The Internal Revenue Service recently updated its guidance onvirtual currency transactions, adding questions and answers to itswebsite FAQ page about how donors and recipientorganizations should deal with charitable donations of virtualcurrency. The additional guidance was first reported Jan. 1 on theCurrent Federal Tax Developments website.

In December, the IRS addressed a charity's responsibilities uponreceiving virtual currency as a contribution in questions 35 and36.

What are the nonprofit organization's donor acknowledgmentresponsibilities? First, the IRS said a charity can assist thedonor by providing written acknowledgment immediately upon receiptof the contribution, which the donor must obtain if he or sheclaims a deduction of $250 or more for the virtual currencydonation. It said the charity is generally required to sign thedonor's Form 8283, Noncash Charitable Contributions,which acknowledges receipt of charitable deduction property, if thedonor is claiming $5,000 or more as a deduction and if he or shepresents Form 8283 to the charity for signature to substantiate thetax deduction.

The IRS notes that the charity's signature does not representagreement with the appraised value of the contribution, but onlyacknowledgement of receipt of the property described in the form onthe date specified and an understanding of the informationreporting requirement imposed by section 6050L on dispositions ofthe donated property.

The charity has responsibilities for its own reporting to theIRS receipt of a virtual currency donation, as well. The IRS says anonprofit that receives a virtual currency donation should treat itas a noncash contribution. The organization then has theseresponsibilities:

• Report noncash contributions on a Form 990-series annual return and itsassociated Schedule M, if applicable.
• File Form 8282, Donee Information Return, if thecharity sells, exchanges, or otherwise disposes of any portion ofthe charitable deduction property within three years after the dateit first received the property. The original donor should receive acopy of the form.

Donor Questions

The Current Federal Tax Developments (CFTD) report noted thatthe IRS's FAQ had already covered virtual currency donations fromthe donor's perspective in questions 33 and 34.

One question had to do with whether the virtual currency donorhad to recognize income because of having disposed of the virtualcurrency by donating it. No, the IRS said, the donor would notrecognize income gain or loss from the donation. CFTD said this wasconsistent with the agency's view that cryptocurrency is a capitalasset in the hands of the taxpayer. It does not consider a donationof the asset to be a sale or exchange of the asset.

The second question asked how the donor should calculate thecharitable contribution deduction after a contribution of virtualcurrency. The IRS said the deduction is generally equal to the fairmarket value of the currency at the time of donation if it has beenheld for more than one year. If held for a year or less at the timedonation, the deduction is worth the lesser of the donor's basis inthe virtual currency or the currency's fair market value at thetime of contribution.

From: ThinkAdvisor