Making gifts with Bitcoin
By Jackie Jacobs
High tech entrepreneurs are behind it. Legislators want to get in front of it.
Can charitable groups accept it as gifts?
The “it” in question is bitcoin, a digital currency in which transactions can be performed without the need for a central bank. Bitcoin is a new currency that was created in 2009 by an unknown person using the alias Satoshi Nakamoto. Transactions are made with no middle men – meaning no banks distributing, no federal reserve system supporting and no national governments standing behind bitcoin.
That’s a little scary. It reminds me of a sign I once saw hanging in a tavern: “If you believe in credit, loan me five bucks.” Likewise, if you believe in bitcoin, are you willing to put your money where your mouth is and be paid in a digital currency or invest your 401(k) in something so new and intangible? Few of us would.
The notion of virtual currency gives the Capital One credit card slogan, “What’s in your wallet?” a whole new level of uncertainty.
Despite some misgivings, I’m still not inclined to dismiss bitcoin altogether. Plenty of individuals and organizations throughout the world have climbed onto the bitcoin bandwagon, and perhaps charities will join them one day in the not-so-distant future.
Wikipedia, the decentralized community-powered encyclopedia, is now accepting donations in bitcoin, and a slew of high-tech companies with names like Reddit, OkCupid and Lumfile accept the currency. Mainstream companies are getting in the act as well. Familiar names including Amazon, Target, CVS and Subway also accept bitcoin for online transactions.
Earlier this year, the Federal Election Commission gave the green light to donating bitcoin to political-action committees, though the funds must be converted to U.S. dollars before they are deposited into an official campaign account.
So why shouldn’t charitable organizations get into the virtual currency game for donations? Some have, citing advantages including low- or no-cost transactions and the ability to engage people otherwise excluded from traditional global financial systems.
The Chronicle of Philanthropy recently reported that the Capital Area Food Bank of Texas, in Austin, had raised about $1,000 worth of bitcoin donations since it began accepting them in February.
I have yet to come across a gift of virtual currency, but in a recent notice, IRS said that for Federal tax purposes, it will be treated as property. Therefore, the general tax principles that apply to transactions involving property would apply to transactions involving bitcoin. As a charitable gift, it would be subject to substantiation, appraisal, and deduction limitations. The deduction would depend on the length of time the donor held the virtual currency, and whether the bitcoin was considered a capital asset or an ordinary income asset in the hands of the donor.
At present, more than 12 million bitcoins are in circulation. They are not backed by any government. The bitcoin market is very volatile. Price fluctuations occur often and can be drastic. For example, on May 19, 2014, the value of one bitcoin was $444.31. Fifteen days later the price had risen to $665.73. By June 25, the price dropped to $562.13. Any charity that accepts bitcoin would be well advised to be well aware of its market volatility. To minimize risk, it should be sold soon after receipt.
Bit by bit, bitcoin is gaining wider acceptance. Just this week, the IRS granted its first tax-deductible status to a bitcoin non-profit that will operate a majority of activities in bitcoin. The Sacramento-based BitGive Foundation, which has no office or paid staff, is campaigning to raise $10,000 worth of bitcoin for a foreign project. Receiving a stamp of approval from the IRS bodes well for the future of bitcoin in the United States.
Will bitcoin ever become a leading currency in the charitable realm? Stranger things have happened, but I’m not counting on it.
Jackie Jacobs is the Chief Executive Officer of the Columbus Jewish Foundation, the Central Ohio Jewish community’s planned giving and endowment headquarters.
Article appears as originally published in the Ohio Jewish Chronicle, August 28, 2014.