Crypto Donations? What Higher Education Entities and Nonprofits Must Consider First
Originally published on November 23, 2022
Updated on November 14th, 2024
It’s a jungle out there when it comes to cryptocurrency (also known as crypto). From the many kinds available to it’s sometimes-volatile characteristics and benefits, there’s a lot to consider.
Really, how many kinds of crypto could there possibly be?
Thousands. Seriously. There’s a lot. However, the top players by estimated market capitalization per CoinMarketCap.com include as of the beginning of 2022 were:
- Bitcoin ($800 billion),
- Ethereum ($346 billion)
- Tether ($79 billion)
- BNB ($70 billion)
- USD Coin ($52 billion)
And you never know how the market will change. After all, coming in at the 11th spot is Dogecoin ($19.2 billion) — a coin started as a joke!
It’s also important to note that 2022 saw the cryptocurrency market endure substantial declines. Bitcoin went from a market capitalization of $874 billion in January to barely over $300 billion in November. Ehtereum went from nearly $450 billion to $135 billion in the same timeframe.
Even so, crypto is increasingly being used for donations and other purposes in the nonprofit and higher education realms. The benefits are plain to see. Unlike traditional donations via check, credit card, etc., there are no chargebacks associated with crypto transactions. And crypto donations from anywhere in the world can be processed in minutes.
Sounds great overall… so what’s the issue?
In one word, regulation—or should we say, the lack thereof. Cryptos are not issued by a central government and are outside the control of financial institutions. Many regulators are still in the process of figuring out how to deal with them. The Securities and Exchange Commission (SEC) recently announced its plans to add an Office of Crypto Assets and an Office of Industrial Applications and Services to the Division of Corporation Finance’s Disclosure Review Program (DRP).
There’s also the question of whether to classify crypto as currency or a security. While pending congressional legislation would make the Commodity Futures Trading Commission the chief regulator, the SEC is positioning itself to be the chief regulator of crypto. And the SEC has expressed its opinion that most crypto should be considered a security. What most do agree upon is that crypto is not a currency since it’s not issued by a government. However, even that’s up in the air because El Salvador adopted bitcoin as legal tender in September of 2021.
IRS guidelines are clearer, especially with regards to reporting requirements. Cryptos are considered noncash donations. Nonprofits should issue a standard donor receipt letter for contributions valued at more than $250 and report them on Form 990, Schedule M.
If the cryptos are sold within three years of receipt, the nonprofit will need to file Form 8282 and provide a copy to the donor. In addition, the donor may need to obtain a qualified appraisal (if valued at over $5,000) and complete Form 8283 (if value is over $500) to substantiate the amount of the gift.
What are the accounting considerations?
While there currently is no prescriptive guidance for digital assets in GAAP, in October 2022 the FASB announced that it is recommending fair value accounting for cryptocurrency. This is a welcome and significant change for the current accounting treatment for cryptos, which requires them to be recorded as intangible assets. Intangible assets are held at amortized cost less impairment. That means you write it down for impairment, but you can never write it back up.
The FASB’s recent recommendation is that certain cryptocurrency assets be recorded at fair value using the guidance under ASC 820, Fair Value Measurement. This new treatment will help better reflect the fair value of cryptocurrency holdings in an organization’s financial statements. While there has been no definitive guidance released by the GASB, it can reasonably be expected that they would adopt similar guidance as the FASB at some point in the future.
Should I worry about crytpo’s volatility?
Cryptos continue to evolve and one trait common to all of them is price volatility. Take Bitcoin, for example. In June of 2020, it was priced at $10,000. About a year and a half later, the price had soared to $67,000 (a 590% increase)… only to plummet to $17,000 (a 75% decrease) in November 2022. Quite the roller coaster ride!
Your organization must carefully consider whether it wants to hold cryptos (as they might donated stock) or liquidate them upon receipt (automatically convert into cash). The historic volatility of crypto suggests that most organizations should set a policy to liquidate crypto donations as soon as possible.
Regardless of whether you accept crypto and how you treat it, one thing is universally important—communication with donors. Your gift acceptance and investment policies must clearly outline your processes when it comes to crypto. Not only will this help protect you in a dispute, it will instill confidence in your donors that their gifts are treated and used to their satisfaction.
Finally, make sure you run these policies by an experienced audit CPA. Whether you’re in the higher education or nonprofit space, their expertise is key in making sure you handle crypto properly.
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