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Recent IRS Digital Asset Guidance a Mixed Bag for Donors

Costly appraisals could siphon away dollars that would have flowed to charities instead.

The Internal Revenue Service recently released two sets of guidance on issues with ramifications for how donors make charitable gifts of digital assets. On Dec. 23, the IRS announced that it’s delaying implementing reporting requirements on individuals and businesses that facilitate digital asset transactions. The policy was signed into law as a part of the Infrastructure Investment and Jobs Act and would greatly expand who’s defined as a “broker” for tax reporting purposes. Lawmakers from both parties proposed fixes in the Senate and House following industry concerns over the new rule’s expansive language. Depending on how the law is implemented, this new rule could compel groups that help charities accept crypto gifts to collect and send personal information from donors to the IRS, hiking costs and raising concerns from donor privacy advocates.

For its part, the Treasury Department signaled that it intends to propose a new rule for "crypto brokers" after soliciting input from the public. The Treasury Department’s timeline remains unclear, however, and it’s uncertain whether the updated proposal will impact the philanthropic sector. That said, it’s a positive sign for both the philanthropic and crypto sector that the IRS can prioritize getting these rules right instead of hastily implementing them.

Crypto Philanthropy

Separately, more recent guidance from the IRS that directly impacts charitable gifts isn’t as encouraging for crypto philanthropy. On Jan. 13, the IRS clarified that donors who make a digital asset gift over $5,000 must obtain an appraisal of their crypto asset from a qualified appraiser to deduct it from their taxes. These appraisals are costly and could siphon away dollars that would have flowed to charities instead. They also place an added burden on donors to file paperwork with the IRS, a requirement that isn’t in place for similar assets like stocks and bonds. 

Many donors likely already were paying for appraisals based on accounting standards that treat crypto gifts more like physical property than a stock or bond. Nevertheless, the IRS’ new guidance lends credence to the idea that donors ought to pay a fee and file additional paperwork to receive a charitable deduction, which can work against sector interests. Legislative proposals to eliminate such a requirement have drawn support from both parties in the House and Senate. Congress could also clearly define crypto assets as securities, which could preempt the IRS’ position that crypto assets are instead general property. These efforts have yet to gain much traction, however.

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