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Receiving a Contribution of Cryptocurrency? Your Donor May Need a Qualified Appraisal

Since the introduction of cryptocurrencies, charities have grappled with the idea of accepting them as a contribution, like receiving a donation of stock.  The growth in crypto popularity has prompted more charities to say “Yes.”  However, if your charity decides to accept such a gift, you may need to obtain an official appraisal.

The IRS Office of Chief Counsel in January 2023 issued Chief Counsel Advice (CCA) 202302012. In that memorandum, the chief counsel affirms that a contribution of cryptocurrency valued at more than $5,000 will need to have a qualified appraisal and instructs IRS staff to disallow any such deduction claimed that does not provide one (according to IRC 170(f)(11)(C)).

However, donated stocks don’t need a qualified appraisal because you can rely on the stock exchange to provide the price quote. So why can’t donated cryptocurrencies use their exchange-provided quotes?

Internal Revenue Code (IRC) 170(f)(11)(C) establishes rules for claiming the charitable contribution deduction for individuals, partnerships, and corporations. This code provides exclusions to the qualified appraisal requirement, including for “readily valued property” such as publicly traded securities. Although cryptocurrency markets and exchanges exist, price quotes from those sources do not carry the same authority as traditional stock market exchanges.  This is because virtual currencies do not meet the definition of a publicly traded security. As defined in IRS section 165(g)(2), a publicly traded security must be a share of stock in a corporation, a right to subscribe for, or to receive, a share of stock in a corporation, or a bond, debenture, note, certificate, or other evidence of indebtedness, issued by a corporation or a government or political subdivision thereof, with interest coupons or in registered form.

CCA 202302012 further advises IRS staff that if taxpayers use the cryptocurrency exchange to determine the value of their donation instead of obtaining the qualified appraisal, they will not be excused from noncompliance under the reasonable cause exception.

The IRS defines a qualified appraisal (and a qualified appraiser) in the instructions for Form 8283. The appraisal must be prepared by a qualified appraiser in accordance with the substance and principles of the Uniform Standards of Professional Appraisal Practice, must meet the relevant requirements of Regulations Section 1.170A-17(a) and (b), and must be signed and dated by a qualified appraiser not earlier than 60 days before the date you contribute the property.

A qualified appraiser is one who meets all the requirements as of the date they sign the appraisal. This includes individuals who have earned a recognized appraiser designation and who regularly prepare appraisals for compensation (refer to “Part IV, Declaration of Appraiser” in the Form 8283 Instructions for the complete list of requirements).

Therefore, if your organization receives a Form 8283 from a donor who is claiming more than $5,000 for their donation of cryptocurrencies, you should confirm that they are aware that the IRS requires a qualified appraisal to be attached when it is filed with the IRS.

This article was written by Windes Nonprofit Tax Services Senior Manager Aaron Phillips.

Aaron Phillips, CPA
Audit & Assurance Services Manager



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