Introduction
Taxpayers who make noncash charitable contributions to 501(c)(3) organizations must adhere to specific IRS requirements to claim deductions. When donating cryptocurrency, one of the most common areas of confusion is whether a qualified appraisal is required.
A recent IRS Memo (202302012) addresses two key questions:
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Is a qualified appraisal required for cryptocurrency donations exceeding $5,000?
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If a taxpayer fails to obtain a qualified appraisal, can they rely on exchange-reported values under the reasonable cause exception?
Understanding these IRS rules is essential for taxpayers looking to maximize deductions while staying compliant.
IRS Rules for Charitable Deductions on Cryptocurrency Donations
Under Section 170(f)(11)(C) of the Internal Revenue Code (I.R.C.), any charitable contribution of property valued at over $5,000 requires a qualified appraisal. This applies to cryptocurrency donations, meaning that taxpayers must:
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Obtain a qualified appraisal from an IRS-recognized appraiser.
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File IRS Form 8283 to document the donation.
Most 501(c)(3) organizations provide donors with Form 8283, including the appraised value of the donated cryptocurrency.
What If a Qualified Appraisal Is Not Obtained?
If a taxpayer fails to obtain a qualified appraisal, they may still claim a deduction if they can demonstrate:
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Reasonable cause for not obtaining an appraisal.
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Good faith efforts in valuing the donation.
However, using the value reported by a cryptocurrency exchange alone does not qualify as a substitute for a qualified appraisal. The IRS requires an independent appraisal to determine the fair market value (FMV) of donated crypto assets.
What Is IRS Form 8283?
IRS Form 8283 (Noncash Charitable Contributions) is used to report noncash donations exceeding $5,000. It applies to various assets, including:
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Cryptocurrency & NFTs
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Real estate
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Artwork
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Household items
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Clothing
For donations above $5,000, the form must be:
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Completed and attached to the donor’s tax return.
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Signed by the charitable organization, confirming receipt of the donation.
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Accompanied by a qualified appraisal, verifying the asset’s FMV.
Key IRS Rules on Noncash Donations
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If the donor held the asset for over a year, the deduction is limited to FMV.
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If the donation furthers the nonprofit’s mission, the deduction may be greater than the FMV.
Conclusion
Donating cryptocurrency can provide tax benefits, but taxpayers must follow IRS guidelines to ensure deductions are valid. A qualified appraisal is generally required for donations exceeding $5,000, and relying solely on exchange-reported values is not accepted.
Block3 Finance provides expert guidance on crypto donation tax compliance, appraisal requirements, and IRS reporting to help taxpayers maximize deductions while ensuring full compliance.
If you have any questions or require further assistance, our team at Block3 Finance can help you.
Please contact us by email at inquiry@block3finance.com or by phone at 1-877-804-1888 to schedule a FREE initial consultation appointment.
You may also visit our website (www.block3finance.com) to learn more about the range of crypto services we offer to startups, DAOs, and established businesses.