Tips for Canadian and Foreign Appraisers Completing IRS Charitable Donation Appraisals
Thursday, December 9, 2021 in Business Tips
In the United States, the Internal Revenue Service (IRS) updated their rules for charitable donation appraisals for 2019. IRS charitable donation appraisals must be completed by a “qualified appraiser” and the report must be considered a “qualified appraisal.” Among the finer points of what constitutes a qualified appraiser or qualified appraisal, the IRS requires that the appraisal contain the appraiser’s name, address, and Taxpayer Identification Number (TIN).
If you are a Canadian or foreign appraiser, chances are you don’t have a TIN. So what happens if you complete an IRS charitable donation appraisal and no TIN is included? If the IRS reviews your appraisal report and is deemed not be a qualified appraisal, then the taxpayer’s gift tax return may be disallowed by the Internal Revenue Service. Here is how to ensure that doesn’t happen.
According to the IRS, a valid TIN number for appraisal reports can either be a Social Security Number (SSN), Employer Identification Number (EIN), or Individual Taxpayer Identification Number (ITIN). As a side note, American appraisers are strongly advised to not use their SSN for appraisal reports due to privacy issues. The safest option for American appraisers is to apply for an EIN and use that number in your IRS appraisal reports.
How can Canadian and foreign appraisers obtain a TIN?
If you are a Canadian or foreign appraiser and plan to offer charitable donation appraisal services for American clients, it is in your best interest to apply for an ITIN. An IRS ITIN is only offered to nonresident and resident aliens. You will need to fill out Form W-7, IRS Application for Individual Taxpayer Identification Number. You can either fill out the form and mail it directly to the IRS or hire an Acceptance Agent, i.e. accounting firm, who is authorized by the IRS and will process and submit the form for you.
A word of caution when applying for an ITIN
You have a choice of filling out Form W-7 and applying for an ITIN or submitting your Form W-7 when filing a U.S. federal tax return. If only submitting Form W-7 (not filing a U.S. tax return at the same time), it mentions on Form W-7 that you must state why you are exempt from filing a U.S. federal tax return with the IRS, e.g. nonresident alien required to get an ITIN to claim tax treaty benefit. In many cases, nonresidents may be exempt from filing a U.S. federal tax return.
After speaking with accountants across Canada who specialize in IRS matters and applying for ITINs, a large number of them cautioned that Form W-7 ITIN applications have been denied over the last several years due to changes made during the Trump administration. Their advice; the IRS automatically assigns an ITIN number to nonresident and resident aliens when a U.S. federal tax return is filed. As of this writing, the only guaranteed way to obtain an ITIN is to check "Nonresident alien filing a U.S. federal tax return" on Form W-7 and file a U.S. federal tax return along with the form.
It is important to note that the normal turnaround time for W-7 applications is 12 weeks. During the height of tax season, it can be up to 16 weeks. A representative at the IRS mentioned that the department that processes W-7 forms was closed for 6 months during the height of the pandemic. As a result, their processing time has been delayed even further due to the backlog.
ITINs have an expiry date
Once you have an ITIN, you are not required to file a U.S. federal tax return each year. That being said, all ITINs not used on a federal tax return at least once within a three year period will expire at the end of the third calendar year. As a result, if you decide not to file a tax return each year, make sure to file at least once every three years to ensure your ITIN does not expire.
One last tip - Canadian and foreign appraisers that file a U.S. tax return can claim foreign tax credit on their home country tax return for U.S. taxes paid. This ensures that you are not being double taxed on the same income.
If you are in need of an ITIN and not sure how to fill out Form W-7 and file a U.S. federal tax return, it is best to locate an accountants in your area that specializes in these services and can help you navigate the filing process.