Charities face important decisions when it comes to accepting donations of digital assets like cryptocurrency, stablecoins, and NFTs. In this article, we will delve into the key considerations that charities should keep in mind when deciding whether to accept these types of donations. From the legality and suitability of digital asset donations to the protocols for accepting and converting them, we will explore the essential factors that charities need to address.
Determining the Suitability of Digital Asset Donations
Consider the factors that charities should evaluate when deciding whether to accept donations of digital assets.
Before accepting donations of digital assets, charities need to assess whether it is a suitable course of action. This involves considering various factors:
Compliance with Laws and Organizational Structure
Charities must ensure that accepting digital asset donations is permissible under applicable laws and regulations. They should also review their organizational structure and provisions to determine if such donations align with their mission and objectives.
Financial Considerations
Charities should evaluate their financial situation and determine if accepting digital assets is feasible. They need to weigh the potential benefits of increased donor pool and market value increases against the risks and expenses associated with converting and managing digital assets.
Alignment with Mission
Charities should consider whether accepting digital assets aligns with their core mission. For example, a museum or educational institution may be more inclined to accept art NFTs, while other charities may have different criteria for accepting non-fungible tokens.
Third-Party Providers and Donor-Advised Funds
Charities can choose to work with third-party providers or donor-advised funds (DAFs) to handle digital asset donations. This approach can help mitigate risks, avoid setting up digital asset accounts, and provide a buffer against undesirable donors. However, it may involve delays in receiving donations.
Protocols for Accepting Digital Asset Donations
Explore the necessary protocols and considerations when charities accept donations of digital assets.
When accepting digital asset donations, charities should establish clear protocols to ensure smooth processes:
Donation Timelines and Third-Party Processors
Charities need to determine if they can meet potential donors' donation timelines. They can choose to work with third-party processors or platforms to establish a digital asset donation program, which can simplify the process and provide additional security measures.
Acceptable Digital Assets
Charities should define which digital assets they are willing to accept. They may consider accepting various cryptocurrencies, stablecoins, and NFTs, but should also assess whether certain assets align with their mission and if they have the means to handle them effectively.
Conversion to Fiat Currency
Charities must decide whether to convert digital assets to U.S. dollars or another fiat currency. This decision involves evaluating market risks, expenses, and the potential benefits of holding digital assets. They may choose to convert immediately or establish internal investment guidelines for holding assets.
Security and Compliance Measures
Charities should prioritize security and compliance when accepting digital asset donations. They can implement procedures to protect against security breaches and hackers, such as requiring donors to complete confidential information forms and utilizing blockchain analytics firms to assess donor-related risk management parameters.
Documentation and Reporting Obligations
Learn about the documentation and reporting requirements for charities accepting digital asset donations.
Charities accepting digital asset donations must fulfill their documentation and reporting obligations:
Receipts and Acknowledgements
Charities should provide donors with appropriate receipts and acknowledgements based on the value of the donation. For donations under $250, a receipt with the charity's name and address is sufficient. Donations over $250 require a contemporaneous written acknowledgement, and donations over $5,000 may involve additional IRS forms.
IRS Forms and Reporting
Charities need to understand the IRS forms related to noncash contributions and disposal of digital assets. They must file Form 8283 for donations over $5,000 and may need to provide Form 8282 if they dispose of the assets within three years. Compliance with reporting requirements is essential to maintain their qualified charity status.
