Cryptocurrency has many attractive features as a direct form of charitable giving, however successfully claiming tax benefits for cryptocurrency donations can be difficult.  Under current Department of Treasury regulations, you'll need to secure a letter of appraisal from an independent, qualified, entity.

There are several great reasons to give cryptocurrency directly to charitable organizations.  Cryptocurrency donation projects, like The Pineapple Fund (since closed) and The Giving Block, can articulate the crypto-giving philosophy in greater detail, but the key benefits of donating cryptoassets are:

• By donating cryptocurrency directly, the donor does not incur a taxable event by converting to USD.  Likewise, the value of the donation is maximized for the charity, which receives the entire present market value instead of the after-tax value of the asset.  Depending on how long you've held the cryptocurrency, your tax bracket and jurisdiction, this could increase the value of the donation by over 50%.
• Cryptocurrency, by design, is dazzlingly easy to transfer ownership of (compare this to the donation of a classic car or farmland).  This minimizes the hassle and overhead for your charity.
• Offering a donation in the form of cryptocurrency may even motivate your favorite charitable organization to onboard these modern payment technologies and, therefore, attract more donors.

The tax considerations mentioned above are due to the fact that the IRS classifies cryptocurrency as "property."   This is, therefore, a generic consideration - donating any property directly allows the donor to avoid capital gains tax on the appreciated value of the assets - and the tax code has clearly-articulated rules for so-called "Noncash Charitable Contributions."  

Due to the ease with which one can transfer and determine the value of cryptocurrency, however, the "property" designation can result in donors failing to report the gift correctly, therefore, not be awarded the deduction.

How do you report charitable giving for the purposes of taking a tax deduction?  This starts with IRS form 8283.  The 8283 is a short form that looks like one could fill out in about a minute, however a note on Part I of the form sends the tax preparer down a cryptocurrency rabbithole:

Note: In certain cases, you must attach a qualified appraisal of the property.  See Instructions.

Until there is some updated guidance in the tax code, cyrptocurrency is currently lumped in as a miscellaneous, or "other" property type.  Because of this, the 8283 requires a very specifically-formatted letter of appraisal to claim cryptocurrency donations.  

In short, the IRS requires the same appraisal process for a donation of bitcoin - the most liquid and transparently-valued cryptocurrency - as it would for a thoroughbred racehorse or the patent for your process for decaffeinating hot chocolate.  Failure to submit the right type of letter, written by the right person, can result in the gift deduction being declared ineligible.

How does one generate a cryptocurrency appraisal letter that the Deptartment of the Treasury deems to be acceptable?  Enter Treasury regulations Section 1.170 which details the requirements of an appraisal letter (subsec. 1.170A-17(a)) and the qualification criteria for a qualified appraiser (subsec. 1.170A-17(b)).

There are appraiser professional organizations who publish best practices and guidelines, but thus far none have published and guidance on cryptoasset appraisals.  The Treasury regulations' language indicates that any independent party who does appraisals on a regular basis can write a qualified appraisal, but this is unfortunately a bit of a chicken-and-egg problem for a young asset class.  

Alternatively, anyone with relevant educational credentials - presumably anyone with at least a Bachelor's degree in a field that teaches a standalone cryptocurrency or blockchain course, like math or computer science - can be a qualified appraiser.  As a practical matter, if you're reading this blog, you have found a qualified cryptocurrency appraiser.

While it may be a bit frustrating to find and retain the services of a qualified independent party to prepare a correctly-formatted appraisal letter, this is vitally important for taking the tax deduction successfully.  

While mistakes or discrepancies on other sections of a tax return can be resolved through refiles, appeals, or by providing additional documents, decisions about noncash charitable contributions can not be appealed.  That is to say, the tax preparer has one chance to get it right and the IRS gets a high return on the time they invest in carefully examining 8283 forms and their supporting documents.

As a last reminder/final caveat, the IRS and appraisal professional organizations have not written formal guidance specific to non-security cryptoassets (e.g Bitcoin), but crypto industry, tax, and private wealth professionals have worked out what are clear best practices to ensure anyone who makes a charitable donation of cryptocurrency is able to claim the deductions that they are entitled to.