Thinking of Donating Crypto?

The IRS requires a qualified appraisal for donations of property. Without it, your charitable donation deduction may be disallowed.

Generally, IRC Sec. 170(f) requires a taxpayer to satisfy certain substantiation requirements to claim a charitable contribution deduction. Recently, the IRS disallowed a taxpayer’s charitable contribution deduction for a donation of more than $5,000 in cryptocurrency because she failed to obtain a qualified appraisal of the donated property.

The taxpayer’s reliance on the cryptocurrency exchange’s value of the donated cryptocurrency did not meet the reasonable cause exception for a failure to obtain an appraisal. According to the IRS Chief Counsel, the taxpayer’s cryptocurrency donation required a qualified appraisal under the general rules because the taxpayer donated property with a value of more than $5,000. Also, the donated property wasn’t exempt from the qualified appraisal requirement because it wasn’t one of the types of property listed as exempt in the regulations; therefore, the taxpayer was required to have a qualified appraisal of the property.

Whether an appraisal would be required under conditions where an asset is actively traded on an open public market has been an area of ambiguity until now. The exception to the appraisal requirement states:

“(I) Readily valued property: Subparagraphs (C) and (D) shall not apply to cash, property described in subsection (e)(1)(B)(iii) or section 1221(a)(1), publicly traded securities (as defined in section 6050L(a)(2)(B)), and any qualified vehicle described in paragraph (12)(A)(ii) for which an acknowledgement under paragraph (12)(B)(iii) is provided.”

This suggests that cryptocurrency would be exempt from the appraisal requirement as “readily valued property.” However, the Code does not say that, leaving the IRS with no choice other than to deny the deduction.

If you are considering making a large donation of cryptocurrency, we can help! Contact us to ensure your deduction is preserved.