IRS Issued Guidance on Crypto Donations that Impacts Charitable Planning

The IRS has issued guidance that affirms a qualified appraisal requirement for certain charitable contributions of cryptocurrency. The guidance illustrates a fairly common scenario: A taxpayer donates an asset to a charitable organization and claims a charitable contribution deduction for the amount that the donation was worth at the time of transfer. However, if the donated asset is more than $5,000 of cryptocurrency, the value listed on the cryptocurrency exchange at the time of transfer is not sufficient documentation. Per the guidance, an appraisal from a “qualified appraiser” is required.

This new guidance is consistent with the IRS’ position of treating cryptocurrency similar to property, rather than stocks or securities.

Qualified Appraisal

A qualified appraisal of a charitable contribution is not required for donations of certain readily valued property, such as cash, publicly traded securities and other items specifically noted in the tax code and regulations. Yet, to claim a deduction for a cryptocurrency donation of over $5,000 a qualified appraisal is needed.

The guidance outlines some qualities of a “qualified appraiser,” which include having “earned an appraisal designation from a recognized professional appraiser organization” or having otherwise “met minimum education and experience requirements set forth in regulations.” They must also “regularly perform appraisals” for the asset that is being appraised.

Reasonable Cause Exception

There is a reasonable cause exception for taxpayers that attempt to obtain a qualified appraisal but were unable to do so.  However, the IRS has made clear that the reasonable cause exception will not apply to the donation of cryptocurrency and those who fail to obtain a qualified appraisal will have the deduction disallowed. Even though cryptocurrency may have a readily ascertainable value because it is listed on an exchange, it does not establish reasonable cause for failing to obtain a qualified appraisal.

For many taxpayers, donating cryptocurrency to a charitable organization and claiming the charitable contribution deduction is a viable tax-planning strategy. It is essential to adhere to the appraisal requirements for amounts contributed of more than $5,000, or the contribution deduction may be disallowed. To assess whether this or other planning techniques could provide tax benefits to you, contact your Anchin Relationship Partner or Edward Kim, a Partner in Anchin’s Private Client Group,