Best Practices for Accepting Bitcoin Donations

By now, everyone has heard of Bitcoin, the oldest and most popular cryptocurrency. Other popular digital currencies include Ethereum, Tether and Dogecoin. According to Wikipedia, a cryptocurrency is a digital asset designed to work as a medium of exchange where ownership and transaction activity is stored in a secure digital record. The currency does not exist in physical form like paper money and is typically not issued by a central government authority.

Cryptocurrencies have exploded in the last decade. In fact, there are over 10,000 different digital currencies on the market today, with a combined market capitalization of $1.5 trillion. Although they have always been popular with individual investors, digital currencies are gaining in popularity with corporate and institutional investors. Even Elon Musk is betting on crypto.  

Because crypto currencies are so lucrative (and risky), there is opportunity for great gains (and losses). Using Bitcoin (BTC) as an example, from May 2020 to May 2021 this digital currency grew a whopping 552% in just 12 months.  And it is very easy for even novice investors to get in the cryptocurrency market with user-friendly platforms like Robinhood and Coinbase. That means there is a real possibility that your church will have a donor that wants to donate crypto to avoid taxes on their investment gains. 

It’s important for churches to make a plan now in order to be ready when your first donation of Bitcoin happens.  Here are a few points to consider as you help your church develop a plan for accepting and liquidating cryptocurrencies.

1. Cryptocurrency is actually not money. The IRS defines it as virtual currency which should be treated like property for Federal income tax purposes. Buying and selling virtual currency as an investment or capital asset can result in tax liability.
2. Do your church bylaws address the purchase, receipt or sale of different kinds of property? Does the board have to approve any transaction involving the liquidation of these types of assets?

3. Do you have a gift acceptance policy in place? A gift acceptance policy helps define what types of gifts, especially in-kind contributions, the church is willing to accept. Some types of property, like a baseball card collection, may not be very usable by the church or easily liquidated. Does your gift acceptance policy provide any helpful instructions for accepting virtual currency? 

4. Has the church board developed an investment strategy for cryptocurrency and other marketable assets like stock donations? Many church boards may not have much of a risk appetite when it comes to holding stocks or cryptocurrencies long-term. This should be a discussion for the board if it is not already addressed in your church bylaws or gift acceptance policy. I would suspect many church boards will want to liquidate these types of assets as soon as possible to minimize risk due to volatility. 

5. The church will need to create an account, or digital wallet, with an investment platform like Coinbase to accept and liquidate the digital currency. It may take a few days to complete the registration process, so you will need to complete this before a donor is able to make a donation. Once your church has a digital wallet or account that can accept digital currency, you can share this information with your church members. 

6. If the church decides to hold on to the digital currency, they will have to decide if the investment platform will hold the digital assets or if the church will maintain their own digital wallet and private keys. There are pros and cons to both decisions. 

7. For churches that might not feel comfortable opening and managing their own digital wallets, there are other companies, like Engiven.com, who can receive your digital donation, liquidate it, and then send the funds to the church. These are like the online giving options and payment processors that many churches use. They just charge a small service fee for each transaction. 

8. Lastly, since virtual currency is treated like property, churches will need to acknowledge the gift of cryptocurrency like other noncash donations. And depending on the estimated value, the church may need to issue IRS Form 8283 and 8282. For more information on how to properly acknowledge gifts of property, see this article:  EmpoweringStewardship | Charitable Contribution Receipts. And as ECFA.org notes, if the digital currency is “held or exchanged through an account outside of the U.S., IRS requirements for nonprofits and churches to report foreign bank accounts on Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR) may apply.”

Friendly disclaimer: This article is provided for informational purposes only and is not intended as tax advice. For specific tax advice regarding cryptocurrency, please consult a tax professional.