By Colin M. Hannifin, CPA, Business Assurance & Advisory Services Senior Manager
Article 3 in a 3 part series
Nonprofit Accounting Considerations for Digital Asset Donations
As cryptocurrency and other digital assets have soared in popularity, many not-for-profit organizations have started considering whether to accept donations of digital assets. However, before formally accepting the first donation of digital assets, management of not-for-profit organizations should familiarize themselves with the nature of digital assets and the complexities of accounting for digital assets.
It should be noted that there is no current authoritative guidance specifically for the accounting of digital assets, though the Financial Accounting Standards Board (FASB) is prioritizing the development of guidance. The IRS has issued some guidance around the treatment of digital assets; and important distinction to remember is that the IRS considers digital assets property, not currency.
Treatment Upon Receipt
Appropriate treatment of a contribution of digital assets depends on how the organization elects to receive the digital assets: setting up their own wallet or through a donation platform.
Use of an Organizational Crypto Wallet
Organizations may choose to set up a wallet manually, though this can be a daunting and intensive process for someone without experience with cryptocurrencies. An organization could instead opt to set up a wallet through an exchange, though it still requires manual liquidation of a donation and there have recently been questions about who owns the digital assets on exchanges.
For not-for-profits that do accept digital assets directly, because the IRS treats digital assets as property, the organization should record an in in-kind contribution at fair value upon receipt of a donation of digital assets. This is also consistent with treatment for financial reporting purposes, where guidance suggests that digital assets will most often be treated as an indefinite-lived intangible asset.
Organizations that elect to accept donations of digital assets should develop a policy for the treatment of digital assets after receipt, like policies for the treatment of stock donations. The market for digital assets can be more volatile than the stock market; it’s generally recommended for organizations to liquidate donations of cryptocurrency immediately. Immediate liquidation assures that the organization can use the value of the donation towards its mission and not be concerned about the volatility of the market.
Use of a Digital Asset Donation Platform
Alternatively, organizations may find it easier to enlist with a digital asset donation platform, which receives the donation, liquidates the donation, then remits to the organization the funds received from the sale of the asset. In this instance, the not-for-profit should record the contribution consistent with its treatment of cash donations.
The Case for Donating Crypto
A not-for-profit organization may wonder why it should consider accepting donations of digital assets. As digital assets continue to grow in popularity and general acceptance, accepting donations of digital assets can open a new avenue for contribution growth for organizations. Individuals donating digital assets may be able to avoid capital gains taxes while also maximizing their charitable contributions deduction – many of the same considerations when considering donations of stock.
Other Considerations
Before beginning to accept contributions of digital assets, organizations should formally update their policies and communicate the change to potential donors. Organizations should also be aware that the acceptance of digital assets may result in additional reporting for the donor, consistent with the treatment of contributions of property. Some digital asset donation platforms may handle those additional reporting requirements.
Digital assets have shown considerable staying power and the market for digital assets seems poised to continue to grow and become integrated more into daily life. Choosing to accept donations of digital assets can enable a not-for-profit organization to open a new line of contributions from its donors.
Contact your Keiter Opportunity Advisor or Email | Call: 804.747.0000 with questions regarding crypto accounting or tax compliance.
About the Author
Colin M. Hannifin, CPA, Business Assurance & Advisory Services Senior Manager
Colin is a Business Assurance & Advisory Services Senior Manager at Keiter. He has significant experience in public accounting for both the not-for-profit and private sectors. Colin’s clients rely on him for sound advice and insights on accounting regulations and changes that may impact their business.
More Insights from Colin M. HannifinThe 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.
