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Lawmakers Urge IRS to Simplify Cryptocurrency Donation Rules

JUN. 10, 2021

Lawmakers Urge IRS to Simplify Cryptocurrency Donation Rules

DATED JUN. 10, 2021
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Emmer Continues Push for Clarity for Virtual Currency Taxpayers

June 10, 2021

Washington, D.C. — Today, Congressman Tom Emmer (MN-06) led a bipartisan letter with six of his colleagues on the Blockchain Caucus to the Internal Revenue Service (IRS) Commissioner Charles Rettig regarding guidance for taxpayers making cryptocurrency donations.

For capital gains purposes when making a charitable contribution, the IRS instructs taxpayers to quote the exchange rate of their cryptocurrency. For contributions of $5,000 or more in cryptocurrency, the IRS requires taxpayers to have the value of their cryptocurrency donation appraised by an “IRS appraiser,” despite the exchange rate for these assets being easily accessible and verifiable on public exchanges.

“The current guidance by the IRS is, in many ways, arbitrary and in need of a correction. The market value of these cryptocurrencies is readily available on public bitcoin exchanges, so requiring an appraisal creates additional and unnecessary hurdles for those looking to donate to the charity of their choice via crypto,” said Emmer.

“In general, inconsistent regulation can and will have a chilling effect on the expanded use of digital currencies and financial technology in our society. In this case, the IRS's guidance creates more problems than it solves,” Emmer concluded.

“While the IRS's guidance is reasonable, it hasn't taken the necessary steps to make sure taxpayers can follow it. This should be an easy lift for the agency,” said Jerry Brito, Executive Director of Coin Center.

“The Chamber of Digital Commerce is proud to support Congressman Emmer in his efforts to remove unnecessary hurdles for donors who want to contribute virtual currency for charitable causes. Congressman Emmer's proposed solution will help clear the way for charitable organizations to receive donations from new donors and new payment methods and we appreciate his leadership in doing so,” said Amy Davine Kim, Chief Policy Officer, Chamber of Digital Commerce.

"As more charitable organizations choose to accept cryptocurrency donations, there is a great opportunity for the increasing number of Americans who hold crypto to give back to causes close to their hearts. Policymakers should work to make this process as seamless as possible so that more resources can get to those in need," said Kristin Smith, Executive Director of the Blockchain Association.

Background

Thus far, the IRS has offered conflicting methodology for evaluating cryptocurrency for tax purposes. Recently, the IRS updated their “Frequently Asked Questions on Virtual Currency Transactions” which allows taxpayers to provide evidence of fair market value at the time of sale or receipt by citing the exchange rate for the cryptocurrency. However, when determining the value of cryptocurrency donated for charitable purposes, if the donation exceeds $5,000 in crypto, the taxpayer needs to have the donation appraised by an IRS approved appraiser and is not given the option to cite the exchange rate at the time of the donation.

Currently, Form 8283, the Noncash Charitable Contributions form, does not allow the taxpayer to report the fair market value of their cryptocurrency by referencing the exchange price or price quoted in worldwide indices as described by the IRS FAQ. Instead, it directs the taxpayer to complete Section B, which requires that the taxpayer include a written, qualified appraisal to determine the value of the donated crypto.

To address this issue, Congressman Emmer has called on the IRS to amend Form 8283 to allow a taxpayer making a charitable contribution using a cryptocurrency to report the donation value under Section A as they would securities or other assets with readily available price indices. If the IRS is unable to amend Form 8283, under Section 170(f)(11)(H), due to lack of authority, Congressman Emmer has encouraged the IRS to prescribe regulations that provide that this requirement does not apply in the case of virtual currency donations $5,000 or greater.

Read Congressman Emmer's letter here.


June 10, 2021

Charles P. Rettig
Commissioner
Internal Revenue Service
1111 Constitution Avenue N.W.
Washington, D.C. 20224

Dear Commissioner Rettig,

Virtual currencies are important technologies and Americans are increasingly participating in their usage. As a result, the need for clearer virtual currency tax policy grows. In April of 2019, Congress wrote to the IRS asking for updated guidance on a range of virtual currency tax questions. After that guidance was issued, we wrote again in November of 2019 seeking clarification on the tax status of forked assets, which had remained unclear. Today, however, we write to bring to your attention an ambiguity regarding appraisals for charitable donations.

In the recently updated IRS FAQ on virtual currencies, the IRS allows taxpayers to provide evidence of fair market value at the time of sale or receipt by citing “the amount the cryptocurrency was trading for on the exchange [if the transfer has taken place on an exchange platform]”1 or the price quoted in “worldwide indices”2 provided by various “blockchain explorer(s)” at the date and time of the transaction. This is a reasonable approach.

This approach, however, is inconsistent with the rules determining virtual currency fair market value for purposes of a deductible donation where the IRS directs a taxpayer to comply with Form 8283 (Noncash Charitable Contributions). If the donation is greater than $5,000, Form 8283 does not allow the taxpayer to report the fair market value by reference to the exchange price or price quoted in worldwide indices as described by the IRS FAQ. Instead, it directs the taxpayer to complete Section B, which demands that the taxpayer include “a written qualified appraisal by a qualified appraiser”3 to determine the value of the donated property.

This contradiction can be easily reconciled by amending Form 8283 such that a taxpayer making a charitable contribution using virtual currency can report the donation value under Section A as they would securities or other assets with readily available price indices. I urge the IRS to simplify this unnecessarily, and potentially unintended, complex reporting requirement for cryptocurrency donations by modifying Form 8283 to eliminate the appraisal requirement in the case of virtual currencies with easy to establish exchange or index prices.

If it is determined that the IRS does not have the authority to amend Form 8283, you can relax the rules by regulation under the authority granted in Section 170(f)(11)(H). Alternatively, the IRS can provide relief by adopting a special definition of “qualified appraisal” under section 170(f)(11)(E)(i) or qualified appraiser under section 170(f)(11)(E)(ii).

Ideally the IRS will swiftly clarify and ameliorate the contradiction so as to not further disincentivize charitable giving using these important new payment technologies.

Sincerely,

Tom Emmer
Member of Congress

Darren Soto
Member of Congress

Bill Foster
Member of Congress

David Schweikert
Member of Congress

Ted Budd
Member of Congress

Ro Khanna
Member of Congress

Josh Gottheimer
Member of Congress

FOOTNOTES

1United States Department of the Treasury. Internal Revenue Service. “Frequently Asked Questions on Virtual Currency Transactions.” Frequently Asked Questions on Virtual Currency Transactions | Internal Revenue Service (irs.gov). (Accessed: June 4, 2021). See Question 26.

2Ibid. See Question 27

3United States Department of the Treasury. Internal Revenue Service. “Form 8283.” https://www.irs.gov/pub/irs-pdf/f8283.pdf. (Accessed: June 4, 2021).

END FOOTNOTES

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