Robert L. Tobey, CPA, Partner
SUMMARY
On January 13, 2023, the IRS issued Chief Counsel Memorandum (CCM) 202302012 stating the following:
- If a taxpayer donates cryptocurrency valued more than $5,000 to a charity, a qualified appraisal is required under Internal Revenue Code (IRC) §170(f)(11)(C) for the donation to qualify as a charitable deduction under IRC §170(a); and
- If taxpayer donates cryptocurrency valued more than $5,000 to a charity, does not obtain a qualified appraisal, determines the value of the donation based on the value of the cryptocurrency reported on the exchange on which it is traded rather than obtaining a qualified appraisal, the IRC §170(f)(11)(A)(ii)(II) reasonable cause exception does not excuse non-compliance with the qualified appraisal requirement. Accordingly, the donation will not qualify as a charitable contribution deduction under IRS §170(a)
From the CCM, it is clear that if a taxpayer donates cryptocurrency valued more than $5,000 to a charity and wants to claim this as a charitable deduction, the taxpayer must obtain a qualified appraisal.
The taxpayer must also comply with the other rules regarding the reporting of non-cash charitable contributions (see the instructions for Form 8283, Noncash Charitable Contributions).
DISCUSSION
The term “qualified appraisal” means an appraisal that is treated as such under the Treasury Regulations (Treas.Regs.) or other guidance prescribed by the Secretary of the Treasury. It must be conducted by a qualified appraiser in accordance with generally accepted appraisal standards and any Treas.Regs. or other guidance prescribed by the Secretary of the Treasury. See also Treas.Regs. §1.170A-17 and 1.170A-13.
A qualified appraiser is an individual who has earned an appraisal designation from a recognized professional appraiser organization or has otherwise met minimum education and experience requirements set forth in the Treas.Regs.or other guidance prescribed by the Secretary of the Treasury, regularly performs appraisals for which the individual receives compensation, and meets such other requirements as may be prescribed by the Secretary of the Treasury in regulations or other guidance. See Treas.Regs. §1.170A-17(b).
A qualified appraisal is not required for donations of certain readily valued property specified in the IRC and Treas.Regs. This property includes cash, stock in trade, inventory, property primarily held for sale to customers in the ordinary course of business, publicly traded securities, intellectual property, and certain vehicles. The term “publicly traded securities” for purposes of IRC §170 a share of stock in a corporation; a right to subscribe for, or to receive, a share of stock in a corporation; or a bond, debenture, note, or certificate, or other evidence of indebtedness, issued by a corporation or a government or political subdivision thereof, with interest coupons or in registered form. Cryptocurrency does not meet the definition of a publicly traded security.
CCMs are not precedential nor can be relied upon or cited as precedent. Nevertheless, this guidance is useful as background or insight on how the IRS may treat an undecided or novel issue for which no other IRS guidance is available. Contact us today to learn more.