Donating cryptocurrency and getting a charitable contribution deduction has just gotten more complicated and costly as a result of a new IRS pronouncement, according to an article in Forbes. If a taxpayer donates cryptocurrency for which a charitable contribution deduction of more than $5,000 is claimed, a qualified appraisal is required under section 170(f)(11)(C) to qualify for a deduction under section 170(a).
The requirements that have to be met for this appraisal will be costly, according to the article. The take-away is that the cost of obtaining a qualified appraisal will be so significant that it may not be feasible to make a donation of cryptocurrency unless the value donated is significant compared with the costs incurred.
The facts in the case, Forbes points out, is that the taxpayer purchased units of cryptocurrency for personal investment purposes. She acquired units of cryptocurrency in a transaction on a cryptocurrency exchange. Later she donated all of her units of cryptocurrency to a qualified charity. On her federal income tax return for the year of the donation, she completed Form 8283 and attached it to her return and claimed a charitable contribution deduction of $10,000, the value of the crypto she donated.
The claimed $10,000 deduction was based on a value listed at the cryptocurrency exchange on which the particular cryptocurrency was traded at the date and time of the donation. She did not obtain a qualified appraisal for the donation. The taxpayer argued no appraisal is required because the cryptocurrency involved had a readily ascertainable value based on the value published by the cryptocurrency exchange. The IRS did not agree.
“A qualified appraisal is not required for donations of certain readily valued property specifically set forth in the code and regulations, namely: cash, stock in trade, inventory, property primarily held for sale to customers in the ordinary course of business, publicly traded securities, intellectual property, and certain vehicles,” the article said. “Cryptocurrency is none of the items listed and does not satisfy the definition of a ‘security’ for these purposes. While you might say crypto did not exist when these rules were formulated, that did not sway the IRS.”
As far as these types of donations, a “qualified appraisal” is a very particularly defined term and will require that one hires an appraiser that is familiar with the requirements of an appraisal for tax purposes. If the appraisal does not meet all the requirements, it will not count.
The appraisal must be prepared by a “qualified appraiser” in accordance with the substance and principles of the Uniform Standards of Professional Appraisal Practice (USPAP), as developed by the Appraisal Standards Board of The Appraisal Foundation. It also must meet the relevant requirements of Regulations section 1.170A-17(a) and (b). The appraisal must be signed and dated by a qualified appraiser not earlier than 60 days before the date you contribute the property, the article stated.
One must receive the appraisal before the due date (including extensions) of the return on which you first claim a deduction for the property.
As to specific requirements to be a “qualified appraiser” for these types of determined value, merely a person with expertise in the crypto space probably will not qualify.
This IRS position was announced in Chief Counsel Memorandum Number: 202302012 Release on Jan. 13. While private letter rulings and Chief Counsel Memorandum cannot be cited as precedent, they usually provide an insight into the IRS view of a particular matter. So, anyone making a crypto donation that wants their deduction to hold up should adhere to the suggestion of getting a formal appraisal, the article suggests.