Cryptocurrency has gone mainstream, and if you’ve been sitting on the fence about accepting donations in virtual currency, it’s time to make a decision. But before your not-for-profit says “yes” to a Bitcoin (or other cryptocurrency) gift, make sure you understand the issues involved — including the risks.
Third-party facilitators can help
Given such price volatility, you need to decide whether your nonprofit can assume the risks. One way to manage them is to accept cryptocurrency through a third-party facilitator, such as The Giving Block, BitPay or Engiven. These platforms allow nonprofits to almost immediately convert crypto donations into dollars — before their value can fall.
Facilitators typically charge a small fee, similar to credit card transaction fees. Check with your financial institution before signing an agreement with a facilitator, though. Some are wary of transactions involving players in the virtual currency industry.
If, on the other hand, you decide to accept cryptocurrency donations directly, and perhaps benefit from appreciation, you must create a “digital wallet” through a bank or mobile phone app. Wallets store the public and private “keys” required to send and receive coins. And you’ll need to implement internal controls and security measures to secure your keys and wallets.
Your reporting obligations
When it comes to reporting, the IRS says nonprofits should treat these obligations as noncash contributions on Form 990 and, if applicable, Schedule M. You must file Schedule M if you receive more than $25,000 in noncash contributions or contributions of art, historical treasures or similar assets, or qualified conservation contributions.
If you accept cryptocurrency directly and convert it to cash within three years after receipt, you must file Form 8282, Donee Information Return, and give the donor a copy. If the donation is worth more than $5,000, your organization will need to sign the donor’s Form 8283, Noncash Charitable Contributions.
If you haven’t yet been approached by a supporter offering a cryptocurrency contribution, it’s only a matter of time. So prepare now. You’ll need new security and compliance policies and should make a gift acceptance policy addendum. Contact us for more information and help.