Are You Prepared to Accept Bitcoin Donations?

Virtual currency can be given to your church without donors paying taxes on gains realized.

Virtual currency (sometimes called “cryptocurrency”) is a big new thing, and lots of people are getting into it. And that makes virtual currency very relevant for churches and nonprofit organizations.

But what is it?

Wikipedia defines “cryptocurrency” as a “digital asset designed to work as a medium of exchange wherein individual coin ownership records are stored in a ledger existing in the form of a computerized database using strong cryptography to secure transaction records, to control the creation of additional coins, and to verify the transfer of coin ownership.”

Bitcoin, created in 2009, was the first significant virtual currency. In addition to Bitcoin, a few of the more highly recognized and used virtual currencies are Bitcoin Cash, Ethereum, and Litecoin.

Virtual currencies have experienced major swings in value. Church leaders should be cautious, given the volatility. Whether virtual currency values will increase dramatically or drop like a rock is anyone’s guess.

Virtual currencies have generally increased dramatically in value since their inception. For example, Bitcoin sold for $266.15 per unit on January 11, 2015. In January of 2021, it sold for nearly $42,000 per unit, and in the fall of 2021, it was selling for more than $50,000 per unit. But by May of 2022, values plummeted by half and traded closer to $25,000 per unit.

Why is cryptocurrency relevant to the Church and other nonprofits?

The main reason virtual currencies are relevant for churches and other nonprofits is that everyday people have invested in them, and at least for now, many investors have experienced significant gains in the value of their holdings. Some investors will want to donate a portion of their appreciated virtual currency holdings to churches without having to sell them first and pay taxes on the gains realized.

The Internal Revenue Service (IRS) considers virtual currencies to be noncash property. So, if a taxpayer buys units of virtual currency and later sells them at a gain, the taxpayer will be subject to tax on the gain—pursuant to the rules for taxing capital gains.

But if a taxpayer donates the appreciated virtual currency directly to a qualified charity, he or she will not be taxed on the appreciation in value. And neither will the charity! That is because capital gains of 501(c)(3) public charities (which include churches) are not typically subject to federal income tax.

The amount deductible by the donor will vary depending on the facts, but if the donor held the virtual currency for more than a year prior to donating it, he or she may be entitled to a deduction of the full fair market value of the virtual currency contributed, with no tax on the gain!

Charitable recipients should acknowledge a gift of virtual currency in the same manner as any other noncash gift. The acknowledgment to the donor, in addition to containing other required information, should describe the gift (e.g., 3 Bitcoin units), the date of the gift—but not the value of the gift—and a statement that no goods or services were provided in exchange for the contribution (assuming that is true). If your church provides goods or services in exchange for the contribution, you need to comply with the special rules for quid pro quo contributions.

Since the IRS considers virtual currency to be noncash property, donors will need to work with their tax advisers to ensure compliance with the deduction requirements. The requirements, which vary based on the value of the gift, could include filing Form 8283 with their tax return, asking the donee church to sign Form 8283 acknowledging receipt of the gift, and potentially obtaining an appraisal of the value of the gift.

Note that when a church signs a donor’s Form 8283 acknowledging receipt of a noncash gift, the church should still provide the donor with a separate acknowledgment containing the information described above.

Also, if your church is asked to sign a Form 8283 in connection with a gift of virtual currency, and you convert the virtual currency to dollars within three years of receiving it (most organizations will do so immediately), you will be required to file a Form 8282 within 125 days of converting it to dollars.

Prepping for virtual currency donations

The first step for churches to accept virtual currency donations is to open an account (a virtual “wallet”) to accept contributions. Church staff or consultants that are skilled in both technology and finance/accounting should set up the account together because it will involve a number of steps and security protocols. Then test the account to make sure it works as intended.

Research will be needed to select a company that is both safe and the best fit for your church, taking into consideration the types of virtual currencies it accepts. One well-known company is Coinbase (not an endorsement), which offers accounts that accept Bitcoin, Bitcoin Cash, Ethereum, Litecoin, and others. An alternative would be to work with a community foundation, donor advised fund sponsoring organization, or similar organization to accept contributions of virtual currencies from donors and transfer the funds (once converted to dollars) to the church.

When your account is set up, let your donors know you are open and ready to accept contributions of virtual currencies.

This article is adapted from the article “Granny Is Still Investing in Bitcoin,” which originally appeared in BMWL’s Nonprofit Special Alert. Used with permission.

Michael (Mike) E. Batts is a CPA and the managing partner of Batts Morrison Wales & Lee, P.A., an accounting firm dedicated exclusively to serving nonprofit organizations across the United States.

This content is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. "From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations." Due to the nature of the U.S. legal system, laws and regulations constantly change. The editors encourage readers to carefully search the site for all content related to the topic of interest and consult qualified local counsel to verify the status of specific statutes, laws, regulations, and precedential court holdings.

ajax-loader-largecaret-downcloseHamburger Menuicon_amazonApple PodcastsBio Iconicon_cards_grid_caretChild Abuse Reporting Laws by State IconChurchSalary Iconicon_facebookGoogle Podcastsicon_instagramLegal Library IconLegal Library Iconicon_linkedinLock IconMegaphone IconOnline Learning IconPodcast IconRecent Legal Developments IconRecommended Reading IconRSS IconSubmiticon_select-arrowSpotify IconAlaska State MapAlabama State MapArkansas State MapArizona State MapCalifornia State MapColorado State MapConnecticut State MapWashington DC State MapDelaware State MapFederal MapFlorida State MapGeorgia State MapHawaii State MapIowa State MapIdaho State MapIllinois State MapIndiana State MapKansas State MapKentucky State MapLouisiana State MapMassachusetts State MapMaryland State MapMaine State MapMichigan State MapMinnesota State MapMissouri State MapMississippi State MapMontana State MapMulti State MapNorth Carolina State MapNorth Dakota State MapNebraska State MapNew Hampshire State MapNew Jersey State MapNew Mexico IconNevada State MapNew York State MapOhio State MapOklahoma State MapOregon State MapPennsylvania State MapRhode Island State MapSouth Carolina State MapSouth Dakota State MapTennessee State MapTexas State MapUtah State MapVirginia State MapVermont State MapWashington State MapWisconsin State MapWest Virginia State MapWyoming State IconShopping Cart IconTax Calendar Iconicon_twitteryoutubepauseplay