By Mary Margaret Sword, CPA, Business Assurance & Advisory Services Senior Manager
How a cryptocurrency policy can ensure compliance with ASU 2023-08
Has your nonprofit received a donation of cryptocurrency? With cryptocurrencies becoming mainstream, more and more nonprofits are encountering cryptocurrency in their fundraising efforts. And while cryptocurrency donations can be attractive due to potential for appreciation and ease for savvy, tech driven donors, cryptocurrencies can also come with volatility risks and regulations. Having a clear policy on cryptocurrency helps mitigate risks while maximizing benefits. Whether you are currently exploring potential donations of cryptocurrency or have not yet considered cryptocurrencies role in your organization, it’s prudent to develop a cryptocurrency policy so that you are prepared when an opportunity arises.
Key components to include in your nonprofit cryptocurrency policy
Acceptance: Clearly outline what cryptocurrencies will be accepted and under what conditions (i.e. directly from donors, through a third-party platform that can instantly convert crypto, etc.)
Valuation: As the IRS treats cryptocurrency as property, the fair market value of the donation must be established at the time of receipt. Include how the fair market value will be determined for gift acknowledgment purposes and to record initial value and any subsequent gains/losses upon sale. In addition, methodologies should be determined for cost basis to aid with tracking of gains losses and disclosures under ASU 2023-08, Subtopic 350-60 [link].
Conversion: Document if donations will be immediately converted to cash or will be held by the nonprofit. Immediate conversion is defined as a short period of time such as a few hours or days. Conversion to cash has been the choice for most nonprofits as quick conversion mitigates volatility risks. Further, for any cryptocurrency donations not immediately converted, there are additional disclosures under ASU 2023-08, Subtopic 350-60 (effective for fiscal years starting after December 15, 2024). If your nonprofit chooses to hold donations, ensure security around custody is considered.
Additional cryptocurrency policy insights: Approval and communication
- It is important that your organization’s cryptocurrency policy be approved by those who approve other investment policies such as the Finance Committee or Board of Directors.
- This policy should also be communicated to anyone involved in fundraising/development, as well as accounting/finance, so that potential donations are not missed, donations are being accepted in accordance with the nonprofit’s policies, and any cryptocurrency transactions are accounted for properly and in accordance with the nonprofit’s policies.
Your Keiter nonprofit team is closely monitoring new and changing regulations regarding cryptocurrency. Questions specific to your organization’s digital asset donations? Contact your Keiter Opportunity Advisor.
About the Author
Mary Margaret Sword, CPA, Business Assurance & Advisory Services Senior Manager
Mary Margaret performs numerous audits of broker-dealers, real-estate investment funds, alternative investment funds, and other financial institutions. She possesses an understanding of PCAOB, FINRA, and other regulations as they relate to the financial services industry, and in particular, broker-dealers. She also has performed custody examinations for clients in compliance with Rule 206(4)-2 and Rule 204-2(b) of the Investment Advisors Act of 1940.
More Insights from Mary Margaret SwordThe information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.
