Monday, August 11, 2014
Should Your Nonprofit Cash in on Cryptocurrency?
Posted by Armanino Nonprofit Team
A fascinating fad…or the next evolution of fundraising? Seems it’s what everyone is asking these days about the Bitcoins, Dogecoins and Peercoins of the cyber world. So, let’s take a look at how few early-adopting nonprofits have experienced some initial success in accepting these “cryptocurrencies” as donations.
Songs of Love, a national nonprofit that creates personalized, original songs for children and teens facing tough physical or emotional challenges, was one of the first nationally recognized 501(c)(3) charities to accept Peercoin donations. Donors simply send to the Peercoin wallet address provided on the organization’s website.
Another cryptocurrency, Dogecoin, has been used to raise money to fund everything from the Jamaican bobsled team’s trip to the Sochi Olympics to service dogs for children with disabilities.
Sure, it’s a brave new world when it comes to virtual currencies. But you don’t have to understand geek-speak to understand the basics.
The IRS refers to Bitcoin and similar cryptocurrencies as “convertible virtual currencies”, which means that they can be digitally traded between users and exchanged for legal tender or other virtual currencies. Cryptocurrencies don’t exist in paper or coin form. They are downloaded from a virtual wallet, which is often housed on the owner’s smartphone, to the charity’s website, which is equipped to convert it to cash. Prompt exchange is often key due to the potential for volatility with virtual currency.
However, you can count on this: Somewhere, sometime, someone will contact your organization and want to make a donation using a cryptocurrency. If you have the ability to do so, you may just create a new platform and a new way to engage donors in the process. Of course, you’ll appeal to younger, tech-savvy donors. But the built-in PR buzz of this new technology may very well ripple across your entire base.
What the Tax Man Says
However, just because you can accept cryptocurrency donations doesn’t necessarily mean that you should. To be sure, a myriad of logistical and legal challenges can arise.
But figuring out the legalities of cryptocurrency donations got a bit easier after the IRS issued a March 2014 notice stating that cryptocurrencies should be treated as property (similar to the way stocks are treated for income tax purposes). Specifically:
- Cryptocurrency received as payment (or donation) is includable as income for the recipient
- The value of the cryptocurrency is determined to be the fair market value as of the date it was received
Consider Jumping In
Spare Key, a Minneapolis nonprofit that provides assistance to families with critically ill or injured children, began accepting Bitcoin donations at the beginning of 2014. In a blog post, Executive Director Erich Mische summed up his feelings on cryptocurrency’s future. “I am not smart enough to know where the cryptocurrency economy will end up in the weeks, months and years ahead. But I am old enough to know that I have been told too many times that things like cell phones, the Internet and reality shows would never catch on in my lifetime.”
If you’re considering crytocurrency, or have the same mindset as Mische, you’ll be glad to hear it’s actually pretty easy to jump into the world of cyber donations. Just go to Coinbase or BitPay to set up Bitcoin processing. Then, design a special Bitcoin donation page on your website. Sprinkle in a few “Bitcoin Accepted” logos and add some links on your donation pages to let people know they can donate.
Nonprofit organizations have specialized audit, tax and operational needs that require specialized service. Armanino has been committed to the nonprofit sector since 1953, and we now work with more than 500 nonprofit clients. This hands-on experience gives our staff of CPAs and former CFOs a deeper understanding of the issues nonprofits face, so we’re able to meet their needs and help them fulfill their missions in the most efficient, cost-effective way possible.