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Cryptocurrency Giving: Why Not-for-Profits Should Consider Getting Ready

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The growing number of cryptocurrency transactions is staggering with millions of users from every walk of life investing in assets such as Bitcoin to handle countless donations and financial transactions. Nationally known entities such as Fidelity and PayPal are providing customers with the resources to engage in crypto trading or sharing.

It is now time for the not-for-profit sector to get ready. Organizational development managers would do well to note that potential donors to their tax-exempt groups will find cryptocurrency particularly attractive due to personal tax benefits. And with nearly half of all millennials with some cryptocurrencies in their holdings, many of whom generate wealth as they successfully move into influential leadership and decision-making positions in their careers, this is a demographic that cannot be ignored.

This trend is already underway. Over the past several years, hundreds of millions of dollars have been donated in cryptocurrencies. Donors benefit from a deduction on their tax filings; additionally, no capital gains tax accrues for donations made of appreciated crypto.

There is likewise a direct benefit for any not-for-profit that structures its giving policy to allow for crypto donations. In one situation, if a donor is not able to give crypto, the donor must first sell the currency, leading to inconvenient tax implications and a final net benefit to the receiving organization of the after-tax proceeds. When a not-for-profit sets up its giving to allow for direct cryptocurrency donations, the group benefits from the entire value of the currency.

With the increasing amount of giving in the not-for-profit sector, organizations that position themselves to receive cryptocurrencies have the advantage of seeming progressive and forward-thinking. They also, more directly, appeal to younger donors positioned to show their generosity.

So why haven’t more not-for-profits prepared to accept crypto donations? Many possible factors include:

  1. Tenured financial leaders who require education about the underlying technologies needed for the transactions
  2. A perception that supporters may not want to donate cryptocurrency
  3. A need for more regulatory guidance
  4. Lack of visionary leadership

The first and fourth points are related. Finance directors beholden to executive leaders who don’t prioritize crypto giving generally lack the educational and technology resources to shift away from traditional giving policies. Some not-for-profit leaders may be aware of crypto giving as an opportunity but don’t want to be the first to make a move into largely uncharted waters.

Other leaders may believe that their supporters are not interested in donating cryptocurrency because they have not mentioned it. This may end up being part of a vicious circle where both donors and the organizations they support are each waiting for each other to make the first move. If not-for-profits proactively set up giving policies for cryptocurrencies, the donations may follow. And while younger donors represent the demographic who, statistically speaking, hold a larger amount of cryptocurrency, many Gen X givers with deep pockets have also shown increasing interest, as well.

Finally, there may be a need for a clearer regulatory policy to deal with potential risks and the impact of digital assets on consumer protection, financial stability and even security. Under current GAAP guidance, cryptocurrency is treated as an intangible asset. In early March 2022, however, the Biden Administration announced it would create a policy to inform a national approach to “addressing the risks and harnessing the potential benefits of digital assets and underlying technology.”

Although not all not-for-profits have demonstrated a willingness to jump with both feet into crypto giving waters, the sector as a whole should do well to take note of evolutionary thinking in policymaking, donor benefits and some already successful crypto giving-based campaigns run by organizations such as the American Cancer Society.

It can be hard to know which trends end up being short-term blips on a radar screen and which ones portend larger-scale changes. Either way, we would encourage not-for-profit groups to get educated so they can make the best choices possible for their organizations.

Councilor, Buchanan & Mitchell (CBM) is a professional services firm delivering tax, accounting and business advisory expertise throughout the Mid-Atlantic region from offices in Bethesda, MD and Washington, DC.

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Contact Mihaela "Mikki" Obreja, CPA, CVA, MBAView Profile

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