A rapidly growing alternative to traditional monetary and banking systems, cryptocurrency is now finding its place in the philanthropic world. Foundations and other nonprofits are implementing new solutions to be able to accept and leverage cryptocurrency donations. Greater Horizons is part of this movement, able to help cryptocurrency donors achieve their philanthropic goals in a flexible and secure way.
According to the IRS, virtual currency is a digital representation of value, other than a representation of the U.S. dollar or a foreign currency (“real currency”), that functions as a unit of account, a store of value, and a medium of exchange.
Cryptocurrency, then, is a type of virtual currency that uses cryptography to secure transactions that are digitally recorded on a distributed ledger, such as a blockchain. A transaction involving cryptocurrency that is recorded on a distributed ledger is referred to as an “on-chain” transaction; a transaction that is not recorded on the distributed ledger is referred to as an “off-chain” transaction.
After unsuccessful attempts to create virtual currencies dating back to the 1980s, the first decentralized cryptocurrency was established in 2009 with the introduction of Bitcoin, which remains the largest and most well-known cryptocurrency. However, virtual currencies didn’t become a real factor in philanthropy and charitable giving until 2014.
That’s when the Internal Revenue Service (IRS) ruled that for federal tax purposes, virtual currencies would be treated as property — allowing them to be given as a gift and creating the corresponding tax incentive. This ruling, combined with the growing credibility of cryptocurrency and a meteoric rise in asset prices that yielded massive gains, provided the financial incentives for investors to begin giving cryptocurrency as a charitable donation.
Foundations, nonprofits, and other charitable organizations initially took a very measured approach to accepting cryptocurrency donations — in part due to security concerns about attracting the attention of hackers and other “bad actors,” and in part needing to set up new systems and processes that would allow them to safely accept and hold these assets.
Greater Horizons has a track record of handling complex assets, defined as assets other than cash or publicly traded stock. This includes:
Most notably, in the 1990s, the Greater Kansas City Community Foundation, which powers Greater Horizons, was the first and only charity to receive a major league sports team— the Kansas City Royals—as a charitable donation upon Ewing Kauffman’s death. Mr. Kauffman’s estate plan was thoughtfully designed to ensure the Royals stayed in his hometown of Kansas City and that the proceeds from the sale of the Royals benefited charities in the community.
Cryptocurrency is also a complex asset and similarly requires a thoughtful and customized approach. Greater Horizons spent several years researching and then putting in place the required systems, processes, and protocols to ensure cryptocurrency assets are accepted, held and sold securely.
Cryptocurrency can be donated to any charitable fund administered by Greater Horizons, including:
Because cryptocurrency is a relatively new type of asset, it’s important for potential donors to understand which aspects of donating it through Greater Horizons are unique and which are similar to other donations. For example:
The level of interest in cryptocurrency donations continues to grow — especially when there is a sharp run-up in value in the asset class — and Greater Horizons regularly receives inquiries about such donations.
A Securities and Exchange Commission (SEC) action in January 2024 is adding further legitimacy to the asset class and will advance the adoption of cryptocurrency by mainstream finance. This ruling allows the use of a traditional investment account (i.e., exchange-traded funds, or ETFs) to purchase Bitcoin, giving regular investors (institutions, financial advisors, and individual investors) access to cryptocurrency.
This move is expected to spur further interest in charitable gifts of cryptocurrency.
In late 2023, Greater Horizons was approached about a donation of cryptocurrency that was currently trading below its perceived value. The donor wished to donate the assets but have Greater Horizons hold them to allow the value to rise over a long period of time, then begin to slowly sell them.
Greater Horizons worked with the donor to create a donor-advised fund using the donated cryptocurrency as well as some cash to cover the ongoing administrative fees related to the fund and custodian fees related to the gift. The outcome is a charitable vehicle tailored to the donor’s specific needs, and the donor was able to take the tax deduction for the full contribution to the donor-advised fund.
If you’re interested in donating cryptocurrency to a charitable fund, let us know. Our complex asset team is available to answer questions about any and all assets in your portfolio.
