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The IRS has not said much about cryptocurrency, so when it does, it is definitely of interest.
The service issued Chief Counsel Advice Memorandum 20230212 in January. This CCA confirms that a gift of cryptocurrency requires strict substantiation that complies with tax laws regarding income tax charitable deductions. Moreover, this memo confirmed that cryptocurrency is considered “property,” reaffirming the principles set forth in IRS Notice 2014 21 which was issued in 2014 on virtual currency. As such, transactions in cryptocurrency must follow the same tax principles as property transactions. Therefore, it is not a surprise that the IRS would require substantiation when a taxpayer gifts cryptocurrency to Charities.
As with any other charitable donation, donors should ensure that their chosen charity is a qualified Section 501(c)(3) public charity that can accept and process cryptocurrency gifts or another type of entity that can receive the gift and make a donation to charitable donees.
In addition to due diligence on donees, Taxpayers wishing to make donations of cryptocurrency should be aware that this CCA establishes that qualified appraisals are required for cryptocurrency gifts to be tax-deductible. Section 170(a)(1) of the Internal Revenue Code states that deductions for gifts of property are allowed if verified under regulations prescribed by the US Department of the Treasury. When deductions of over $5,000 are claimed, other than gifts of cash, publicly traded securities, or easily and objectively valued assets, a qualified appraisal is required to substantiate the donation. Gifts of cryptocurrency do not qualify for exceptions available for cash or marketable securities.
Of course, a donor must complete Form 8283 which is standard and must be signed by the charity, and the charity must provide a contemporaneous receipt for the donation.
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Carter Ledyard & Milburn LLP uses Client Advisories to inform clients and other interested parties of noteworthy issues, decisions and legislation which may affect them or their businesses. A Client Advisory does not constitute legal advice or an opinion. This document was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. © 2023 Carter Ledyard & Milburn LLP.