The Internal Revenue Service, in Chief Counsel Advice Memorandum 202302102 released on Jan. 10, 2023, confirmed that taxpayers must substantiate the value of cryptocurrency donations over $5,000 with a qualified appraisal.
The IRS stated that cryptocurrency—which is treated as property, not cash—doesn’t fall into any of the statutory exceptions to the appraisal requirement. Exceptions include cash, publicly traded securities or other property specified in Internal Revenue Code Section 170 and the regulations.
The IRS also affirmed that taxpayers won’t be able to rely on a cryptocurrency exchange to support the value of a gift for federal income tax deduction purposes. Further, the so-called “reasonable cause” exception—which taxpayers use when they argue good faith compliance with the requirements of Treasury Regulations Section 170(f)(11)(A)(ii)(II)—won’t excuse noncompliance with the qualified appraisal requirement.
IRS memoranda aren’t to be used or cited as precedent. However, these memoranda put taxpayers on notice of how the IRS will rule under similar factual circumstances.