Cryptocurrency first appeared on the scene in 2008 and now, 14 years later, is no longer considered just a fad. As of early this year, there are thousands of active cryptocurrencies in circulation, the most notable being Bitcoin. As the world continues to move toward greater acceptance of the digital exchange method, some institutions of higher learning have begun to embrace the medium as a way to accept donations.
Not wanting to lose out, perhaps, on potential bequests by limiting themselves to non-cryptocurrency contributions, a few of the nation’s colleges and universities started to accept the digital gifts as early as 2014. Lately, it’s become an acceptable form of donation for all types of institutions in the U.S.
The overall acceptance of cryptocurrency is part of a larger effort on our nation’s campuses to convey the message to alumni and non-alumni alike that the institution is up to speed with the latest financial trends. Colleges, for instance, have begun including classes in cryptocurrency as part of their curriculum in an attempt to educate future alumni. The thought is that as the next wave of donors prepares for graduation and moves into their careers, it’s very possible that some will consider making a donation to their alma mater via some form of cryptocurrency.
And making that contribution can potentially be a great tax benefit to the donor. Per the IRS, cryptocurrency is viewed as virtual currency and is treated as property to the holder, meaning it’s eligible for a capital gain tax when sold. But if the donor were to donate cryptocurrency directly to the institution, he or she could avoid this tax.
For the institution, however, the potential for risk with a cryptocurrency gift is certainly higher than with other traditional methods of donation. The best way to alleviate that risk is to plan and prepare by establishing a cryptocurrency gift acceptance policy that provides guidance on what an acceptable donation would be. The policy should include the types of cryptocurrencies the institution is willing to accept, the limitations on the size of the donation (both minimum and maximum), how the institution will be able to accept the donation (third-party processor or in-house), and the frequency of donations the institution will accept, since the price of cryptocurrencies can fluctuate drastically each day.
How the institution accepts the cryptocurrency may be one way to reduce the risk surrounding a donation of this type. It can choose to process in-house, taking into consideration the knowledge, time and internal controls already in place to accept and process the donation, but if it would rather not internalize processing, it may decide to contract with a third-party payment provider to manage the risk. In doing so, institutions should know exactly how the cryptocurrency will be processed within the provider, and understand the provider’s limitations and abilities in processing these payments.
Whichever way the donation is processed, institutions will need to report it for tax and financial reporting purposes. The IRS and the FASB have established respective guidelines on how to do so. The IRS guidance, as stated above, is to treat cryptocurrency like property. The FASB has not formally established cryptocurrency-specific GAAP rules, but, in general, cryptocurrencies are to be treated as indefinite-lived intangible assets under FASB ASC Topic 350 and can be subject to impairment.
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