“Crypto Donations to Charity Falter on Fuzzy Rules, Dip in Value”

How to Accept Bitcoin Donations as a Nonprofit or Charity

From Bloomberg Tax, April 13, 2023

A tiny button in the middle of the donation webpage for Back Bay Baptist Church encourages patrons to make tax-deductible contributions in cryptocurrency. Hardly anyone has used the button in more than a year.

There are good reasons why the button has been largely ignored since late 2021 when the Gulfport, Miss., church became the first congregation in the Southern Baptist Convention to accept Bitcoin, Ethereum, USD Coin, and other virtual currencies. The donation process is complicated. Most churchgoers haven’t even heard of cryptocurrency, and some fear it. One woman told Pastor Adam Bennett that Bitcoin is the “mark of the beast,” a biblical allusion to the antichrist.

Back Bay’s experience is playing out nationally as the current tax filing season comes to a close. Even the most ardent virtual currency advocates and tech-savvy charities concede that very few investors made donations in crypto last year, and anecdotal evidence suggests total donations were at least 30% lower than 2021. The downward trend reflects the reluctance encountered by Back Bay church, confusion over the federal tax rules governing charitable donations of cryptocurrency, and the collapse last year of digital asset values.

“Donations are going to be less common this tax year primarily because of the losses,” said Lisa Zarlenga, a tax partner at Steptoe & Johnson LLP and a former tax legislative counsel at the Department of the Treasury. “Donations are good when you have built-in gains from your crypto, because you wouldn’t have tax on your gain and you get to donate at fair market value.”

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Large charities are treating crypto similarly to other non-cash assets, liquidating the assets immediately, said David Lawson, a partner at Perkins Coie. If the immediate liquidation would have too much of an effect on the market, a nonprofit may liquidate over time. Very few charities will want to hold crypto in a “way that is not consistent with their overall investment strategy for management of their assets,” he said.

The American Cancer Society, which partners with the Giving Block, doesn’t take possession of any crypto donations. The charity instructs the Giving Block to sell the donation “as quickly as possible” and distribute the cash proceeds, Reicin said.

“We want to honor the donor’s intentions,” Reicin said. “That donor intended not to give us a speculative asset but to give us a certain value of resource.”

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