Recent changes to the requirements for the issuance of ITINs

Sophie Jing Liu, Tax Associate

Congress Gives Americans a Tax Gift for Christmas But a Potential Headache for Nonresident Aliens Applying for ITINs

The PATH Act (Protecting Americans from Tax Hikes Act of 2015) was signed into law on December 18, 2015.  The Act aims to prevent tax increases, create more job opportunities, and make it easier for Americans to prepare their taxes.  This Act provides many tax benefits for American individuals. However, it causes some trouble for nonresident aliens.

This article focuses on Section 203 of the Act, which details the requirements for the issuance of ITINs and the influence on nonresident aliens who use ITINs for filing U.S. tax returns.  The provision provides that the IRS may issue the taxpayer an ITIN if the applicant provides the required documentation either in person, to an IRS employee, to a community-based certified acceptance agent, or by mail.  The provision requires all ITINs which were issued before 2013 to be renewed.  They will expire between 2017 and 2020.  Additionally, according to the new law, ITINs issued after 2013 will expire if an individual fails to file a tax return for three consecutive years.

ITIN Application Procedures
Under the Act, the Secretary is authorized to issue ITINs to individuals either in person or via mail.  In-person applications may be submitted to either: (1) an employee of the Internal Revenue Service or (2) a community-based certified acceptance agent approved by the Secretary.

In the case of individuals residing outside of the United States, the applicant can submit an application by mail or in person to an employee of the Internal Revenue Service or a designee of the Secretary at a United States diplomatic mission or consular post.  A certifying acceptance agent can verify identifying documents in addition to submitting the Form W-7 on behalf of the taxpayer.

Required Documentation
The Secretary requires documents that prove the individual’s identity, foreign status, and residency.  The Secretary will accept only original documents or certified copies meeting their requirements.  The IRS has a process in place to ensure that documents are returned to applicants.  According to the ITIN procedures on the IRS website (which has not been updated since the enactment of the Act), the original and certified documents will be returned to applicants using the mailing address on the application via standard U.S. mail within 60 days of receipt and processing of the Form W-7.  The IRS website also provides contact information if you do not receive your original documents within 65 days of mailing to the IRS.

Wilson LLP does not suggest that taxpayers directly mail their original documents to the IRS.  It has been our experience that the IRS does not always return documentation.  In lieu of sending original documentation, applicants can send a certified copy from the issuing agent.  And what is the exact definition of certified copies from issuing agent?  The law itself was unclear on that point.  The IRS explained that a certified document is provided by the original issuing agency, which certifies the document as an exact copy of the original document.  But, we believe the U.S. Embassies in some other countries are also able to provide certified copies.  Some of our clients in Germany and The Netherlands have sent us copies of the documents with a certification stamp from the registration office in the city indicated on the document.  This is generally successful.  After the new law is in place, will this way continue to be feasible and efficient?  It is hard to say.  But for now, as a general suggestion, sending certified copies as opposed to originals to the IRS is a better choice for taxpayers.

Term of ITIN
An ITIN issued after December 31, 2012 shall expire if not used on a Federal income tax return for a period of three consecutive taxable years (expiring on December 31 of such third consecutive year).  We understand this to mean that the IRS will not deactivate an ITIN that has been used on at least one tax return in the past three years.  So if you filed a federal income tax return for any year during a period of three consecutive years after December 31, 2012, your ITIN is safe.  Under the Act, ITINs issued prior to 2013, while remaining subject to the general rule described above, will regardless of whether such ITIN has been used on Federal Income tax returns, no longer be valid as of the applicable date, as follows:

Year ITIN Issued Applicable Date
Pre-2008 January 1, 2017
2008 January 1, 2018
2009 or 2010 January 1, 2019
2011 or 2012 January 1, 2020

Therefore, all taxpayers would be required to reapply for a new ITIN if their ITIN was issued prior to 2013.

The Treasury Department and IRS will study the current procedures for issuing ITINs with a goal of adopting a system by 2020 that would require all applications to be filed in person.  This is a bad news.  This will make the process of applying for ITINs more time-consuming and complicated for taxpayers.

Effective Date
The provision relating to ITIN application procedures is effective for applications for ITINs made after the date of enactment.  The provision relating to the term of ITINs is effective on the date of enactment, December 18, 2015.

This article is meant to give U.S. nonresident aliens an overview of certain issues involved with the issuance of ITINs.  For nonresident aliens, the documentation and issuing requirements become slightly more complicated.  Taxpayers are supposed to provide the IRS with sufficient and appropriate required documents, find a certifying agent and apply for the ITINs in time.  And, they are expected to do it all over again should their ITIN expire.  If you have additional questions or concerns more specific to your own situation, please contact us.