Charitable Contributions from NFTs: Qualified Appraisal Requirement

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As previously mentioned, NFTs are not currency but are likely to be considered property by the IRS. Therefore, as with all non-cash transactions over $5,000, if an individual elects to gift an NFT and request a charitable deduction, a qualifying assessment under IRS Publication 561 is required. Assuming the gift can be given, how would one go about obtaining a rating that meets IRS standards? The IRS calls these types of assessments “qualified assessments” and has a list of requirements to meet the “qualified” standard.

When considering gifting an NFT to a charity, finding a charity that will accept the NFT is most likely the hardest part, but not far behind is finding someone who can do the qualified valuation of the NFT. In the context of charitable donations, the word “qualified” means something when it comes to these ratings. Because the decisive factor is the person or company that carries out and issues these reports. The individual or legal entity must demonstrate a level of competence in dealing with the asset for which it is providing a valuation by attributing its qualifications to the valuation itself.

Some of the considerations in these valuations are more like valuing works of art or other collectibles than even valuing cryptocurrencies. Crypto is now traded on exchanges and an appraiser can determine a fixed price considering the timing and location of the donation by reference to spot prices published on multiple exchange platforms. NFTs have some existing exchanges, like OpenSea and Rareable, while others are emerging or planned on platforms like Coinbase and Kraken.

However, the variables involved in determining the NFT create complexity for any appraiser. Factors include who is giving away the NFT – a collector or a private user? Reviewers would also need to consider whether other ownership benefits were included in the smart contract – such as B. Membership rights to online platforms – and whether there is a physical “thing” associated with the NFT – such as B. a painting or real estate? Do any of the features in the smart contract make the NFT an intangible property or a collectible? And if the NFT is somehow limited to a basic deduction – will the effort for the report be worth it at all?

For all these reasons and more, the grading process for NFTs is an evolving matter that essentially needs to be approached gift by gift. Evaluation considerations should not be overlooked by any donor considering an NFT donation, especially if they are seeking a charitable deduction for the gift. Charities considering accepting NFTs should also be cautious. Even though the charity isn’t involved in the judging process, they want to be sensitive to the donor’s overall experience while making the gift.

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