We get a lot of questions from our not-for-profit (NFP) clients, and we thought it would be valuable to publish our answers. The focus of this edition is cryptocurrency donations.
Reach out to us if you would like to see a question in a future newsletter.
Question: Can my not-for-profit accept cryptocurrency donations?
Yes, if your organization has chosen to accept cryptocurrency donations. Accepting crypto donations can attract new donors to your not-for-profit.
Question: How do I receive the donations? Do I need to set up a special account?
There are a few options with receiving cryptocurrency donations.
1) The organization can set up its own crypto account, or a “wallet,” that it can internally control,
2) the organization can use a third-party processor to receive, hold and sell crypto on its behalf, or
3) donors can donate through a donor advised fund (DAF) sponsor that will accept crypto.
Option 1 is appropriate for an organization with the staff capacity and the potential for large crypto gifts. This requires setting up an account with a crypto exchange. According to the American Institute of Certified Public Accountants (AICPA), a crypto exchange is a business “that facilitates crypto transactions by allowing customers to trade crypto assets, just like a securities broker, but only for crypto.”
Option 2 is best suited for an organization that wants to be prepared to receive cryptocurrency gifts while devoting little time and effort to it. These third-party processors provide several services, including conversion of the donated crypto to USD and transfer of the sale proceeds to your bank account. Fees for third-party processor services can vary depending on the provider and the size of the transaction but range from 1% to 5% of the transaction total.
Option 3 is arguably the least complex for organizations. The DAF sponsor will liquidate the crypto asset, allowing the donor to contribute the proceeds to your organization.
If choosing option 1 or 2, once your organization’s account is established, you can share your “public address” with donors.
Question: How should I record this transaction?
The Financial Accounting Standards Board (FASB) has not issued cryptocurrency-specific accounting standards; however, the AICPA has provided some guidance on how to account for such assets.
Once the cryptocurrency gift is received, your organization records an asset at fair market value and the related contribution revenue. The fair market value can be obtained from the exchange used to facilitate the transfer of the cryptocurrency. If the asset is not sold, it is considered an intangible asset with an indefinite life. Intangible assets under US GAAP are to be tested for impairment at least annually and cannot be written up in value, even if the market value of the crypto asset increases.
If the asset instead is sold, it should be sold in a timely manner to avoid differences in valuation between the time of gift and time of sale. Once sold, your organization can transfer the cash to the designated bank account, removing the intangible asset from the organization’s books. Any gains or losses from the sale should be recognized separately from other revenue on the statement of activities. This is treatment is similar to that of stock donations that are immediately sold.
Question: Do we need a policy for accepting crypto donations?
Yes. Developing a policy for accepting crypto donations is a best practice and can be added to your current gift acceptance policy. A gift acceptance policy outlines the gift approval process and ensures continuous application of this process even if there is staff turnover. A cryptocurrency gift acceptance policy should consider which types of cryptocurrency assets will be accepted, the use of exchanges, wallets and third-party providers, how to value the gift, the process for gift acknowledgement, and when to liquidate the asset. Accepting cryptocurrency gifts involves risks but having a policy in place helps to mitigate these risks.
Question: Are crypto donations tax deductible for donors?
Yes. Donations of crypto assets to qualified charities are tax deductible for donors.