Even if you are not invested in cryptocurrency or understand the technology behind it, you may have noticed a growing number of crypto companies advertising in entertainment & media in the past few years. The presence of crypto in the modern economy grows with each day that passes. From digital currencies such as Bitcoin to Non-Fungible Tokens (NFTs), people are looking to diversify investments digitally. Ever since cryptocurrency emerged into the public consciousness, regulation of the industry has been playing “catch-up” to the fast-paced, volatile nature of the industry. The IRS has recently issued a chief counsel memorandum that outlines the requirements for cryptocurrency donation appraisals over $5,000.

How Crypto is Classified for Donations

While many supporters of cryptocurrency invest because they believe in a digital future for legal tender, it is important to remember that cryptocurrency is not a substitute for cash. The government classifies cryptocurrency as property in the context of donations as well as for tax purposes. Therefore, cryptocurrency donors recognize no income, gain, or loss from the contribution. Because of this classification as property, the value of donations can vary depending on factors such as the amount of time the cryptocurrency is held, the donor’s basis, the Fair Market Value of the cryptocurrency, and more. The charity may need to take actions upon receiving the noncash charitable contribution – such as filing a Form 8283 or getting an appraisal – depending on the dollar value of the contribution. As previously stated, appraisals are required for donations valued over $5,000. Cryptocurrency is not exempt from appraisal requirements like other forms of property outlined in the Internal Revenue Code such as cash, stock in trade, inventory, certain vehicles, and more.

Who is Qualified to be an Appraiser?

Meeting the standards set by the IRS means getting a “qualified appraiser”. So, what does it mean to be a qualified appraiser? There are several key points of criteria:

1. Has earned an appraisal designation from a recognized professional appraiser organization or has otherwise met the minimum education and experience requirements.
2. Regularly performs appraisals for compensation.
3. Can demonstrate verifiable education and experience in valuing the type of property subject to the appraisal.
4. Has not been prohibited from practicing before the IRS at any time during the last three years preceding the appraisal.
5. Meets other requirements as may be prescribed by the IRS in the regulations or other guidance.
6. The appraiser may not include:
   1. The donor.
   2. The donee.
   3. A party to the transaction in which the donor acquired the property.
   4. A person who is employed by or related to any of the persons indicated in items I – III.
   5. Someone who does not perform most of their appraisals for persons other than the donor during the tax year.

What Does a Qualified Appraisal Include?

The appraisal for cryptocurrency property intended for donation must include:

1. A description of the property.
2. The date (or expected date) of the contribution.
3. The terms of any agreement or understanding between the donor and the charity regarding restrictions
   on use (or sale) or the retention of a right to income by the donor or other third party.
4. A statement that the appraisal was prepared for income tax purposes.
5. The date the property was appraised.
6. The appraised FMV of the property on the date of contribution.
7.  The method of valuation used to determine FMV and the specific basis for valuation.
8. Identifying information of the appraiser and their employer, partnership, or contractor (i.e., name,
   address, and EIN) and qualifications of the appraiser.
9. The signature of the appraiser and the date signed.

The appraisal must include a completed Form 8283, Section B, Part IV. Additionally, it must fall between the time frame of 60 days prior to the donation and the extended due date for the return claiming the deduction.

Sources & Further Reading

• CNBC – “Crypto Donations to Charity are Booming. What to Know Before Making a Year-End Gift.“
• Internal Revenue Code – “§ 1.170A-17 Qualified appraisal and qualified appraiser.“