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MSP #18: Individual Taxpayer Identification Numbers (ITINs)

IRS Processes for ITIN Applications, Deactivations, and Renewals Unduly Burden and Harm Taxpayers.

TAS Recommendations and IRS Responses

1
1.

TAS RECOMMENDATION #18-1

Prioritize and accelerate the programming and implementation of the necessary systems to process ITIN renewal applications and reissue ITINs upon receipt of renewal applications.

IRS RESPONSE TO RECOMMENDATION: The concern raised by the NTA with regard to the length of time between when a renewal application is filed, the renewal request is processed and an ITIN issued is not without merit. The enactment of the PATH Act on December 18, 2015, afforded limited time to get necessary programming in place to implement the provisions of the law with regard to ITIN deactivation and our implementation efforts must navigate challenges posed by our current limited budget and limited Information Technology resources.

The IRS encouraged impacted  taxpayers to start submitting ITIN renewal applications as early as October 1, 2016.  Although necessary programming was not yet in place to systemically process these applications, we created a manual workaround until January 2017.  During this time, the ITIN Submission Processing function performed preliminary reviews of the renewal applications and information was entered into an interim database. If needed, we issued correspondence to address any concerns.  If there were no concerns with the application after tax examiner review, we returned documentation to applicants in 8 – 12 days (since not during the peak ITIN processing period).  In January 2017, information from 89,297 ITIN applications in the interim database were entered into the RTS system. The preliminary processing of ITIN renewal applications mitigated risks until systemic enhancements were deployed in January 2017 and allowed taxpayers to file tax returns on time without IRS disallowing exemptions and/or credits associated with an expired ITIN.  Since January, the IRS continues to successfully process ITIN renewal applications and reissue ITINs within the stated processing time of 7 weeks (or 9 to 11 weeks during peak processing periods for internationally filed Forms W-7).

The ITIN deactivation and renewal process is an ongoing effort  and the IRS will continue to build upon lessons learned from the initial launch. This includes prioritizing and accelerating programming and the implementation of necessary systems, where possible, and within the parameters of our current budget and resource allocations.

CORRECTIVE ACTION: N/A

TAS RESPONSE: The National Taxpayer Advocate recognizes the significant challenge the deactivation schedule presented. Although the Real Time System was not updated in time for the renewal period, the National Taxpayer Advocate hopes the IRS will have the proper technology in place during the upcoming renewal period in Fall 2017 to process ITIN renewal applications when they are received. While it is always preferable to return original identification documents, such as a passport, as soon as they have been reviewed, the two-step process creates confusion for taxpayers. In addition, taxpayers may change addresses between the time they file their renewal application and the time the IRS processes the application, raising the risk of the applicant not receiving notification of the ITIN assignment or worse, the assignment notice being received by an identity thief.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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2.

TAS RECOMMENDATION #18-2

Identify additional types of documentation that can be considered “certified copies,” such as copies certified by state or other Federal agencies other than the issuing agency, copies certified by clerks of courts, copies properly apostilled and authenticated by U.S. diplomatic missions abroad, and notarized copies from specific jurisdictions.

IRS RESPONSE TO RECOMMENDATION: In 2012, the IRS implemented changes to the ITIN procedures to strengthen the program and maintain the integrity of the ITIN application and refund processes.  As part of those changes, documentation standards were modified and applicants were required to submit original documents or certified copies of documents from the issuing agency to obtain an ITIN. The IRS no longer accepts notarized copies of documents, including documents from foreign notaries with an apostille. However, the IRS continues to accept certified copies of identification documents from embassy and consulate offices. While the IRS remains committed to maintaining the integrity of the ITIN Program, we are equally committed to exploring opportunities to reduce the burden on taxpayers to facilitate this process.

The IRS continues to maintain a dialogue with the Department of State (DOS) exploring ways the two agencies can work together to obtain reasonable assurance that copies of foreign-issued identification documents presented by ITIN applicants are true and correct copies of original documents.  As a part of the discussions, the IRS is considering all viable options of services the DOS can provide to assist ITIN applicants at consular posts.

Update: The IRS continues to have dialogue with the Department of State (DOS) to obtain an inter-agency agreement to improve services for international applicants in submitting Form W-7, Application for IRS Individual Taxpayer Identification Number. An inter-agency agreement will seek to facilitate voluntary compliance and ensure that Individual Taxpayer Identification Number (ITIN) applicants, who reside abroad, have the necessary assistance to meet their U.S. tax obligations. The ITIN Policy Section met with the Government Liaison on August 18, 2017, to discuss the next steps and a requirement to engage DOS in an inter-agency agreement. A letter of intent, signed by the W&I Commissioner, will be issued to DOS in January 2018, to negotiate the specific services to be provided in an inter-agency agreement.

Update: The technical correction of the PATH Act provided an inclusion that allowed taxpayers residing outside the U.S. to apply for an ITIN using a certifying acceptance agent (CAA).  Therefore, international CAAs were reinstated to assist international applicants with applying for an ITIN.  Additionally, international applicants also have access to consulate offices for document certification.
-An executive decision was made to no longer pursue the request with the Department of State (DOS) to provide assistance in submitting Form W-7 applications due to the tax technical correction that was passed.

CORRECTIVE ACTION: The IRS is currently working with the DOS to develop an interagency agreement to provide assistance to ITIN applicants at various consulate posts. The details of the agreement have not been finalized, but the IRS anticipates the services will improve customer satisfaction and reduce the burden on ITIN applicants abroad.  Additionally, all diplomatic and consular posts will use a standard form to certify identification documents for ITIN applicants to ensure consistency in submissions.

TAS RESPONSE: The National Taxpayer Advocate is pleased the IRS is actively working with the Department of State (DOS) to begin accepting ITIN applications at consulate posts. As cited in the 2015 Annual Report to Congress, there are 275 consulate posts abroad that provide a similar service to Social Security applicants. The IRS should pursue an agreement with the DOS that establishes a similar number of posts that can certify ITIN applications. In addition to allowing consular posts to certify ITIN documents, the IRS should explore additional options for entities who may certify ITIN documents. For example, clerks of court or other federal agencies could provide much needed options for ITIN applicants who do not live near a Taxpayer Assistance Center (TAC) and cannot use a Certifying Acceptance Agent (CAA) due to cost or restrictions on dependents. Although the PATH Act encouraged the expansion of the CAA program to entities which have not traditionally participated, such as local government agencies, it is not clear the IRS has made any progress in  encouraging such entities to participate.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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3.

TAS RECOMMENDATION #18-3

Allow all ITIN applicants to apply for an ITIN at any time of the year without a tax return as long as they provide evidence of a legitimate tax administration purpose for the ITIN.

IRS RESPONSE TO RECOMMENDATION: The requirement to submit a tax return with Form W-7 was established to ensure that the applicant has a tax administration purpose for requesting an ITIN. This measure facilitates compliance with U.S. tax laws by providing a TIN to resident aliens that are required to file a return and want to voluntarily meet their tax obligations.  Submitting alternatives, such as pay stubs or bank records, may be helpful in establishing residency, but they do not necessarily establish a tax filing obligation.

The IRS considered this recommendation from the NTA as we explored available options to implement the PATH Act renewal process. The IRS’s goal was to identify immediate actions we could take to maintain the integrity of the program and reduce taxpayer burden. Beginning October 1, 2016, ITIN holders that were required to renew their ITINs were permitted to file Form W-7 renewal applications without a tax return. This particular group of applicants had already proven a federal tax administration purpose when they were initially assigned an ITIN and filing for renewal indicates they continue to have a US tax filing obligation. The IRS will continue to accept ITIN renewal applications year round without a federal tax return.

CORRECTIVE ACTION: N/A

TAS RESPONSE: Although allowing renewal applicants to apply outside the filing season is a positive step, the National Taxpayer Advocate is disappointed the IRS will not extend this flexibility to all applicants. The IRS’s response states that alternatives like pay stubs or bank statements do not “necessarily” establish a tax filing obligation. However, the fact that a renewal applicant in the past had a tax filing obligation does not necessarily establish that the taxpayer has a continued tax filing obligation. The IRS has chosen to waive the return requirement for these applicants due to the likelihood they will have a tax filing obligation based on their history, which is good policy. Similarly, a series of pay stubs showing consistent income would establish that a person is likely to continue earning that income and thus have a filing requirement. The IRS could estimate a person’s annual income based on the average income over a period of weeks or months. Although there is always a chance that the person could lose a job or stop working, the pay stubs could show likelihood that the person will earn enough to exceed the filing threshold. Furthermore, there are taxpayers who could provide full proof of income that exceeds the filing requirement through a series of pay stubs or even a single pay stub if their income is high enough.

The IRS’s failure to even consider alternative forms of proof to show a filing requirement will continue to harm taxpayers. Taxpayers applying during the filing season struggle with lost identification documents, lost attached tax returns, and significant delays in having their identification documents returned. As stated in the IRS’s response to the first recommendation above, the IRS was able to return identification documents to taxpayers within 8-12 days during late 2016 because it was outside the filing season and the peak application time. This is a very positive result and goes to show what kind of service the IRS could offer all ITIN applicants if it
chose to exercise some flexibility when it comes to when applicants may apply.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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