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Recent ITIN Program Changes Cause Substantial Challenges For Both the IRS and Taxpayers

Recent ITIN Program Changes Cause Substantial Challenges For Both the IRS and Taxpayers
Ines Zemelman, EA
20 July 2016

Individual Taxpayer Identification Numbers (ITIN) Are Required For Tax Filing

Taxpayers with a requirement to file tax returns, but who are not qualified to obtain a Social Security Number (SSN), must obtain an Individual Taxpayer Identification Number (ITIN) instead. In the past few years, around 4,600,000 tax returns were filed annually using an ITIN. Applications for an IRS Individual Taxpayer Identification Number (using Form W-7), totaled about 870,000 during the 2015 calendar year. If, for some reason, a taxpayer is not able to get an Individual Taxpayer Identification Number they might sacrifice various tax benefits, find limitations on their business activities, and find themselves facing financial hardship.

Various systemic issues with the IRS application procedures for ITINs have been brought to light by the National Taxpayer Advocate since 2003. The Consolidated Appropriations Act, 2016 was passed by Congress in 2015. This Act formally codified a few of the existing requirements and made a few substantial changes to procedures for ITIN applications. Some provisions of the act created restrictions that make claiming some tax benefits and receiving ITINs more difficult. But, the actual effects of the Act are mostly dependent on the IRS interpretation of the law in both informal and formal guidance.

Requirements of the Consolidated Appropriations Act

So far, little information has been provided publicly about how the IRS will interpret the Act and carry out the sweeping requirements of the Act that the IRS is authorized to implement.

The Act requires those in the US who apply for an ITIN to apply in person with an employee of the IRS, or with a CAA (Certifying Acceptance Agent), or through the mail. This requirement is essentially the same as the IRS’s previous administrative policy, but is now codified. It still allows flexibility for the IRS to make changes to these options by, for example, expanding the Certifying Acceptance Agent program or increasing the number of locations where the IRS is able to certify applications for an ITIN. But, the Internal Revenue Service has so far refused to implement options to make applying for an ITIN easier.

By law, the Taxpayer Advocate Service (TAS) must help taxpayers resolve problems they have with the Internal Revenue Service, and they assist in hundreds of instances each year of ITIN issues. The Low Income Taxpayer Clinics (LITCs) are also overseen by the TAS. LITCs are statutorily obligated to operate education and outreach programs for taxpayers whose first language is not English. Additionally, LITCs are expected to find systemic problems and promote change to assist lower income taxpayers. So, LITCs are an important information source, as well as a source of help, for those vulnerable taxpayers who need an ITIN. By not including TAS in ITIN discussions, LITCs are excluded by the IRS as a valuable resource.

Ines Zemelman, EA
founder of Taxes for Expats