If your organization has made moves to tap into non-cash giving opportunities like donor-advised funds, gifts of stock, and various types of planned gifts, good for you! Studies have found that nonprofits that invest in their non-cash giving programs grow six times faster than those that stick to cash gifts alone.
Cryptocurrency represents one of the newest and most exciting (but complex) non-cash giving frontiers for nonprofits. Thankfully, accepting crypto gifts isn’t hard today. You can use a third-party processor to facilitate and liquidate the gifts or set up your organization’s own digital crypto wallet to manage and liquidate the assets yourself.
But it doesn’t end there—you need official gift acceptance policies in place to define and guide the process of raising and using crypto funds.
This is important for all fundraising but especially for crypto fundraising programs since it’s a new field with regulatory grey areas. Clear-cut policies will protect you and your donors, and they’ll simplify managing the giving program for your team.
So what should your policy include? Let’s say you’re starting from scratch—we recommend following these steps:
1. Define “crypto” gifts.
First, clearly lay out what your nonprofit considers and will accept as gifts of cryptocurrency. You can draw from commonly accepted definitions if you’re open to accepting any form of crypto, or you can get more specific. Many nonprofits choose to only accept the most popular currencies like Bitcoin and Ethereum, for instance.
Early in your policy, you should also include IRS definitions of crypto and their tax and reporting implications—namely, that the IRS considers crypto to be property and is thus largely subject to the same rules as other non-cash gifts.
2. Determine your approval process.
Some gifts made to nonprofits are closely reviewed in case of potential liabilities or hazards. For instance, you wouldn’t want to blindly accept a donated piece of real estate without first learning about it.
This is common practice for crypto because it’s a new and relatively unregulated field. Implementing an approval step is also helpful for giving you a clear opportunity to refuse gifts if needed. In your acceptance policy, specify if you have an approval process and what it entails, who’s involved, and its timeline.
Extra consideration: Donor information requirements
Will you require all crypto donors to disclose their names and/or contact information?
Using a third-party system will involve collecting this information automatically, but it can be contentious since many advocates and regular users of crypto value the privacy it enables. Whatever approach you take, clarify it in your acceptance policy.
3. Establish liquidation policies.
Most organizations liquidate cryptocurrency immediately upon receiving it. The same is true of gifts of stock, which you might already accept. This prevents the assets from losing value and simplifies the process of managing the giving program. For newcomers and organizations that want to offer crypto options more casually, this is the recommended route.
Liquidating crypto is now easier than ever thanks to third-party processors, similar to how any contributions made to a DAF are immediately liquidated by its sponsoring organization.
Some organizations (typically those with very robust fundraising operations, extensive crypto training for staff, and/or an explicit interest in crypto) don’t liquidate immediately in order to manage and potentially grow the gifts. If you go this route, establish policies defining when you will eventually liquidate the assets.
Either way, make your liquidation plans clear. Some donors give crypto as a show of support for this form of currency and what it represents with the intention that the nonprofit will hold onto it. Clear policies will set transparent expectations for everyone involved.
Extra consideration: Refund policies
It’s highly recommended to establish in your gift acceptance policy that gifts of crypto are nonrefundable. The volatility of these assets can make refunds extremely complicated.
4. Provide donors with valuation information for tax purposes.
You’ll need to provide cryptocurrency donors with receipts and valuation information to use when filing their personal taxes, just like you would for in-kind gifts or gifts of stock. In your acceptance policy, you don’t need to provide exhaustive tax instructions (more on this below), but you should clarify an important rule that donors will need to understand:
- Donors can claim tax deductions for gifts of crypto valued at less than $5,000 using the price at which the coins were liquidated.
- For gifts that are worth more than $5,000 when liquidated, the IRS requires an independent appraisal of the gift’s value. This is because crypto exchange markets are generally considered less reliable for establishing consensus value than traditional securities markets.
Make this rule abundantly clear and specify who will pay for the appraisal if needed—some nonprofits ask the donor to pay for it, while others cover it themselves or reimburse donors later.
5. Include a disclaimer about providing tax advice.
A financial planner, accountant, or tax advisor should be giving your donors definitive advice and instructions, not your development team or posted gift acceptance policy.
This best practice applies to practically all types of donations you might receive, especially more complex planned giving arrangements and other non-cash gifts, so your nonprofit likely has similar disclaimers already in use. Feel free to reuse or adapt them for your crypto-specific policy.
At the very least, explain that you or your third-party crypto processor will provide donation receipts. You can also go a step further by providing some background information to help donors better understand when they should seek professional advice.
Specifically, donors should be aware that gifts of crypto can trigger additional tax reporting requirements that aren’t present for other types of donations. To claim a deduction for amounts greater than $500, donors will need to complete IRS Form 8283, which your nonprofit will need to sign to substantiate the gift and acknowledge receipt.
Although crypto brings a fair number of potential complications and differences from more traditional forms of non-cash giving, it’s a worthwhile investment of your nonprofit’s time and energy.
Accepting cryptocurrency can help you secure larger gifts from donors who would otherwise give smaller gifts of cash since they can pass the tax savings onto your organization. Crypto is also favored by younger segments of donors who might not have yet been on your development team’s radar—connecting with them where they are can help you build long-lasting partnerships.
By anchoring your crypto giving program with a solid acceptance policy (and taking the guesswork out of the process by using a third-party processor that facilitates and liquidates gifts), you’ll set up your program for success.
Author | Patrick Schmitt, Co-CEO of FreeWill
Patrick Schmitt and fellow FreeWill co-CEO Jenny Xia founded at Stanford University’s Graduate School of Business in 2016. FreeWill’s charitable giving platform makes it easier for nonprofit fundraising teams to unlock transformational gifts, and to date has generated over $6.6 billion in new gift commitments for thousands of nonprofit organizations. Patrick hosts FreeWill’s popular webinar series, educating thousands of nonprofit fundraising professionals each month about planned and non-cash giving strategies.
Before FreeWill, Patrick was the Head of Innovation at Change.org, where he helped grow the organization to 100 million users in four years. Prior to that, he ran email marketing for President Obama and served as Campaign Director for MoveOn.org.
