10 Things Your Church May Need to Know About Cryptocurrency
By Ken Sloane
Note: the following should not be considered investment or legal advice in any way, which should come from a qualified attorney, CPA, or other financial advisor.
1. What is cryptocurrency?
Cryptocurrency (or “Crypto”) is also referred to as digital or virtual currency and more technically as “convertible virtual currency.” The IRS defines it this way:
Virtual currency is a digital representation of value that functions as a medium of exchange, a unit of account, and/or a store of value. In some environments, it operates like “real” currency (i.e., the coin and paper money of the United States or of any other country that is designated as legal tender, circulates, and is customarily used and accepted as a medium of exchange in the country of issuance), but it does not have legal tender status in the U.S. (“Virtual Currencies,” IRS, https://www.irs.gov/businesses/small-businesses-self-employed/virtual-currencies.)
2. What is Bitcoin?
Bitcoin is just one brand of cryptocurrency—the original and most popular—but there are many others: Ethereum, Tether, Cardano, Dogecoin, Polkadot, and more than seventy others – a number that will no doubt grow. Non-Bitcoin cryptocurrencies are collectively known as “altcoins” to distinguish them from the original.
3. What’s a Bitcoin worth?
As of this writing, the value of one Bitcoin is about $40,000, so most exchanges are for fractions of a Bitcoin.
4. Why does Bitcoin have value?
This is really hard to explain and to understand. One answer is that there are a finite number of them, and right now people want them. For example: why does the value of an artist’s paintings go up after she or he dies? Their paintings are finite in number and there won’t be any more. There are almost 19 million Bitcoins in existence right now, and there will never be more than 21 million.
Why does the value of an artist’s paintings go up after she or he dies? Their paintings are finite in number and there won’t be any more.
5. How do you know how much bitcoin you have?
With no physical paper or coin involved, tracking who owns cryptocurrency is done electronically on what is called a blockchain. Think of an old-style ledger book, only digital.
6. Does Bitcoin hold its value?
Bitcoin (and other cryptocurrencies) tend to be very volatile. At the beginning of September 2020, the value of one Bitcoin was $9,813; by April 2021, it had peaked at $64,899. By July 20, 2021, its value was down to $29,796, and just a week later, it was valued at $40,035.
7. What’s involved if someone makes a gift of Bitcoin to our church?
In case your church is ever offered a gift of any of the various cryptocurrencies, it would be helpful to identify someone familiar with these transactions. If there is not anyone in the congregation, check where your church banks or with a CPA or an attorney you know. You could also look for advice from the United Methodist Foundation that serves your annual conference or your conference treasurer. If your church does accept a gift donation of cryptocurrency, it will be treated as a noncash contribution – more like a property gift than a cash gift. The church should acknowledge the gift, but the responsibility to document the value for the purpose of income tax deduction rests with the donor.
8. Do we need to provide anything else to the donor?
The church would be required to sign the donor’s Form 8283, Noncash Charitable Contributions, acknowledging receipt of charitable deduction property if the donor is claiming a deduction of more than $5,000 and if the donor presents the Form 8283 to the organization for signature to substantiate the tax deduction. The signature of a church officer on Form 8283 does not represent concurrence on the appraised value of the contributed property. The signature represents acknowledgement of receipt of the property described in Form 8283 on the date specified and that the church understands the information-reporting requirements imposed by section 6050L on dispositions of the donated property. See IRS Form 8283 instructions for more information.
9. Can we exchange the Bitcoin for dollars the church can use for ministry?
Yes, this may be the smartest action unless your church has someone experienced in the world of cryptocurrency who can shop for the best time to exchange. Remember, churches may be required by the IRS to file Form 8282, Donee Information Return, if they sell, exchange, or otherwise dispose of charitable deduction property (or any portion thereof)—such as the sale of virtual currency for real currency within three years after the date they originally received the property—and give the original donor a copy of the form. See the instructions on Form 8282 for more information. Form 8282 must be filed within 125 days of converting the cryptocurrency to dollars.
10. Where do these exchanges happen?
Would you be surprised if I said online? Probably not. Coinbase.com is one of the most popular sites, but there are others (Kraken.com, Crypto.com, and more). There are also Bitcoin ATMs—almost 5,000—so there may be one near you. There also are Bitcoin debit cards available. There are always some fees involved, so try to determine how much the fees will be as you decide where you might exchange your donated Bitcoin for money your church can put into ministry.
I recommend that churches have a gift acceptance policy in place before they receive a problematic or challenging gift (think of that timeshare in Branson, Missouri that someone wants to donate to your church). In the same spirit, it would be wise to discuss including cryptocurrency in your gift acceptance policy before the need arises. It helps to know that church leaders are on the same page!
Here are some helpful links:
From Evangelical Council for Financial Accountability (ECFA)
From the Internal Revenue Service (IRS)
Ken Sloane is the Director of Stewardship & Generosity for Discipleship Ministries of The United Methodist Church.