In addition to cash, stocks, art and land, colleges and universities are letting donors know they are happy to accept a new type of gift: cryptocurrency.
The University of Pennsylvania announced last week it had received $5 million worth of Bitcoin from an anonymous donor. The money was earmarked for the Stevens Center for Innovation in Finance at the Wharton School.
The gift pales in comparison to some of the university’s other newsworthy donations, including a $125 million gift to the law school in 2019 and a $225 million donation to the school of medicine in 2011. But still the gift made headlines -- it’s the largest cryptocurrency gift the Ivy League university has ever received.
“It also sends the message that the university is capable of receiving gifts of all sizes of cryptocurrency,” said John Zeller, senior vice president of development and alumni relations at Penn. “That’s why this was such a big deal.”
Several years ago, many universities had no way to accept virtual currency. As the cryptocurrency market has grown, more and more donors are approaching institutions with gifts of Bitcoin, Ethereum and other cryptocurrencies. Disinclined to turn away anything of value, colleges and universities have scrambled to build infrastructure to accept virtual currency or contract with companies that can process the donations for them.
Previously, Penn had accepted two other virtual currency gifts that, when combined, totaled between $35,000 and $50,000, Zeller said. Even with the $5 million Bitcoin gift, cryptocurrency donations make up less than 1 percent of the university’s fundraising revenue this year.
Penn uses a third-party intermediary called NYDIG to process virtual currency gifts. Donors send the cryptocurrency to NYDIG, and the company liquidates the assets and transfers cash to the university. According to Penn’s website, the university will consider accepting cryptocurrency gifts valued at $10,000 or more.
Though few and far between, several other universities have received large cryptocurrency gifts in recent years. The University of California, Berkeley, received its first Bitcoin donation in 2017, when the EchoLink Foundation gifted more than $50,000 worth of Bitcoin to the university’s Blockchain Lab. Seven years ago, an alum gifted $10,000 of Bitcoin to the University of Puget Sound.
When Puget Sound received its gift, it immediately sold the Bitcoin to eliminate volatility risk, Sherry Mondou, executive vice president and chief financial officer at Puget Sound, told the consulting firm EAB. Penn took a similar approach -- almost all of the recent $5 million Bitcoin donation was liquidated right away, Zeller said.
“We’re not in the investment or speculation business,” he said.
The University of Illinois Foundation has also received several cryptocurrency gifts. The foundation’s website offers how-to guides for a variety of different gift types, including payroll deductions for employees, gifts of securities, gifts of farmland and cryptocurrency gifts.
Interested donors can transfer Bitcoin and other cryptocurrencies to the foundation using BitPay, a popular cryptocurrency payment service provider that operates like PayPal.
The foundation also immediately liquidates the cryptocurrency gifts, which “mitigates any risk involved with this type of donation,” said Sue Johnson, director of marketing and communications for the foundation.
“As of today, we have only received a few gifts of this type, and it remains a small percentage of total giving to the University of Illinois,” Johnson said. “However, we believe it is important to provide our donors with the most current ways to give in support of the mission of the University of Illinois.”
Minimizing Taxes With Digital Wallets
Cryptocurrency donations come with an added benefit for the donor: a way around the capital gains tax.
“When you sell a capital asset, you owe a type of income tax called capital gains tax on the difference between your original purchase price for the asset and whatever you sell it for -- its sale price,” said Phil Purcell, a fundraiser, attorney, philanthropy consultant and adjunct faculty member at the Indiana University Lilly Family School of Philanthropy. “That difference is taxed at the capital gains tax rate.”
Donors can avoid the capital gains tax if they give cryptocurrency directly to the college or university -- meaning that they cannot first liquidate the virtual currency and then donate the cash to the institution.
Nonprofit colleges and universities also do not have to pay capital gains taxes on the gift, because as nonprofit organizations they are exempt from many taxes.
Transferring cryptocurrency is more complicated than just writing a check. Colleges and universities need a way to receive the noncash gift.
Some universities might opt to set up a digital wallet, Purcell said. A digital wallet serves as an intermediary between a donor and the college and allows a donor to give cryptocurrency directly to the college without liquidating it first.
“The donor is transferring their cryptocurrency in kind to the university by transferring it from the donor’s account to the charity’s digital wallet,” Purcell said. “Then once it’s in the college’s digital wallet, you can sell it without capital gains tax.”
Other colleges and universities, like Penn, use a third-party intermediary to handle the transaction. Purcell mentioned Charitable Solutions as one example. It’s a company that offers to appraise virtual currency gifts and fill out IRS Form 8283, which is required for noncash charitable contributions.
The IRS requires qualified independent appraisals of gifts valued over $5,000.
While the method is growing in popularity, there are relatively few cryptocurrency investors compared to the number of people who hold stocks and bonds. As a result, it’s unlikely that any university will field a lot of virtual currency donations, Purcell said.
“It’s only logical to think that those assets which are less abundant will also consequently be less used as a charitable gift,” he said.
That said, institutions are still interested in making it possible for donors to give cryptocurrency.
“We’ve had people in the past ask us if we would accept cryptocurrency, and we hadn’t been able to,” Zeller said. “It just gives another arrow in the quiver, if you will, for donors to select how they want to support.”