Help! Someone Just Contributed Bitcoin To My Church

Bitcoin is a virtual currency also known as a cryptocurrency. It got that name because it uses cryptography to secure transactions. The good news is you don’t have to understand everything about it in order to use it. The bad news is you need to know how to receive and spend any bitcoin that you receive as a church, other organization, or individually. For purposes of this article, we will not go into the details of Bitcoin. The primary feature of it is that it is a decentralized “currency,” not controlled by any one central authority. It can’t tinker with monetary policy and cause a meltdown, nor can it be appropriated by a central authority – it is independent of any government.

In order to use Bitcoin, you must set up an account. There are miniscule fees involved and it is instant. If you want to spend it, you can spend it in Bitcoins or it can be redeemed. Here is where the rub comes in. Because Bitcoin fluctuates in value, the IRS had determined that it is not cash, but a “virtual currency.” Therefore, redemption of Bitcoins may result in a taxable gain or loss. Before you think that this might be minimal, at the beginning of 2013, Bitcoin traded for $14 per unit. In December 2013, its value had skyrocketed to $1,100, but in 2014 came back down to about $400. In early 2015, it was going for $235. Quite a range of prices and a lot of risk.

So, back to our original dilemma. Someone wants to contribute to your church or organization and they want to do it through Bitcoin. I will leave it to you to determine whether or not to accept this contribution, but assuming you will accept it, you must set up an account. Coinbase describes itself as “the world’s most popular Bitcoin wallet.” So go there and open an account. Once an account is open you can buy, sell, or spend Bitcoins.

Federal tax guidelines do not recognize Bitcoin as cash for purposes of charitable contributions. Therefore, it should be treated as a noncash gift. This will require proper acknowledgment of the gift under IRS guidelines for receipt and acknowledgement of noncash contributions. This means that you do not assign a value to the contribution in the acknowledgement, but simply state in the letter that a contribution of XX Bitcoins was made to the organization. Bitcoin is considered property and not cash by the IRS. In line with that thinking, Bitcoin is not a foreign financial account for purposes of FBAR reporting.

All this is subject to change, as the IRS has suggested that taxpayers be aware of any changes in its position toward Bitcoin or other virtual currencies. Considering the pace of technology, it is likely that a virtual currency will emerge. This may or may not be Bitcoin, but my virtual bet is that Bitcoin, or something similar will be very prominent in future financial transactions. Meanwhile, I think I’ll stick to dollars.

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Dr. John Stancil (My Bald CPA) is Professor Emeritus of Accounting and Tax at Florida Southern College in Lakeland, FL. He is a CPA, CMA, and CFM and passed all exams on the first attempt. He holds a DBA from the University of Memphis and the MBA from the University of Georgia. He has maintained a CPA practice since 1979 with an emphasis in taxation. His areas of expertise include church and clergy tax issues and the foreign earned income credit. He prepares all types of returns, individual and business.

Dr. Stancil has written for the Polk County Business Journal and has presented a number of papers at academic conferences. He wrote the Instructor’s Manual for the 13th edition of Horngren’s Cost Accounting. He is published in the Global Sustainability as a Business Imperative, Green Issues and Debates, The Encyclopedia of Business in Today’s World, The Palmetto Business Review, The CPA Journal, and in the NATP TaxPro Journal. His paper, “Building Sustainability into the Tax Code” was recognized as the outstanding accounting paper at the annual meeting of the South East InfORMS. He wrote a book entitled “Tax Issues Faced by U. S. Missionary Personnel Abroad ” that will soon be published.

He has recently launched a new endeavor, Church Tax Solutions, which presents online, on demand seminars on various church and clergy tax issues.

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