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When Is A Qualified Appraisal Required For A Charitable Contribution Of Cryptocurrency?

 
Taxpayers who want to make charitable contributions with cryptocurrency may be surprised to learn that a qualified appraisal is required when they claim a deduction on their tax return for a contribution of $5,000 or more. The IRS recently announced their findings that cryptocurrency does not fall into a category of property that is exempt from qualified appraisal rules according to §170(f)(11)(C).

Charitable cryptocurrency contribution

What Are The Qualified Appraisal Rules?

IRS provisions indicate that donors who claim charitable deductions of $5,000 or more on either a single item or multiple items must obtain an appraisal to confirm the value of the donation(s). The appraisal must be arranged and financed by the donor. Nonprofits who receive the donations are prohibited from paying for the appraisal. In most cases, the cost of the appraisal is not deductible, although there may be some exceptions.

There are certain exemptions to the qualified appraisal requirements, which include:

  • Publicly traded stock, mutual fund shares, and similar securities
  • Privately traded stock valued under $10,000
  • Personal property that has been owned for less than one year
  • Vehicles, such a car, boat, or airplane, with regulations
  • Business inventory
  • Intellectual property

The IRS requires that the appraisal be conducted by a qualified source. In order to meet IRS requirements, the appraisal must also be made within the 60 days prior to the donation and must be received by the donor before the due date of the tax forms on which the deduction is claimed, among other requirements, according to IRS publications.

IRS Memorandum Clarifies Questions Regarding Cryptocurrency Contributions

A memorandum recently issued by the IRS clarified developing questions and concerns regarding whether charitable donations of cryptocurrency over $5,000 must be valued through a qualified appraisal in order to be deducted by the donor. The agency further questioned whether the reasonable cause exception of the IRS Code enabled a cryptocurrency exchange valuation to provide sufficient indication of the value of the cryptocurrency donation.

After internal deliberation, the IRS concluded that charitable contributions for which the donor claims a deduction of over $5,000 must be valued through a qualified appraisal in order to qualify for a deduction under section 170(a).

Additionally, the agency determined that a cryptocurrency exchange does not meet the criteria of qualified appraiser, and therefore, these types of charitable contributions do not qualify as exemptions to the requirement for a qualified appraisal.

Further, the memorandum indicated that cryptocurrency does not meet the criteria for publicly traded securities, providing an additional reason why cryptocurrency donations of over $5,000 do not meet the criteria to be excluded from qualified appraisals. The IRS finally noted that if the taxpayer does not provide a qualified appraisal of the cryptocurrency charitable donation claim of over $5,000, the deduction must be disallowed on their tax return.

Are You Seeking Representation For Tax Controversies Regarding Cryptocurrency?

The attorneys at Silver Law, PLC, hold a special interest in tax guidelines regarding cryptocurrency and are up to date on the latest IRS requirements for this evolving field of tax law. If you are facing tax litigation from the IRS regarding your tax return or cryptocurrency holdings, get in touch with our experienced Arizona tax attorneys. As former IRS employees, we have extensive experience understanding both sides of tax controversies, and are ready to put our knowledge to work on your behalf. Let us fight to protect your rights and interests! Contact our office today to schedule your confidential consultation.

 

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