Fidelity Charitable, the public charity arm of Fidelity Investments, recently announced that it now accepts bitcoin donations, through a partnership with bitcoin wallet and exchange company Coinbase.
“Enabling donors to contribute bitcoin to their donor-advised funds is the latest example of Fidelity Charitable’s commitment to making it as easy as possible for donors to support the charities they care about with the assets at their disposal.”
— – Matt Nash, Fidelity Charitable Senior Vice President of Donor Engagement
A DAF is a philanthropic vehicle established by a public charity. It allows donors to make a charitable contribution, receive an immediate tax benefit, and then recommend grants from the fund over time. Fidelity Charitable manages the largest donor-advised fund (DAF) in the US by assets.
An easy way to think about a donor-advised fund is like a charitable savings account. A donor contributes to the fund as frequently as they like, and then recommends grants to their favorite charity when they are ready. “Bitcoin is useful in the world of charitable giving because it allows people to quickly and cheaply contribute any amount of value globally,” states a Coinbase blog covering the partnership.
“Fidelity Charitable is now allowing donors to make bitcoin donations via our email invoicing tool. This partnership is the latest example of a large organization leveraging the power of the world’s largest, most secure blockchain, the Bitcoin blockchain.”
— – Coinbase
DAFs have gained in popularity recently, according to an industry report by National Philanthropic Trust (NPT). The report states that total estimated charitable contributions, in the US during 2014, were US$358.38 billion. US$19.66 billion of which went to DAF accounts, which is approximately 5.5 percent of all gifts to charitable organizations. “This tremendous increase, which we predicted in last year’s report, signals donors’ active commitment to support the causes that mean most to them,” NPT President & CEO, Eileen Heisman, stated.
The donor-advised fund offered by Fidelity Charitable is called Giving Account®. Unlike a private foundation, Giving Accounts have no start-up costs or complex administration responsibilities, so donors can allocate gifts among multiple charities. Donors can contribute many types of assets, namely cash, mutual fund shares, publicly traded stocks, life insurance policies, publicly traded bonds, non-publicly traded assets, real estate and now Bitcoin.
In March 2014, the IRS announced that virtual currencies, including bitcoin, are to be treated as property, as opposed to currency, for US Federal tax purposes. As such, general tax principles that apply to property transactions apply to virtual currency transactions, including capital gains tax. “The character of the gain or loss generally depends on whether the virtual currency is a capital asset in the hands of the taxpayer," stressed the IRS at the time.
"A taxpayer generally realizes capital gain or loss on the sale or exchange of virtual currency that is a capital asset in the hands of the taxpayer.”
— – IRS
Bryan Clontz, founder and President of Charitable Solutions, LLC, explained that the gain can be ordinary or capital, depending on the source of the virtual currency. “If the property was not held as an investment, it would be subject to ordinary gain or loss treatment – this is more likely to be the case if the donor is a so-called ‘miner’ or where the virtual currency is otherwise income.”
Donations to Fidelity Charitable are tax deductible, in the same way a donation to any public charity is. Cash donations by check, bank wire or Electronic Fund Transfer are generally income tax deductible up to 50% of adjusted gross income (AGI).
Donors of long-term appreciated assets, such as stocks, bonds or real estate, generally won’t have to pay capital gains, and can take an income tax deduction in the amount of the full fair-market value, up to 30% of their AGI.
“These rules are very favorable to donors holding appreciated virtual currency as capital assets, allowing them to avoid incurring a tax for capital gains on the Bitcoins or other currency.”
— – Bryan Clontz, Charitable Solutions President
According to Fidelity Charitable, if you have non-publicly traded assets with unrealized long-term capital gains, you usually need to sell them yourself before you can donate the proceeds to charity. However, with a Giving Account, you can donate these assets directly to Fidelity Charitable. By Fidelity’s calculation, donors will generally be eligible to take a tax deduction for the full fair market value, and the charities you support will get as much as 20% more than had you sold the asset yourself.
NPT reported that DAFs have grown substantially over the past years, registering a staggering 57 percent increase in 2014, when compared to the previous year. This is far ahead of private foundations, which grew only 17 percent.
Established in 1991 as the brand name for the Fidelity® Charitable Gift Fund, Fidelity Charitable is an independent public arm of Fidelity Investments, the second largest mutual fund and financial services group in the world.
According to the annual list of the US nonprofits that raise the most in private support, Philanthropy 400 by Chronicle of Philanthropy, United Way Worldwide and its affiliates rank number one, having raised US$3.87 billion in the 2014 fiscal year. Fidelity Charitable came close second, raising US$3.85 billion, making it the second largest charity in the US.
According to the Foundation Center’s top 100 U.S. Foundations by Total Giving, the Bill & Melinda Gates Foundation ranks number, one having given US$3.32 billion as of 2013. While this list does not include DAFs, according to Fidelity Charitable, it provided US$2.6 billion in donor-recommended grants during 2014.
The Fidelity Charitable 2015 Giving Report shows that the number of charities supported by Fidelity Charitable donors has doubled in the past 10 years, with over 97,000 charities supported in 2014.
In 2014, Doctors Without Borders received the most support from Fidelity Charitable, likely due to it’s response to the Ebola crisis. The second most receiving charity was the Salvation Army, followed by American National Red Cross, and Wounded Warrior Project. Investment growth generated US$3.6 billion in additional charitable dollars since 1991.
Performance in 2015 so far has not disappointed. Fidelity Charitable announced recently that it reached US$2 billion in grants, supporting more than 81,000 charities, two months earlier than any previous year.
Fidelity Charitable has granted US$19 billion to charities. The annual grants to charities have tripled over the past 10 years. The yearly volume of grants has also grown to more than three times 2005 levels.
“Through September, grant-making accelerated 26 percent over the same period last year, even amid the recent market turmoil.”
— – Amy Danforth, Fidelity Charitable President