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Crypto Donations to Charity are The Next Frontier For IRS Regulations

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IRS Confirms Crypto Donations Above $5000 Require Formal Appraisal

Charitable organizations that receive digital asset donations greater than $5,000 now require a formal appraisal
A qualified appraiser must verify the amounts of these donations
This poses challenges :
It is a challenge to find a qualified appraiser that will meet the IRS’s criteriaThese appraisals might be very costlyExpensive appraisals might discourage donations

According Bloombergtax.com, this requirement adds an unnecessary level of complexity that will deter people from making donations. This will hurt the non-profits, they say.

 

 

    

More Like Stocks Than Paintings

Tax practitioners expected this after the IRS guidance in 2014 defined cryptocurrency as property for tax purposes.  Traders hoped that the lack of specific instructions meant that the IRS did not require appraisals since the value of digital assets – especially the most prominent types like Bitcoin – are readily available on the trading exchanges.

Some advocates are upset over this ruling and say that digital assets share similarities with stocks and not paintings – they believe this ruling will harm the industry. The IRS had been requested to treat cryptocurrencies that are traded on significant exchanges the same as stocks and other publicly traded securities that are free from the qualified appraisal rule. Detractors say that there is a substantial difference between stock exchanges and cryptocurrency exchanges, whereas stock exchanges trade on a single exchange that trades for a finite period per day, cryptocurrency trade 24-hours per day on many exchanges.  This makes it easier to inflate the value of donations by using foreign exchanges, particularly those in Asia.

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IF THE IRS EXEMPTS CRYPTOCURRENCY FROM THE APPRAISAL REQUIREMENT, A STANDARD METHOD FOR TAXPAYERS TO FOLLOW MUST BE CREATED TO REDUCE THE POTENTIAL GAMING OF THE SYSTEM.

Qualified Appraiser?

It is tough to meet the IRS definition of a qualified appraiser.  The IRS requires an appraiser:

  • To have a recognized appraiser designation
  • Or, to meet minimum educational requirements, have two or more years experience in valuing digital assets
  • Must regularly prepare appraisals for which they are paid.

The problem is, no one in the world qualifies in respect of these requirements. No degree or appraisal designation applies specifically to cryptocurrency.  There is almost no one that has the experience required because cryptocurrency is just too new.

cryptocurrency tax

Tax Planning For Cryptocurrency U.S. Investors

Cost Involved

Appraisers are expensive and an appraisal will cost hundreds of dollars. This will detract some donors.  Also, appraisers will quickly check the price of the digital asset on a cryptocurrency exchange, and then charge $500 or more for a job that takes 30-seconds to complete.

Some appraisers disagree with this simplistic view. According to some, it takes between two and two and a half hours to account for around-the-clock trades on multiple exchanges.

The IRS will have to define the term “major” exchange.

Readers should note that this article is only intended to convey general information on these issues and that FAS CPA & Consultants (FAS) in no way intended for the contents of this article to be construed as accounting, business, financial, investment, legal, tax, or other professional advice or services.  This article cannot serve as a substitute for such professional services or advice.  Any decision or action that may affect the reader’s business should not rely solely on the contents of this article, but should rather be consulted on with a qualified professional adviser. FAS shall not be responsible for any loss sustained by any person who relies on this presentation.  This article is subject to change at any time and for any reason.

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Fulton Abraham Sánchez, CPA I am Certified Public Accountant, specialized in Tax Planning & Offshore Strategies for Real Estate, Hedge/Equity Funds, Fintech, Crypto, Expats, IRS Debt Resolution. You can email me fa@fascpaconsultants.com and follow us on Facebook : FAS CPA & Consultants.

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