A Donor Wants to Make a Contribution Using Bitcoin! What Do We Do?

bitcoin

It is quite possible that your organization may be approached in the near future by a donor (probably a relatively young person) who wants to make a contribution to your organization using “bitcoin.”  What is bitcoin?  Bitcoin is the popular new “virtual currency” that has been created for use in commerce.  It is not a government-based currency.  It might be appropriate to view bitcoin as something akin to frequent-flyer points that can be transferred freely in commerce in payment of obligations.

According to Wikipedia, bitcoin is

an open source peer-to-peer electronic money and payment network introduced in 2009 by pseudonymous developer “Satoshi Nakamoto.”  Bitcoin has been called a cryptocurrency because it uses cryptography to secure transactions. Digitally signed payment messages are broadcast to and verified by a decentralized network of computers all over the world. Specialized computers use a proof-of-work system to prevent people from copying and spending the same bitcoin multiple times, a problem for digital currencies known as double-spending. The operators of these computers, known as “miners,” are rewarded with transaction fees and newly minted bitcoins.

In order to transact business with bitcoin, the payor and payee must generally have virtual “wallets” (accounts).  Coinbase is one company offering such a service. So, in order to accept a contribution of bitcoin, an organization would need to establish a bitcoin account and have the transfer made to that account.  Bitcoin may be converted to cash (U.S. dollars) by selling it using custodians such as Coinbase.

The value of bitcoin changes continuously and quotes are provided by various sources available on the internet.  Bitcoin values have risen dramatically in recent months.  Bitcoin traded for approximately $14 per unit at the beginning of 2013, and has recently traded (in December 2013) at prices over $1,100 per unit.

Even though bitcoin is a virtual currency, federal tax guidelines do not currently recognize it as cash for purposes of charitable contributions.  Accordingly, until and unless federal tax guidance provides otherwise, nonprofit organizations should treat a contribution of bitcoin as a noncash gift.  501(c)(3) organizations should provide proper acknowledgments to donors for noncash gifts.  In doing so, the organization should not assign a value to the noncash gift in the acknowledgement.  It is the donor’s responsibility to address and document the value of a noncash gift. BMWL offers its clients sample acknowledgments for many types of nontraditional charitable gifts, including noncash gifts.

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