to tax reporting. This is in some part because of how the IRS defines “charitable deduction property.” The way they define it along with other factors, can trigger additional reporting responsibilities.
For example, to claim a tax deduction for amounts greater than $500, a donor will need to complete IRS Form 8283 along with their tax return for the year in which their gift was made to substantiate the amount of the gift. When a charity receives a non-cash contribution valued over $5,000, the nonprofit also has to sign the form to acknowledge receipt of the property.
Your gift acceptance policy can also include tax information for your nonprofit organization. IRS Form 990 asks whether a nonprofit has a gift acceptance policy and, if so, your nonprofit must complete Schedule M if you receive more than $25,000 in non-cash contributions. This would not apply to your crypto donations if they were liquidated and given as cash by a third-party.
If your organization accepts crypto directly and liquidates it within three years after receipt, IRS Form 8282 generally must be completed and filed with the IRS, with a copy provided to the donor.
When it comes to these tax forms, FreeWill’s intermediary nonprofit, FreeWill Impact Fund, takes care of most of the leg work, making accepting crypto much easier.
6. Establish donor information requirements
Another consideration is whether you want to require that all donors identify themselves when making a crypto donation. Depending on how you process these donations you may already have a form that asks for the donor’s contact information before they make their gift. This can be a contentious point, as some crypto owners like the anonymity that crypto allows. You may also already accept anonymous donations of different types.
Sample gift acceptance policy language for crypto gifts
Making the updates above will help manage your donor’s expectations and provide financial transparency. If you haven't already done so, consider posting your gift acceptance policy on your website. At a minimum, you should include information about crypto liquidation on your crypto donation page.
Cryptocurrency is treated by the IRS as property. All cryptocurrency gifts will be reviewed and accepted upon approval from the Gift Acceptance Committee.
Cryptocurrency gifts of $5,000 or more will require a qualified third-party appraisal for the donor to take a charitable tax deduction and this cost will be borne by the donor.
As gifts, cryptocurrency, which can be highly volatile, will be converted to U.S. Dollars as quickly as administratively possible when the gift is received.
A charitable gift of cryptocurrency is only complete once the currency has been successfully paid to and accepted by [NONPROFIT NAME] designated currency processor, [PROCESSOR NAME].
Upon payment/acceptance, [NONPROFIT NAME] will provide the donor with a gift acknowledgement or receipt that substantiates the receipt of the cryptocurrency as a charitable gift. Similar to non-marketable securities, the acknowledgement may not contain a value of the gift. Gift receipting is like personal property, stating the name and number of cryptocurrency coins donated, the date of receipt, and the fund or account benefiting from the gift.
Once your gift acceptance policy is updated, be sure to take the time to go over it with your staff. Anyone who speaks to donors or potential donors should have a basic understanding of what crypto is, and how it can be donated to your organization. You’ll likely need to develop other policies and procedures around accepting crypto, just as you have for other types of gifts.
Want to avoid all these steps? Crypto with FreeWill makes it easy for nonprofits to solicit crypto donations, receive the gifts entirely as cash, and hand off the majority of the tax form burdens.