New Requirements for Issuance of Individual Taxpayer Identification Numbers (ITINs)

On December 18, 2015, President Obama signed the Protecting Americans from Tax Hikes Act of 2015 (the PATH Act) into law. In addition to making some key tax provisions permanent (and extending or expanding others), the PATH Act also required the Treasury Department and Internal Revenue Service (IRS) to make some changes to their current processes and procedures. One of the most significant procedural changes relates to the issuance of Individual Taxpayer Identification Numbers (ITINs).

Background

ITINs are nine-digit taxpayer identification numbers issued to individuals who are not eligible to receive a Social Security Number (SSN). These individuals include: (1) nonresident aliens filing claims for reduced withholding rates under treaty benefits, (2) nonresident aliens who are required to file U.S. tax returns, (3) U.S. resident aliens filing U.S. tax returns, (4) dependents or spouses of U.S. citizens or resident aliens, (5) dependents or spouses of nonresident alien visa holders, and (6) undocumented aliens. An ITIN's sole purpose is to identify an individual for tax reporting purposes - it does not authorize that individual to work in the U.S., or make that individual eligible for government benefits.

Prior Law

Prior to passage of the PATH Act, any person needing an ITIN could apply for one by attaching a completed Internal Revenue Sevice Form W-7 (Application for IRS Individual Taxpayer Identification Number) to the front of the tax return for which an ITIN was needed. Once completed, the Form W-7, tax return, and certain required documentation substantiating the taxpayer's identity and foreign status could be processed in one of three ways: (1) by mail, (2) in person at any IRS Taxpayer Assistance Center, or (3) through an community-based acceptance agent.  Once received, an ITIN was valid until deactivated by the IRS.

Changes Enacted by the PATH Act

The PATH Act makes three significant changes to the ITIN process: (1) it requires the Treasury Secretary to maintain a program for certifying and training community-based acceptance agents; (2) it requires the Treasury Secretary to develop procedures distinguishing ITINs used by individuals solely for the purpose of obtaining treaty benefits from those ITINs used by other taxpayers; and (3) it provides that all ITINs issued prior to January 1, 2013, will have a set expiration date.

Impact of the PATH Act on Taxpayers Currently Using ITINs

The new ITIN provisions will impact current ITIN holders as follows:

1. Taxpayers currently using ITINs to file their U.S. tax returns must be aware of their ITIN's expiration date.

The expiration date of a taxpayer's ITIN is based on the date it was issued. ITINs issued prior to January 1, 2013, will remain in effect until the earlier of: (1) applicable date below; or (2) the earlier of (i) December 31 of the third consecutive year in which the taxpayer does not file a return using their ITIN, or (ii) December 31, 2015.  ITINs issued after January 1, 2013, will remain in effect until December 31of the third consecutive year in which the ITIN is not used on a taxpayer's Federal income tax return.  

Once a taxpayer's ITIN expires, he or she will need to re-apply for a new ITIN by submitting a new Form W-7 Application for Individual Taxpayer Identification Number (ITIN) with official documentation substantiating his or her identity and foreign status. 

2. Taxpayers reapplying for ITINs (and taxpayers requesting their initial ITINs) should expect the application process to be more stringent.

Whether applying by mail or in person, taxpayers should expect their Forms W-7 ITIN applications and related documentation to be reviewed more carefully. The Treasury Secretary is required to issue new regulations setting forth the process for processing Forms W-7 by mail and maintain a program for training and approval of community-based acceptance agents. It is likely that the training and approval requirements established by the Treasury Secretary will increase the accountability and reporting requirements of these acceptance agents. As a result, acceptance agents will likely review any Forms W-7 and documentation they receive more closely than before.

3. Taxpayers reapplying for ITINs (and taxpayers requesting their initial requests for ITINs) may be required to present their applications in person.

In addition to making changes to the ITIN process, the PATH Act requires the Treasury Secretary and the IRS to conduct a study on the overall effectiveness of the ITIN application process. One of the requirements of this study is that it address the efficacy of the in-person ITIN review process. If the study finds in-person review of ITIN applications to be effective, the Treasury Secretary is encouraged to implement a system requiring all ITIN applications to be filed in person by 2020.

For More Information

If you have any questions regarding this update, or would like some additional information regarding these changes, please contact Murphy Desmond S.C. at (608) 257-7181.