Factors for you and your board to consider before accepting crypto directly.
As a new space, there are several aspects that you and your board should consider before your nonprofit organization decides to directly accept cryptocurrency.
1. Cryptocurrency is volatile.
It’ll be important to have a policy for cryptocurrency assets that covers whether to liquidate immediately or hold. And if you do hold, guidelines on when you would liquidate, which could be different depending on the coin and its perceived stability.
Every.org liquidates cryptocurrency donations as soon as possible to retain as much of the value as possible, and then makes grants to nonprofits in cash.
2. Regulations are in flux.
These currencies are not issued or regulated by a central government and outside the control of traditional financial institutions. Regulators are still deciding how to deal with cryptocurrencies and thus there are many gray areas. Even among institutions and brokerages, there are varying levels of risk tolerance and which coins are accepted. Your nonprofit and board may consider exercising fiduciary responsibilities difficult given the uncertainties, especially if you are holding on to the currencies as an asset.
For nonprofits who use Every.org, we make accepting support in crypto zero-hassle. Unlike with for-profit payment processing services, Every.org is responsible for the legal considerations— your nonprofit will never need to deal with crypto. This is possible because we are a 501(c)(3) nonprofit that accepts crypto donations and in turn makes cash grants to other nonprofits.
3. Accounting guidelines are still unclear.
The US Financial Accounting Standards Board (FASB) has yet to directly address cryptocurrency in the Generally Accepted Accounting Principles (GAAP). This can make it tricky for accounting professionals.
Crypto is considered an intangible asset and US GAAP does not permit fair value accounting for an intangible asset. To provide guidance in the absence of an authoritative set of standards, The Association of International Certified Professional Accountants (AICPA) released “Accounting for and auditing of digital assets” and KPMG released this “Bitcoin Accounting Treatment and Tax Considerations Report”.
You should consult your accountants and auditors before accepting cryptocurrency, whether through a third-party platform or directly. In case guidelines change, you should keep clear records of transactions. Most cryptocurrency exchanges and brokerages make transaction history easily exportable, including historical valuation on those exchanges.
Nonprofits using Every.org won’t run into this complexity since they will get cash grants instead of crypto, and Every.org will deal with the accounting.
4. Integrate IRS reporting requirements.
The IRS treats a cryptocurrency donation similar to property, meaning that your written acknowledgement to the donor should be for an in-kind donation of a noncash contribution.
Per the IRS guidelines, tax-exempt charity responsibilities include the following:
Charities report non-cash contributions on a Form 990-series annual return and its associated Schedule M, if applicable. Refer to the Form 990 and Schedule M instructions for more information.
Charities must file Form 8282, Donee Information Return, if they sell, exchange or otherwise dispose of charitable deduction property (or any portion thereof) - such as the sale of virtual currency for real currency as described in FAQ #4 - within three years after the date they originally received the property and give the original donor a copy of the form. See the instructions on Form 8282 for more information. (12/2019)
Donors will be required to fill out Form 8283 if they are claiming over $500, and require an appraisal and your organization’s signature for over $5,000.
For nonprofits using Every.org, the donations are made to Every.org which is a 501(c)(3) nonprofit, and then separately granted to nonprofits in cash. Therefore, Every.org will process the relevant IRS forms.
5. Review your policies.
Depending on the method you choose for receiving and holding cryptocurrency, you should make sure to put security and financial controls in place to make sure you minimize the risk of losing your cryptocurrency. You should make sure there are correct internal controls in place, especially since it’s extremely difficult to recover cryptocurrency that has been sent out.
The other considerations depend on where you hold your cryptocurrency. There are many types of wallets available with varying levels of user-friendliness. One concept to be mindful of for this option is whether you will choose a custodial or noncustodial wallet.
If you choose a noncustodial wallet, you need to make sure to store your “password”, or private key or seed phrase, in a secure place that can be only accessed by your intended keepers. These are also typically less user-friendly and require technical knowledge to use. Note that if you lose your private key, you won’t be able to recover your coins. It’s estimated that around 20% or $140 billion in Bitcoin is lost forever. If you choose a custodial wallet, a third-party will hold the private keys on your behalf so that they can help you with recovery, but you will need to trust the business or software providing you the service.
It also goes without saying that you should consider any policies your nonprofit already has around donations and make sure you can remain compliant.
There are many considerations you should make and as you seek buy-in from internal and external stakeholders, including board members. Nonprofits using Every.org don’t have to deal with the legal and accounting headaches since the crypto donations are made to Every.org, which in turn makes cash grants to other public charities.
Or continue to read Part 3 for a comparison of common third-party options for nonprofits.
Disclaimer: These posts are for informational purposes only and not intended as legal or financial advice. Please consult a professional (accountant, attorney, tax advisor) for the latest and most accurate information. We make no representations or warranties as to the accuracy or timeliness of the information contained herein.