Crypto Donations and Appraisal Requirements for Charitable Deduction (CCA 202302012)

Crypto Donations and Appraisal Requirements for Charitable Deduction

IRS Internal Guidance (not to be relied upon) CCA 202302012

What is the CCA and Can we Rely on It?

Before we get into the contents of the CCA, it's important to understand where the CCA fits into the hierarchy of binding rules that can be relied upon when planning.

CCA stands for Chief Counsel Advise (or Memorandum). It is presented by the IRS to field offices in response to questions that its own field office presents. This is not to be relied upon by the public or practitioners, but it useful in understanding how the IRS may interpret certain transactions.

Fun of Digital Assets and Charitable Donations

This CCA covers my two favorite areas, and the exact sandbox my clients play in: estate planning, philanthropy and digital assets.

When clients ask me about donating digital assets, my common response is that there has not been clear guidance on whether an appraisal is "qualified" for purposes of providing a valuation. That's a mouthful - in other words, we don't know if any "appraisal" we provide will pass the IRS's muster.

However, that almost doesn't matter as much as the fact that we provide an appraisal in the best way possible. Even if the IRS disagrees with the appraisal, it's a basic minimum to get a charitable deduction (if contribution is over $5000 in value). A valuation is not required if the property falls into an exception -- in particular, if it can be readily valued because it is security listed on a publicly-traded exchange.

CCA 202302012 Guidance for Crypto Appraisals for Charitable Deduction

CCA 202302012 spells out the requirements for appraisal of cryptocurrency specifically.

In this scenario, if the donor claims that the crypto meets the definition of a security, which value can be determined based on the value of token on the blockchain (i.e., the blockchain as a publicly-traded exchange), are they entitled to a charitable deduction.

IRS says no way.

The lesson? Cryptocurrency is not deemed to be on an exchange that would allow for an exception to the qualified appraisal requirement.

Lesson: You need a Qualified Appraisal

A qualified appraisal, or as close as you can get to it, is probably necessary to obtain a charitable deduction of cryptocurrency if the value is greater than $5000. The value on the blockchain or "exchange" is not sufficient to meet the exception to the rule.

Contact Jennifer V. Abelaj Law Firm if you have questions on philanthropy, estate tax planning or digital assets.