No, if you donate virtual currency to a charitable organization described in Internal Revenue Code Section 170(c), you will not recognize income, gain, or loss from the donation.
Legal Reasoning and Rationale:
- Nonrecognition of Income, Gain, or Loss: According to IRS FAQ Q34, donating virtual currency to a charitable organization does not result in the recognition of income, gain, or loss. This aligns with the general tax principle that donations to qualified charitable organizations are not taxable events for the donor.
- Charitable Contribution Deduction: The deduction for the charitable contribution of virtual currency is generally equal to the fair market value of the virtual currency at the time of the donation if the virtual currency has been held for more than one year. If the virtual currency has been held for one year or less, the deduction is the lesser of the donor's basis in the virtual currency or its fair market value at the time of the contribution (IRS FAQ Q35).
- Reporting Requirements for Charities: Charitable organizations that receive virtual currency donations must treat them as noncash contributions and report them accordingly on Form 990-series annual returns and Schedule M, if applicable. If the charity disposes of the virtual currency within three years, it must file Form 8282 and provide a copy to the original donor (IRS FAQ Q37).
- Donor Acknowledgment: Charitable organizations can assist donors by providing a contemporaneous written acknowledgment for donations of $250 or more. For deductions of more than $5,000, the charity must sign the donor’s Form 8283, acknowledging receipt of the virtual currency (IRS FAQ Q36).
By adhering to these guidelines, donors can ensure that their contributions of virtual currency to charitable organizations are handled in a tax-efficient manner, without recognizing income, gain, or loss.
Sources:
Notice 2014-21
Publication 526 (2023)
Publication 544 (2023)
