IRS' new FAQ update might discourage cryptocurrency donations

The US Internal Revenue Service (IRS) recently introduced new changes to its FAQ, in an attempt to clarify the situation regarding donations made in cryptocurrency. However, the new updates may actually have negative consequences for crypto donations, rather than positive.

According to the IRS, anyone who donates more than $5,000 in crypto to charities will need to have their donation appraised. The update has already caused concern, with The Giving Block charity's co-founder, Alex Wilson, stating that the new appraisal requirement will 'make people think twice about donating more than $5,000.'

As many may already know, getting an appraisal can be rather expensive. Meanwhile, the US taxes are already complicated enough, without adding even more entries to it. Furthermore, Wilson stated that any qualified appraiser would simply check the prices on CoinMarketCap, spending 30 seconds to do the job, and charging $500 for their service.

In the end, Wilson expects that anyone who planned to make donations in crypto that are larger than $5,000 will simply donate $4,999 since it is less complicated that way. He added that the main incentive for making crypto donations is the fact that it was non-taxable up to this point.

This is not a new rule, tax lawyer claims

As many have noticed, the new update is not going to hurt crypto millionaires, as most of them are unlikely to even feel the change. Instead, the clarification will only affect those who cannot afford to hire an appraiser, as any donation above this amount will be a dealbreaker for them. And, of course, the new announcement will certainly impact charities that would have otherwise received higher donations from generous donors.

Meanwhile, according to tax lawyer Lisa Zarlenga, there are still not a lot of appraisers that are qualified to appraise digital currencies. Appraising cryptos may not require a lot of work and effort, but the appraiser still needs to be considered qualified, and since there is a lack of such service providers, it will be even more problematic for taxpayers to provide large donations.

One thing to note, according to Zarlenga, is that this is not a new rule — just a clarification of something that was already there. Wilson said the same, pointing out that crypto donations were in a gray area until now, with some people getting appraisals just to be safe, while others did not. Now, everyone knows that they need them, although Wilson still thinks that the limit is a bit too low, and he hopes that it is only temporary.

After all, the Service's regulation on crypto still remains work in progress.