After 5 years of the issuance of Notice 2014-21, in October 2019, IRS issued 43 Q&As further explaining the items covered on the original notice. Without any big buzz, during the last week of December, the IRS added Q35 and Q36 to the original list of 43 Q&As. These two additional questions are labeled as “(12/2019)” as you can see in the snippet below.
More Clarity For Donees
These 2 new questions talk about responsibilities of a charitable organization when accepting cryptocurrencies as donations. This is a timely question to provide more guidance on as the number of charities accepting some sort of cryptocurrency has steadily been increasing. If a charitable organization receives a cryptocurrency as a donation and the value is more than $5,000, it will have an obligation to sign the Part IV of Form 8283 acknowledging the receipt. The signed Form 8283 will be filed by the donor with their income tax return. This will serve as evidence of sending a donation to the charity. However, the signed Form 8283 will not be sufficient to substantiate the value of the donation. In order to prove the value of the donation and the resulting deduction, taxpayers still have to get it appraised by a qualified appraiser.
Donor Rules Are Untouched
Original 43 Q&As, specifically, A33 & A34 address donors’ side of taxation related to crypto donations. Since cryptocurrencies are treated as “property” per Notice 2014-21, general rules applicable to non-cash donations are applied here. There could be 2 scenarios: donating crypto assets which you held for less than a year or donating crypto assets which you held for more than a year. In the first case, you will get a deduction equivalent to the lesser of cost basis or fair market value (FMV) at the date of donation. In the latter case, you will get a deduction equivalent to the FMV of the asset at the date of donation. During 2019, if you donated crypto to any charity, those amounts will go on Schedule A, and you will have to check “yes” for the crypto question on Schedule 1 because donations fall under the “send” category.
It’s somewhat interesting to see that the IRS adding these 2 new questions on crypto donations without any public notification. You would not have noticed this unless you are constantly looking for new developments in the crypto tax space, like me. This shows that the IRS is also looking at donors’ side of taxation and substantiation requirements. On a side note, this is good news for charities because IRS acknowledgement of crypto donations can open up a new source of funding.
Disclaimer: this post is informational only and is not intended as tax advice. For tax advice, please consult a tax professional.