Virtual currency (also known as cryptocurrency) is gaining popularity—and that makes it increasingly relevant for churches and nonprofit organizations.
What Is Virtual Currency?
The term “cryptocurrency” refers to a digital asset used as a medium of exchange. These currencies:
- Exist in digital form only.
- Use strong cryptography to secure transactions.
- Operate on decentralized ledgers (blockchains).
- Allow users to verify ownership and transfer assets securely.
Bitcoin, created in 2009, was the first major virtual currency. Other well-known options include:
- Bitcoin Cash
- Ethereum
- Litecoin
Why It Matters to Churches and Nonprofits
Many people have invested in virtual currencies—and some have made significant gains. Some donors now want to contribute a portion of their holdings directly to churches or nonprofits.
Here’s why that matters:
- Donors can give appreciated virtual currency without selling it first.
- This helps them avoid capital gains tax.
- The church receives the full value of the donation—tax-free.
The IRS treats virtual currency as noncash property, which means the same tax rules apply as with gifts of stock or real estate.
Example: Bitcoin’s Value Swings
Cryptocurrency values can be volatile. For example:
- In January 2015, Bitcoin traded at $266 per unit.
- By January 2021, it reached nearly $42,000.
- In fall 2021, it climbed to over $50,000.
- By May 2022, it dropped to around $25,000.
This volatility means churches should be cautious when handling large gifts of virtual currency.
Tax Benefits for Donors
If a donor holds virtual currency for more than a year and donates it:
- They may deduct the full fair market value of the donation.
- They won’t pay tax on the appreciated value.
- The church, as a 501(c)(3) public charity, won’t pay tax either.
How to Acknowledge Cryptocurrency Gifts
Treat virtual currency like any other noncash donation. Your acknowledgment should include:
- A description of the gift (e.g., “3 Bitcoin units”).
- The date of the gift.
- A statement that no goods or services were provided (if applicable).
⚠️ Do not include the dollar value of the gift in your acknowledgment.
If goods or services were provided in exchange, you must follow quid pro quo reporting rules.
IRS Compliance Steps for Donors and Churches
Because cryptocurrency is noncash property, donors and churches must follow IRS rules, which may include:
For donors:
- Filing Form 8283 with their tax return.
- Obtaining a qualified appraisal (for gifts over $5,000).
- Asking the church to sign Form 8283.
For churches:
- Signing Form 8283 only to confirm receipt.
- Issuing a separate acknowledgment letter to the donor.
- Filing Form 8282 within 125 days if the currency is converted to cash within 3 years.
Most churches will convert virtual currency to dollars soon after receiving it.
How to Accept Virtual Currency Donations
To accept these gifts, your church needs to:
- Open a digital wallet (a secure account for receiving cryptocurrency).
- Involve staff or consultants with both tech and finance expertise.
- Follow necessary security protocols and test the system before going live.
Choosing the Right Platform
Research platforms carefully. Consider:
- Security features.
- Supported cryptocurrencies.
- Ease of use.
Example:
Coinbase (not an endorsement) allows churches to receive Bitcoin, Ethereum, Litecoin, and more.
Alternatively, you can partner with:
- A community foundation
- A donor-advised fund sponsor
- Another third party that converts crypto to cash and transfers it to your church
Let Donors Know You’re Ready
Once your system is set up:
- Publicize your ability to accept virtual currency.
- Share instructions with interested donors.
- Make the process as easy and secure as possible.
This article is adapted from the article “Granny Is Still Investing in Bitcoin,” which originally appeared in BMWL’s Nonprofit Special Alert. It is used with permission and has since been updated to improve readability.
